IN THE SUPREME COURT OF FLORIDA

CITY OF FERNANDINA BEACH,

Appellant,Case No. SC14-299

v. Lower Tribunal No. 13-CA-485

STATE OF FLORIDA, et al.,

Appellees.

On Appeal from the Circuit Court of the Fourth JudicialCircuit in and for Nassau County, Florida

INITIAL BRIEF OF APPELLANTCITY OF FERNANDINA BEACH

Thomas B. ConstantineFlorida Bar. No. 869112Bryant Miller Olive P.A.111 Riverside Avenue, Suite 200Jacksonville, FL 32202

Elizabeth W. NeibergerFlorida Bar No. 0070102Jason M. BrethFlorida Bar No. 0040742Bryant Miller Olive P.A.101 North Monroe Street, Suite 900Tallahassee, FL 32301

Susan H. ChurutiFlorida Bar No. 284076Bryant Miller Olive P.A.One Tampa City Center, Suite 2700Tampa, FL 33602

Tammi E. BachFlorida Bar No. 179086City AttorneyCity of Fernandina Beach204 Ash StreetFernandina Beach, FL 32034

Attorneys for Appellant

Filing # 10629816 Electronically Filed 02/24/2014 05:02:53 PM

RECEIVED, 2/24/2014 17:03:51, John A. Tomasino, Clerk, Supreme Court

i

TABLE OF CONTENTSTABLE OF CONTENTS........................................................................................... i

TABLE OF CITATIONS ......................................................................................... ii

STATEMENT OF THE CASE AND FACTS ..........................................................1

SUMMARY OF ARGUMENT ...............................................................................10

ARGUMENT ...........................................................................................................12

I. STANDARD OF REVIEW...........................................................................12

II. THE TRIAL COURT APPLIED THE WRONG STANDARD OF REVIEW.......................................................................................................................13

A. This is a bond validation proceeding, not an “action challenging animpact fee” ...............................................................................................13

B. Even if this were an “action challenging an impact fee,” the trial courtimproperly applied section 163.31801(5) retroactively...........................14

i. The Capacity Fee pre-dates section 163.31801(5)...................................15

ii. Section 163.31801(5) does not operate retroactively ...........................16

iii. Section 163.31801(5) does not apply to impact fees imposed before2009, regardless of when the lawsuit is filed........................................19

C. If section 163.31801(5) applies retroactively, it cannot be construed tothe remove “rational” component from the dual rational nexus test .......21

III. GIVING PROPER DEFERENCE TO THE CITY’S LEGISLATIVEFINDINGS, IT SATISFIED THE DUAL RATIONAL NEXUS TEST ......23

A. The City made a legislative decision to purchase Excess Capacity toaccommodate future growth for $7.5 million ..........................................24

B. The City properly relied on its engineering consultant and theinformation before it.................................................................................26

IV. THE CITY WAS NOT REQUIRED TO PREPARE A FORMAL IMPACTFEE STUDY..................................................................................................31

V. THE “NEED” FOR THE CAPACITY FEES IS OUTSIDE THE SCOPE OFINQUIRY IN BOND VALIDATIONS.........................................................33

VI. ALTERNATIVELY, THE CAPACITY FEE IS A VALID USER FEE ...34

CONCLUSION........................................................................................................40

CERTIFICATE OF SERVICE ................................................................................42

CERTIFICATE OF COMPLIANCE.......................................................................44

ii

TABLE OF CITATIONS

CasesAlachua Cnty. v. Cretul

No. 10-CA-0478 ...................................................................................................19Arrow Air, Inc. v. Walsh

645 So. 2d 422 ......................................................................................................21Bhoola v. City of St. Augustine Beach

588 So. 2d 666 ......................................................................................................16Borden v. E.-European Ins. Co.

921 So. 2d 587 ......................................................................................................24Boschen v. City of Clearwater

777 So. 2d 958 ......................................................................................................30City of Parker v. State

992 So. 2d 171 ......................................................................................................14Coleman v. City of Key West

807 So. 2d 84 ........................................................................................................16Conlon v. City of Fernandina Beach

Case No. 2011-CA-000426 ....................................................................................7Contractors & Builders Ass'n of Pinellas County v. City of Dunedin

329 So. 2d 314 ......................................................................................................28Crawford v. Barker

64 So. 3d 1246 ......................................................................................................12Curson v. W. Conshohocken Mun. Auth.,

611 A.2d 775 (Pa. Commw. Ct. 1992).................................................................43Dep't of Rev. v. Zuckerman–Vernon Corp.

354 So. 2d 353 ......................................................................................................18Donovan v. Okaloosa Cnty.

82 So. 3d 801 ........................................................................................................30Florida Insurance Guaranty Ass’n, Inc. v. Devon Neighborhood Ass’n, Inc.

67 So. 3d 187 ........................................................................................................12Global Travel Mktg., Inc. v. Shea

908 So. 2d 392 ......................................................................................................16Hollywood, Inc. v. Broward Cnty.

431 So. 2d 606 ......................................................................................................20Keystone Water Co. v. Bevis

278 So. 2d 606 ......................................................................................................18Lodwick v. Sch. Dist. of Palm Beach Cnty.

