Dykes v. NO. VA. TRANSP. DIST. COM'N
8 Va. Law Rep. 1286, 411 S.E.2d 1, 242 Va. 357 (1991)
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Rule of Law:
A county's agreement to fund the annual principal and interest payments for bonds issued by a transportation district, where the county's obligation is explicitly contingent upon annual appropriation by its board of supervisors and does not pledge the county's full faith and credit, does not create a "debt contracted by the county" requiring voter approval under Article VII, § 10(b) of the Virginia Constitution.
Facts:
- Fairfax County (the county) sought to finance a portion of the cost to complete the Fairfax County Parkway.
- The county approved a proposed contract with the Northern Virginia Transportation District Commission (the commission) to achieve this financing.
- The contract obligated the commission to issue its "Transportation Contract Revenue Bonds" in an aggregate amount not to exceed $330,000,000.
- The county agreed to fund the annual principal and interest payments and other expenses of the bond issue from its "general revenues" and the Business, Professional and Occupational License Tax, or any other revenues it might appropriate.
- Section 4.05 of the contract explicitly provided that the county's obligation to make payments was contingent upon the annual appropriation of funds by the Board of Supervisors, and the county would not be liable without such appropriation.
- The contract stated that it would not constitute a pledge of the full faith and credit of Fairfax County or a bond or debt of Fairfax County in violation of Article VII, § 10 of the Constitution.
- The proposed trust agreement and the bonds themselves stated that they were limited obligations of the commission payable solely from county appropriations and contingent on annual appropriations.
- The Fairfax County Parkway would not generate any income or revenue from its use; the only source of revenue for bond payments would be the county's annual appropriations.
Procedural Posture:
- On May 4, 1990, the Northern Virginia Transportation District Commission and Fairfax County (as plaintiff/intervenor) filed a bond validation proceeding in the Circuit Court of Fairfax County (trial court/court of first instance).
- Osgood Tower, Marcia P. Dykes, and other Fairfax County citizens and taxpayers (taxpayers) opposed the validation.
- On July 12, 1990, the Circuit Court of Fairfax County validated the proposed bond issue.
- The taxpayers appealed the trial court's decision to the Supreme Court of Virginia.
- On April 19, 1991, the Supreme Court of Virginia initially reversed the trial court's judgment, invalidating the bonds.
- The County and the Commission filed motions for rehearing with the Supreme Court of Virginia.
- On June 4, 1991, the Supreme Court of Virginia granted the motions for rehearing.
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Issue:
Does a county's agreement to fund the annual principal and interest payments for bonds issued by a transportation district, when the county's obligation is expressly contingent upon annual appropriations by its board of supervisors and does not pledge the county's full faith and credit, create a "debt contracted by the county" that requires voter approval under Article VII, § 10(b) of the Virginia Constitution?
Opinions:
Majority - Lacy, J.
No, a county's agreement to fund bonds through annual appropriations, explicitly contingent on such appropriations and not pledging the county's full faith and credit, does not create a "debt" requiring voter approval under Article VII, § 10(b). The Court first affirmed that debt incurred by legislatively created, independent political subdivisions like the Commission is not the debt of the county and thus not subject to Article VII, § 10(b). Addressing the county's obligation, the Court reiterated that constitutional "debt" requires a legally enforceable obligation or a pledge of the political entity's full faith and credit. The Court cited precedents such as Terry v. Mazur, Button v. Day, and Baliles v. Mazur to establish that an obligation is not a constitutional debt if the political entity is not generally liable and its full faith and credit are not pledged. "Subject to appropriation" financing, which does not impose any enforceable duty or liability on the county, does not create such a legal obligation, regardless of the expectations of bondholders, county officials, or bond rating agencies. Therefore, because the County incurred no legal liability to underwrite the project, no constitutional debt was created, making it unnecessary to consider the special fund doctrine.
Dissenting - Whiting, J.
Yes, the proposed bond issue would create a debt proscribed by Article VII, § 10(b). Justice Whiting dissented, adhering to the reasoning of the initial majority opinion that focused on the "practical effect" of the arrangement. He argued that the current majority decision is an approval of an "end run around the constitutional requirement of voter approval" for long-term county indebtedness. He found no new arguments on rehearing to justify abandoning the view that the county would, in fact, be bound to continue servicing the bond issue, thus incurring a debt despite the conditional appropriation language.
Dissenting - Stephenson, J.
Yes, the proposed bond issue would create a debt proscribed by Article VII, § 10(b). Justice Stephenson joined Justice Whiting's dissent and provided additional reasons. He characterized the county's scheme as a "shocking, patent attempt to circumvent and nullify the requirement of voter approval." He asserted that it is naive to believe the county would not be compelled to make annual appropriations, given the disastrous consequences of default (worthless bonds, destroyed county credit). He highlighted that the Commonwealth's voters had overwhelmingly rejected a proposed constitutional amendment in 1990 that would have allowed similar debt without voter approval, concluding that the majority's decision effectively nullified the § 10(b) debt proscription by judicial fiat.
Analysis:
This case significantly redefined what constitutes a "debt" requiring voter approval under Article VII, § 10(b) of the Virginia Constitution. By shifting the focus from the "practical effect" of a financing scheme to whether it creates a legally enforceable obligation, the Court provides local governments with substantial flexibility to finance large infrastructure projects without direct voter mandates, as long as payment obligations are explicitly conditional on annual appropriations and do not pledge the full faith and credit. This ruling could influence governmental financing strategies across the state, encouraging the use of such conditional funding mechanisms, while also raising concerns about public accountability for long-term financial commitments that, while not legally binding, carry strong moral and practical compulsions.