506 So. 2d 407 ......................................................................................................37

iii

Metro. Dade Cnty v. Chase Fed. Hous. Corp.737 So. 2d 494 ............................................................................................... 17, 21

Miccosukee Tribe of Indians of Fla. v. S. Fla. Water Mgmt. Dist.48 So. 3d 811 ........................................................................................................11

Mohme v. City of Cocoa,328 So. 2d 422 ......................................................................................................43

Murphy v. City of Port St. Lucie666 So. 2d 879 ......................................................................................................27

Panama City Beach Cmty. Redevelopment Agency v. State831 So. 2d 662 ................................................................................... 11, 13, 14, 34

Partridge v. St. Lucie Cnty.539 So. 2d 472 ......................................................................................................37

Paul v. Wells Fargo Bank, N.A.68 So. 3d 979 ........................................................................................................12

Pinellas Cnty. v. State776 So. 2d 262 ................................................................................... 38, 39, 40, 43

Poe v. Hillsborough Cnty.695 So. 2d 672 ............................................................................................... 27, 44

Raymond James Financial Services, Inc. v. Phillips126 So. 3d 186 ......................................................................................................12

Save Our Septic Sys. Comm., Inc. v. Sarasota Cnty.957 So. 2d 671 ......................................................................................................21

Smith v. Woodruff2 So. 2d 583 ..........................................................................................................16

State v. City of Daytona Beach,158 So. 300 ...........................................................................................................37

State v. City of Miami Springs,245 So. 2d 80 ........................................................................................................41

State v. Sunrise Lakes Phase II Special Recreation Dist.383 So. 2d 631 ......................................................................................................37

Town of Medley v. State162 So. 2d 258-59.................................................................................................36

Town of Redington Shores v. Redington Towers, Inc.,354 So. 2d 942 ......................................................................................................42

Town of Riviera Beach v. State53 So. 2d 828 ........................................................................................................14

Statutes§ 2(b), article VIII, Florida Constitution..................................................................22§163.3180(2), Florida Statutes...................................................................................3

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§163.31801(1), Florida Statutes...............................................................................23§163.31801(5), Florida Statutes....................................................................... passim§163.31801, Florida Statutes ...................................................................................22§180.02(3), Florida Statutes.....................................................................................43§180.13, Florida Statutes .........................................................................................42§180.301, Florida Statutes .........................................................................................2§9, ch. 06-218, Laws of Florida...............................................................................22Article II, section 3, Florida Constitution ................................................................19Article VII, section 18, Florida Constitution .................................................... 15, 19Ch. 09-49, Laws of Florida ............................................................................... 15, 18Ch. 11-149, Laws of Florida ............................................................................. 15, 19Ch. 180, Florida Statutes..........................................................................................45Ch. 75, Florida Statutes..............................................................................................1Fla. Admin. Code R. 62-555.348(6) ..........................................................................4

Other Authorities§2-543, City of Fernandina Beach Code of Ordinances..........................................3483 Fla. B.J. 92, 92, 95 (2009)...................................................................................23Bryan A. Mantz & Henry L. Thomas, Utility Impact Fees: Practices and

Challenges 104 J. Am. Water Works Ass'n E218, E219 (Apr. 2012) .................31Fla. S. Comm. on Rules, SB 410 (2011), Staff Analysis 5 (Mar. 14, 2011) .... 19, 24James R. Wolf & Sarah Harley Bolinder, The Effectiveness of Home Rule: A

Preemption and Conflict Analysis ........................................................................23McQuillin Mun. Corp. §21:46 .................................................................................16

1

STATEMENT OF THE CASE AND FACTS

This is a direct appeal from the trial court’s final judgment refusing to

validate bonds in a validation proceeding under chapter 75, Florida Statutes. The

City of Fernandina Beach (“City”) brought this action to validate the issuance of its

Utility System Refunding Revenue Bonds, Series 2013B (“2013B Bonds”). (App.

26-44.) The purpose of the 2013B Bonds is to refinance debt the City incurred to

purchase capacity to supply potable water to future customers. The 2013B Bonds

would be repaid, in part, by a capacity fee paid by new customers connecting to

City’s water utility for the first time. City resident Joanne Conlon intervened,

arguing that the capacity fee was invalid and, therefore, the City lacked authority to

issue the 2013B Bonds. (App. 45-48.) The trial court agreed.

Water System Purchase and Financing

In 2002, the City became interested in purchasing a potable water treatment

and distribution system (“Water System”) owned by the Florida Public Utilities

Company (“FPUC”). (App. 912.) The City retained the engineering consulting

firm Hartman & Associates, Inc. (“Hartman”), to gather information, perform a

valuation, and conduct due diligence on the potential acquisition. (App. 572, 986-

88.) Hartman had worked on the City’s then-existing wastewater system and was

familiar with the City and its needs. (App. 987.)

2

Hartman presented its preliminary due diligence findings at a public

workshop meeting held to discuss the potential acquisition. (App. 115-304, 988-

92.) At a later public hearing, the City determined the acquisition was in the public

interest, a prerequisite to purchasing a utility under section 180.301, Florida

Statutes.1 (App. 510.) The City considered various reports and information in

making this determination, including two reports prepared by Hartman: (i) Florida

Statute 180.301 Briefing Document: Florida Public Utilities Company Water

System (“Briefing Document”);2 and (ii) Engineering Valuation for the Florida

Public Utilities Water System (“Engineering Valuation”).3 (App. 104, 506-10,

914-15.) The City then discussed the terms of the proposed Agreement for

Purchase and Sale of Water Assets (“Purchase Agreement”). (App. 506-10.)

Based on Hartman’s valuations and participation in negotiations with FPUC,

the Purchase Agreement provided that the City would purchase two separate

assets, each with a separate purchase price. (App. 518-19, 1012; see App. 506-07.)

Hartman determined that the Water System was worth $19,400,000, based on its

existing users as of December 2, 2002. (App. 334, 361, 1008-09.) The Purchase

Agreement provided that the City would pay $18,950,000 in cash for the Water

1 Section 180.301 requires a municipality to determine that the utility purchasewould be in the public interest, taking several enumerated factors into account.2 App. 305-58.3 App. 359-502.

3

System as it existed on that date, which the Purchase Agreement referred to as the

“Purchased Assets.” (App. 518-19, 1012.)

However, the Water System had the ability to serve substantially more users.

FPUC had already improved the Water System to give it enough capacity to meet

the demands of additional users connecting as a result of future development.

(App. 334-35; see App. 105.) These improvements, which created significantly

more capacity than needed for its existing users (“Excess Capacity”), had value:

the ability to collect additional charges and fees from additional users, without the

immediate need to invest in additional upgrades to the Water System. (App.

334.)

Relying on Hartman’s analysis, the City found that there was sufficient

Excess Capacity to meet the demands of future growth and development through

the year 2020. (App. 777; see App. 105.) The City had a need for the Excess

Capacity because state concurrency and annexation laws required it to have enough

capacity to support growth as it occurred. 4 The Excess Capacity had distinct

4 See § 163.3180(2), Fla. Stat. (“adequate . . . potable water facilities shall be inplace and available to serve new development no later than the issuance by thelocal government of a certificate of occupancy or its functional equivalent”);§ 171.042(1)(c), Fla. Stat. (municipality can only annex property if it has theability to provide water and sewer services to property owners in area to beannexed); Fla. Admin. Code R. 62-555.348(6) (when local government’s waterdemand capacity will be exceeded in less than five years, it must submit a capacityanalysis to the Department of Environmental Protection that includes a plan toobtain increased capacity).

4

value to the City because it did not want to impose a moratorium on construction.

(App. 105, 1001.) Nor did the City did want to increase water rates to pay for the

Excess Capacity. (App. 1009.) The City’s policy is that “existing citizens

shouldn’t pay for growth.” (App. 914.) Water capacity fees are in line with this

policy because they require new growth “to pay for itself.” (App. 913.) In 2003,

capacity fees were a common and accepted way to accomplish this objective in

acquisitions of excess capacity. (App. 1038-39.)

Hartman conducted a valuation of the Excess Capacity by (i) determining

the amount of water capacity fee the City could charge new users connecting to the

Water System per Equivalent Meter Connection (“EMC”), 5 and (ii) multiplying

that amount by the number of EMCs the Water System had of Excess Capacity.

(App. 1013; see App. 788, 795, 1019.) It determined that the Water System had

approximately 5,000 EMCs of Excess Capacity and the City could charge a $1,500

per EMC water capacity fee to new users. (Id.) Therefore, Hartman valued the

Excess Capacity at $7,500,000 (5,000 EMCs of Excess Capacity times $1,500

capacity fee per EMC). The Purchase Agreement provided that the City would pay

that amount for the Excess Capacity over the next seven years. (App. 519.) The

City agreed to use all water capacity fees it collected within the seven-year period

to make these future payments to FPUC. (Id.)

5 An EMC is a standard unit of water use.

5

Based on a review of historical water use and growth projections, Hartman

estimated that new growth would use 250 EMCs of the Excess Capacity each year

during the seven-year period. (App. 335-36, 338-341.) Therefore, Hartman

estimated the City would collect $2,700,000 in water capacity fees over that

period, which would require the City to make a final payment of $4,800,000 in

2010 ($7,500,000 purchase price for Excess Capacity less $2,700,000 capacity fees

collected through 2010). (App. 335-41, 1019.)

No one spoke in opposition to the Purchase Agreement at the public hearing.

(App. 920.) At the hearing, the City specifically considered and questioned the

$7,500,000 payment. The Vice Mayor asked Hartman to explain what exactly the

City would be purchasing for $7,500,000, and whether that was a reasonable price.

(App. 506-09.) The City accepted Hartman’s explanation, found that the

acquisition was in the public interest, and approved the Purchase Agreement.

(App. 503-04, 511.) The Purchase Agreement was executed on December 3, 2002.

(App. 548.)

To finance the $18,950,000 payment for the Purchased Assets, the City

issued its Utility Acquisition and Improvement Revenue Bonds, Series 2003

(“2003 Bonds”). (App. 755.) The offering statement specifically stated that water

capacity fees would not be used to repay the 2003 Bonds. (Id.)

6

Capacity Fees Imposed

To pay for the Excess Capacity, in 2003, the City adopted an ordinance

authorizing it to impose water capacity fees on new users of the Water System

(“Capacity Fees”). (App. 776-79; see App. 105.) The City also adopted a

resolution establishing the amount of the Capacity Fees at $1,500 per EMC, the

amount Hartman recommended as a result of the impact fee analysis it conducted

in connection with the acquisition. (App.780-87; see App. 107.) Because the

Capacity Fees would be used to pay for the City’s purchase of a non-depreciable

asset (excess water capacity), Hartman determined that the equity buy-in method

was the industry standard most appropriate to calculate the Capacity Fees. (App.

196, 1013-15, 1034-35.) Hartman also analyzed the fees FPUC charged to new

users to connect to the Water System. At the public meeting, no one spoke or

offered information in opposition to the Capacity Fee. (App. 920-21.)

Over the next seven years, the City paid FPUC all Capacity Fees it collected.

(App. 838, 922.) In 2010, the City issued bonds to finance the remaining balance

due for the Excess Capacity (“2010 Bonds”). (App. 108.) The 2010 Bonds were

secured, in part, by the Capacity Fees.

The 2013B Bonds

In 2013, the City started to explore options to obtain debt service savings by

refinancing all of its outstanding debt associated with the utility system at lower

7

interest rates. As part of the due diligence associated with refinancing, the City

informed its financing team that the Capacity Fees, which secured the 2010 Bonds,

had since been challenged in a pending declaratory judgment action, Conlon v.

City of Fernandina Beach, Case No. 2011-CA-000426) (Fla. 4th Cir. Ct.) (comp.

filed 2011). In light of this legal action, the City and its financing team decided to

bifurcate the refinancing of its outstanding utility system debt into two separate

bond issues. By doing so, the City was able to immediately refinance the

outstanding utility system debt not secured by the Capacity Fees and achieve

millions of dollars in debt service savings. After the City closed the first

refinancing,6 the City adopted a resolution authorizing it to refinance the 2010

Bonds by issuing the 2013B Bonds, which are the subject of this validation. (App.

108-09; see App. 26, 42.)

The proposed 2013B Bonds will be repaid, in part, by the Capacity Fees.

(App. 109.) The Capacity Fees are earmarked exclusively for that purpose. (App.

1010-11.) To provide assurance that the 2013B Bonds are marketable, the City

brought this bond validation proceeding to adjudicate their validity. (App. 110.)

Final Judgment Denying Validation

6 The City refinanced a portion of its outstanding utility system debt, including the2003 Bonds, by issuing its Utility System Refunding Revenue Bonds, Series2013A.

8

After a two-day trial, the trial court entered a final judgment denying

validation. (App. 1-25.) The trial court determined that section 163.31801(5),

Florida Statutes, supplied the standard of review. (App. 9.) Applying section

163.31801(5), the trial court did not give deference to the City’s legislative

determinations.

The material fact findings in the final judgment are based on the testimony

of two competing expert witnesses: (1) Gerald Hartman, an engineer and the

principal of Hartman, who provided professional advice to the City regarding the

Water System acquisition and the need for and amount of the Capacity Fees; and

(2) John Guastella, an unlicensed engineer retained by the intervenor to testify at

trial. (App. 12-22.) The trial court found that the City improperly used the

Capacity Fee to pay for the entire Water System, rather than the Excess Capacity

alone. (App. 22.) It also accepted Mr. Guastella’s opinion as to the proper method

of calculating the Capacity Fee, and rejected Mr. Hartman’s opinions. (Id.) It

further concluded that the City did not prepare a formal “impact fee study” (App.

12), and did not “need” the Capacity Fees to pay for the Excess Capacity (App. 6,

20, 21-22).

The trial court concluded that the City does not have authority to issue the

2013B Bonds because the Capacity Fee does not meet the “dual rational nexus”

test for validity of impact fees. (App. 22, 25.)

9

The final judgment was rendered on January 2, 2014 (App. 1), and the City

timely filed its notice of appeal on February 3, 2014.

10

SUMMARY OF ARGUMENT

The trial court erred as a matter of law by applying the standard of review

contained in section 163.31801(5), Florida Statutes, which prevents courts from

applying a deferential standard of review in actions challenging impact fees.

Section 163.31801(5) does not apply to bond validation proceedings. Because this

is an action to validate bonds, it is instead governed by decades of precedent firmly

establishing that deference must be accorded to a local government’s legislative

determinations. Even if section 163.31801(5) applies in bond validations

involving impact fees, it does not apply here because the Capacity Fee was

imposed before the statute was enacted, and the legislature did not intend it to

apply retroactively. Assuming section 163.31801(5) could be applied retroactively

to the Capacity Fee, the trial court improperly construed it as removing the

deference or reasonableness built into the dual rational nexus test itself. Section

163.31801(5) leaves the dual rational nexus test completely intact. At most, it only

prohibits courts from using a more deferential standard. As a result, the City’s

legislative findings and policy decisions were entitled to deference.

Because the trial court failed to give any degree of deference to the City, it

committed a legal error that resulted in incorrect fact findings. Viewing the

evidence with proper deference, the Capacity Fees are valid impact fees under the

dual rational nexus test. Alternatively, the Capacity Fees are authorized user fees.

11

12

ARGUMENT

I. STANDARD OF REVIEW

The scope of inquiry in a bond validation proceeding, both at the trial court

and this Court, is limited to three issues: (1) whether the public body has authority

to issue the bonds; (2) whether the purpose of the obligation is legal; and (3)

whether the bond issue complies with the requirements of law. Miccosukee Tribe

of Indians of Fla. v. S. Fla. Water Mgmt. Dist., 48 So. 3d 811, 817 (Fla. 2010). In

this case, the dispute is over the first prong: the City’s authority to issue the 2013B

Bonds. The only issue is whether the Capacity Fees pledged to secure the 2013B

Bonds are valid. If so, the City has authority to issue the 2013B Bonds and the

final judgment should be reversed. City of Gainesville v. State, 863 So. 2d 138,

141, 143 (Fla. 2003).

This appeal is based on the trial court’s incorrect legal conclusions. Whether

the trial court applied the wrong legal standard or misapplied the law are questions

of law, which the Court reviews de novo. Panama City Beach Cmty.

Redevelopment Agency v. State, 831 So. 2d 662, 665 (Fla. 2002) (questions of law

reviewed de novo in bond validation appeal); Paul v. Wells Fargo Bank, N.A., 68

So. 3d 979, 986 (Fla. 2d DCA 2011) (determination of applicable legal standard

reviewed de novo). Legal issues include statutory interpretation, Raymond James

Financial Services, Inc. v. Phillips, 126 So. 3d 186, 190 (Fla. 2013), and

13

determining a statute’s prospective or retroactive application, Florida Insurance

Guaranty Ass’n, Inc. v. Devon Neighborhood Ass’n, Inc., 67 So. 3d 187, 194 (Fla.

2011). The trial court’s interpretation of written documents is also reviewed de

novo. E.g., Crawford v. Barker, 64 So. 3d 1246, 1251 (Fla. 2011).

II. THE TRIAL COURT APPLIED THE WRONG STANDARD OFREVIEW

A. This is a bond validation proceeding, not an “action challenging animpact fee”

The trial court incorrectly analyzed the City’s authority to issue the 2013B

Bonds under the standard governing impact fee challenges under section

163.31801(5), Florida Statutes. Because this is an action to validate bonds under

chapter 75, Florida Statutes—not an “action challenging an impact fee”—section

163.31801(5) does not apply. Instead, the trial court was required to determine the

City’s authority to issue the 2013B Bonds under the well-established legal

standards for bond validations. The fact that the Capacity Fees were pledged to

repay the 2013B Bonds did not transform this bond validation into an action

challenging an impact fee.

Because the standard of review in section 163.31801(5) is materially

different from the standard of review in bond validations, the trial court’s entire

analysis is flawed. Section 163.31801(5) provides that, in an “action challenging

an impact fee,” the court cannot use a deferential standard of review in

14

determining whether the Capacity Fee meets the requirements of legal precedent.

But in bond validations, courts “must maintain a very deferential standard of

review” of the government’s legislative determinations. E.g., Panama City Beach

Cmty. Redevelopment Agency, 831 So. 2d at 665 (emphasis added).7 This

comports with the general rule that a court cannot substitute its judgment for that

of a local legislative body unless the legislative process was tainted by an improper

purpose. Town of Riviera Beach v. State, 53 So. 2d 828, 831 (Fla. 1951). In this

case, the trial court specifically found that the City did not act with an improper

purpose. (App. 11.)

Just as in any other bond validation, here, the City’s legislative

decisionmaking is entitled to deference. By applying the wrong standard of

review, the trial court failed to give deference to the City. As a result, its fact

findings are incorrect.

B. Even if this were an “action challenging an impact fee,” the trialcourt improperly applied section 163.31801(5) retroactively

Assuming section 163.31801(5) could be applied in bond validation

proceedings involving impact fees, the trial court incorrectly applied it in this case.

7 Accord Panama City Beach Cmty. Redev. Agency, 831 So. 2d at 667 (in bondvalidations, trial court reviews government’s legislative findings to determinewhether they are “patently erroneous”); City of Parker v. State, 992 So. 2d 171,178 (Fla. 2008) (legislative determinations entitled to a presumption of correctnessin bond validation).

15

Section 163.31801(5) was not enacted until years after the City imposed the

Capacity Fee, and cannot be applied retroactively.

i. The Capacity Fee pre-dates section 163.31801(5)

The legislature first attempted to enact section 163.31801(5) in 2009. Ch.

09-49, Laws of Fla. (2009) (App. 1443). The enactment was challenged on

multiple constitutional grounds, including that it was an unfunded mandate not

adopted pursuant to the procedures of article VII, section 18 of the Florida

Constitution. In 2011, while that litigation was still pending, the legislature

readopted section 163.31801(5), this time, following the constitutional procedures

for unfunded mandates. Ch. 11-149, Laws of Fla. (2011) (App. 1444). While it

has not been determined whether either the 2009 or 2011 enactment is

constitutional, it is clear that section 163.31801(5) did not become law before

2009.

The trial court incorrectly concluded that the Capacity Fee was “reinstated”

in 2013, after section 163.31801(5) was enacted. It is undisputed that the City (1)

imposed the Capacity Fee by ordinance in 2003; (2) attempted to amend the

Capacity Fee by ordinance in 2009, but the 2009 ordinance was invalid for

procedural reasons; and (3) in 2013 enacted an ordinance repealing the invalid

2009 ordinance. (App. 9.) The trial court gave the wrong legal effect to these

16

facts. Global Travel Mktg., Inc. v. Shea, 908 So. 2d 392, 396 (Fla. 2005) (question

of law arising from undisputed facts is reviewed de novo).

The 2013 ordinance did not “reinstate” the Capacity Fee—it had no legal

effect whatsoever. An invalid ordinance has no effect—it is “as though the

ordinance does not exist.” Bhoola v. City of St. Augustine Beach, 588 So. 2d 666,

667 (Fla. 5th DCA 1991).8 Because the 2009 ordinance was invalid, neither the

2009 ordinance nor the 2013 ordinance repealing it changed the Capacity Fee. The

Capacity Fee has remained in place—continuously and unchanged—since adopted

in 2003. Therefore, the Capacity Fee pre-dates section 163.31801(5).

ii. Section 163.31801(5) does not operate retroactively

The legislature explicitly addressed retroactivity: it provided that section

163.31801(5) operates retroactively to July 1, 2009. Given the unequivocal

language and intent of the enactment, section 163.31801(5) does not apply to the

Capacity Fee imposed in 2003.

Where there is no clear expression of legislative intent, procedural laws are

presumed to operate retrospectively, while substantive laws are presumed to

operate prospectively. E.g., Fla. Ins. Guar. Ass’n, Inc., 67 So. 3d at 194-95. But

8 See McQuillin Mun. Corp. §21:46 (3d ed.); Smith v. Woodruff, 2 So. 2d 583, 585(Fla. 1941) (invalid ordinance had no effect on prior ordinance); Coleman v. Cityof Key West, 807 So. 2d 84, 85 (Fla. 3d DCA 2001) (ordinances which fall withinthe ambit of statutory notice requirements must be strictly enacted pursuant to thestatute’s notice provisions or they are null and void).

17

substantive statutes that impair vested rights or impose new burdens cannot apply

retroactively, even where there is a clear legislative expression of retroactivity.

Metro. Dade Cnty v. Chase Fed. Hous. Corp., 737 So. 2d 494, 499-500 (Fla.

1999). Here, there is no need to determine whether section 163.31801(5) is

substantive or procedural—it is clear the legislature did not intend it to reach

impact fees imposed before 2009. Keystone Water Co. v. Bevis, 278 So. 2d 606,

608 (Fla. 1973) (a statute “is not to be given retrospective application unless it is

required by the terms of the [s]tatute or it is unequivocally implied”).

The legislature’s inclusion of an effective date “rebuts any argument that

retroactive application of the law was intended.” Dep't of Rev. v. Zuckerman–

Vernon Corp., 354 So. 2d 353, 358 (Fla.1977). Accord Fla. Ins. Guar. Ass'n, Inc.,

67 So. 3d at 196 (effective date evidenced that legislature did not intend statute to

apply retroactively). Here, the 2009 session law originally enacting section

163.31801(5) provided that it would take effect on July 1, 2009. Ch. 09-49, Laws

of Fla. (App. 1443). Nothing in its language or legislative history suggests (let

alone “clearly evidences”) that it was intended to apply retroactively. Therefore,

the 2009 enactment of section 163.31801(5) was intended to apply prospectively

from July 1, 2009.

The legislature made its intent explicitly clear in 2011, when it reenacted

section 163.31801(5) in response to a lawsuit challenging the 2009 enactment as

18

(1) a violation of separation of powers under article II, section 3 of the Florida

Constitution; and (2) an unfunded mandate adopted without approval of two-thirds

of each house of the legislature, as required by article VII, section 18 of the Florida

Constitution. Fla. S. Comm. on Rules, SB 410 (2011), Staff Analysis 5 (Mar. 14,

2011) (citing Alachua Cnty. v. Cretul, No. 10-CA-0478 (Fla. 2d Cir. 2010)) (App.

1445-54). The purpose of the 2011 reenactment was to eliminate uncertainty over

whether section 163.31801(5) was an unconstitutional mandate by readopting it

with approval of two-thirds of each chamber. Id.; Ch. 11-149, Laws of Fla. (2011).

The 2011 enactment specifically provides that section 163.31801(5) “shall

operate retroactively to July 1, 2009,” the effective date of the 2009 enactment.

Ch. 11-149, Laws of Fla. (emphasis added) (App. 1444). The staff analysis of the

2011 enactment shows that the legislature carefully considered Florida case law

interpreting the prospective or retroactive effect of statutes, and concluded that

section 163.31801(5) would be applied retroactively to July 1, 2009, under the

enactment’s explicit language to that effect. (App. 1452-53.)

The legislature never intended section 163.31801(5) to apply retroactively—

it intended it to apply prospectively from the 2009 enactment. If the 2009

enactment operated retroactively, there would have been no need to address

retroactivity in the 2011 reenactment. In any event, the 2011 reenactment controls

19

over the 2009 enactment it replaced. Under the 2011 reenactment, section

163.31801(5)’s retroactive reach is explicitly limited to July 1, 2009.

iii. Section 163.31801(5) does not apply to impact fees imposedbefore 2009, regardless of when the lawsuit is filed

Because section 163.31801(5) changed pre-existing law governing the

validity of impact fees, the critical date for determining whether it applies is the

date the impact fee was imposed, not the date the lawsuit was filed.

Section 163.31801(5) states that the “court may not use a deferential

standard” in determining whether an impact fee is valid. The effect of this

language is to change the common law “dual rational nexus” test Florida courts

have used to determine the validity of impact fees for over 30 years. See generally

Hollywood, Inc. v. Broward Cnty., 431 So. 2d 606 (Fla. 4th DCA 1983).

Under the dual rational nexus test, deference to the government is built into

the substantive law governing impact fees. The test provides that an impact fee is

valid if there is: (1) “a reasonable connection or rational nexus between the need

for additional capital facilities and the anticipated new users of the system who will

pay this fee”; and (2) “a reasonable connection or rational nexus between the

intended expenditures of the collected funds and the benefits accruing to those new

users.” Save Our Septic Sys. Comm., Inc. v. Sarasota Cnty., 957 So. 2d 671, 674

(Fla. 2d DCA 2007) (emphasis added).

20

Because section 163.31801(5) alters the dual rational nexus test, it would

attach “new legal consequences to events completed before its enactment” if

applied to impact fees imposed before 2009. Metro. Dade Cnty., 737 So. 2d at

499. Accord Arrow Air, Inc. v. Walsh, 645 So. 2d 422, 424 (Fla. 1994). Impact

fees validly imposed and collected years before its enactment (like the Capacity

Fees here) would be subject to invalidation. Certainly, if the legislature had

intended section 163.31801(5) to invalidate countless impact fees already in place

throughout Florida, it would have made that intent clear. But there is nothing to

that effect in the language or legislative history of section 163.31801(5).

This is especially true given that, until section 163.31801, Florida Statutes

(“Impact Fee Act”), was adopted in 2006, impact fees were not governed by

statute—cities imposed impact fees pursuant to their constitutionally vested home

rule powers to legislate for any municipal purpose that is not prohibited by the

constitution or state legislation. §9, ch. 06-218, Laws of Fla. (2006) (Impact Fee

Act) (App. 1428-42); § 2(b), art. VIII, Fla. Const. (Municipal Home Rule). The

Impact Fee Act expressly recognizes that impact fees are a product of home rule

power and an important revenue source for local governments:

The Legislature finds that impact fees are an important source ofrevenue for a local government to use in funding the infrastructurenecessitated by new growth. The Legislature further finds that impactfees are an outgrowth of the home rule power of a local governmentto provide certain services within its jurisdiction. Due to the growth ofimpact fee collections and local governments’ reliance on impact

21

fees, it is the intent of the Legislature to ensure that, when a county ormunicipality adopts an impact fee by ordinance or a special districtadopts an impact fee by resolution, the governing authority complieswith this section.

§163.31801(1), Fla. Stat. (emphasis added). This language cannot be interpreted

as an express pronouncement of legislative intent to retroactively abrogate action

previously taken under a City’s constitutional home rule authority. When section

163.31801(5) was added, it became part of the same act and subject to these same

legislative findings.

If the legislature intended to retroactively invalidate prior action (taken

under local governments’ constitutional home rule powers) adopting impact fees

(which it recognized as an important revenue source relied on by many local

governments), it would have made that intent clear. Without a clear expression of

legislative intent to achieve such drastic results, the Court should not read section

163.31801(5) in a way that would amount to an after-the-fact deprivation of the

City’s constitutional rights. James R. Wolf & Sarah Harley Bolinder, The

Effectiveness of Home Rule: A Preemption and Conflict Analysis, 83 Fla. B.J. 92,

92, 95 (2009) (“The courts should be careful in imputing an intent on behalf of the

Legislature to preclude a local elected governing body from exercising its home

rule powers”).

C. If section 163.31801(5) applies retroactively, it cannot be construedto the remove “rational” component from the dual rational nexustest

22

If section 163.31801(5) does apply retroactively to the Capacity Fee, it

cannot be construed to remove “rational” from the dual rational nexus test. Section

163.31801(5) requires the government to show that the impact fee meets the

requirements of “state legal precedent.” This language must be given meaning.

Borden v. E.-European Ins. Co., 921 So. 2d 587, 595 (Fla. 2006) (“courts should

avoid readings that would render part of a statute meaningless”) (internal quotation

and citation omitted). Giving effect to this language, section 163.31801(5) allows

courts to apply the dual rational nexus test in the same way as in this Court’s then-

existing precedent.

Section 163.31801(5) should be construed only to preclude courts from a

applying a standard more deferential than the dual rational nexus test. The

legislative staff analysis of section 163.31801(5) supports this reading. See Fla. S.

Comm. on Rules, SB 410 (2011), Staff Analysis 8 (Mar. 14, 2011) (App. 1452).

The staff analysis explains that section 163.31801(5) “prohibits courts from using a

more deferential standard” than the standards set out in case law. Id. (emphasis

added). This indicates that the legislature did not intend for courts to reduce the

level of deference under the dual rational nexus test. Rather, it only intended to

prohibit courts from adopting a more deferential standard.

What is more, under this Court’s precedent, the dual rational nexus test is

satisfied if a “reasonable connection or rational nexus” is established under each

23

prong. “Reasonableness” and “rationality” are the very essence of the dual

rational nexus test. Even if section 163.31801(5) does remove the deference

accorded under case law, it cannot be construed to remove “reasonableness” and

“rationality” from the equation.

Therefore, if the Court concludes that section 163.31801(5) applies, it should

not be construed to change the dual rational nexus test. The City’s legislative

findings were still entitled to deference, and it was only required to show a

“reasonable” or “rational” nexus.

III. GIVING PROPER DEFERENCE TO THE CITY’S LEGISLATIVEFINDINGS, IT SATISFIED THE DUAL RATIONAL NEXUS TEST

In making fact-findings, the trial court failed to give any degree of deference

to the City’s legislative findings, which were based on a wealth of information and

the opinions of an engineering consulting firm. Instead, the trial court substituted

its judgment for that of the City, based on an after-the-fact review of evidence

(including the opinions of the intervenor’s expert) that was not presented to the

City when it imposed the Capacity Fee. The City imposed the Capacity Fee in the

exercise of its legislative function and constitutional home rule powers, reasonably

relying on the evidence adduced in the multiple hearings held by the City during its

evaluation of the acquisition of the Water System. Giving proper deference to the

City’s legislative determinations, the City satisfied the dual rational nexus test as a

matter of law.

24

A. The City made a legislative decision to purchase Excess Capacity toaccommodate future growth for $7.5 million

The trial court ignored unrefuted evidence that the City purchased two

separate assets from FPUC, for two separate purchase prices. The Purchase

Agreement itself, as well as the information presented to the City as it considered

the acquisition, show that the City purchased the (i) Purchased Assets, which

included the physical assets of the Water System and its existing users as of

December 2, 2002, for $18,950,000; and (ii) the Excess Capacity, which would

allow the City to meet the needs of future population growth until 2020, for

$7,500,000. (App. 1008-09, 1012.) The City did not need the Excess Capacity to

serve its existing users—the City purchased the Excess Capacity to accommodate

new users and comply with growth management laws. Id.

Based on the detailed information and reports before it—which were

prepared based on the extensive due diligence conducted to evaluate the

acquisition—the City made legislative findings that the Purchased Assets and the

Excess Capacity were two different assets with independent values. These

legislative determinations were entitled to deference, but the trial court completely

disregarded them, and instead, made its independent conclusion on what the City

purchased and for what price.

The trial court concluded that the City really only purchased a single asset

for a single purchase price of $26,450,000 ($18,950,000 plus $7,500,000).

25

(App. 4.) The final judgment does not even mention the Excess Capacity. By

failing to respect the negotiated purchase of two separate assets in the City’s arms’

length negotiated transaction with FPUC, the trial court impermissibly substituted

its judgment for that of the City. Murphy v. City of Port St. Lucie, 666 So. 2d 879,

880 (Fla. 1996) (“whether the City failed to consider the reasonable price of the

utility during the acquisition from the county is a collateral issue and beyond the

scope of these validation proceedings.”); see Poe v. Hillsborough Cnty., 695 So. 2d

672, 679 (Fla. 1997) (respecting price negotiated in arms’ length transaction to

validate bonds).

The finding that the City purchased a single asset for a single purchase price

is central to the decision to invalidate the bonds. Uncontroverted evidence shows

that the City has only used the Capacity Fees to pay for the debt incurred to buy the

Excess Capacity, and the Capacity Fees are only pledged for that purpose. (App.

108-11, 838, 922.) However, because the trial court rejected the City’s conclusion

that it purchased the Excess Capacity as a separate asset for $7,500,000, it found

that the City used the Capacity Fees to “to purchase the water utility as a whole (by

paying the “futures” component of the purchase price for the entire utility).”

(App. 22) (emphasis added).

As a result, the trial court concluded that the Capacity Fees unfairly required

new users to pay for the entire utility acquisition, citing Contractors & Builders

26

Ass'n of Pinellas County v. City of Dunedin, 329 So. 2d 314 (Fla. 1976). In

Dunedin, the Court explained that a city cannot “impose the entire burden of

capital expenditures, including replacement of existing plant, on persons

connecting to a water and sewer system after an arbitrarily chosen time certain.”

Id. at 320 (emphasis added). But there is “nothing wrong with transferring to new

users of a municipally owned water or sewer system a fair share of the costs new

use of the system involves.” Id. at 317-18. Under the City’s finding that the Excess

Capacity was a separate asset purchased for $7,500,000, it was completely proper

to impose the Capacity Fee and use the revenue solely to repay that amount.9 By

failing to give weight to the City’s findings, the trial court incorrectly concluded

that the Capacity Fees were used to pay for more than the Excess Capacity.

B. The City properly relied on its engineering consultant and theinformation before it

The trial court heard testimony from two expert witnesses: (1) Mr. Guastella,

the expert witness Conlon hired to testify at the trial; and (2) Mr. Hartman, the

principal of the consulting engineering firm the City actually used and relied on in

the FPUC transaction and in imposing the Capacity Fee. Faced with conflicting

opinions held by Mr. Guastella and Mr. Hartman, the trial court concluded that Mr.

9 FPUC recovered approximately $1,500 for each new EMC that was used throughan allowance for funds used during construction, allowance for funds prudentlyinvested, contribution in aid of construction, cash property services, anddevelopment agreements.

27

Guastella was more credible, accepted his testimony and opinions, and rejected

Mr. Hartman’s testimony and opinions. (App. 22.)

In doing so, the trial court improperly second-guessed the City’s legislative

determination to rely on Mr. Hartman. The trial court’s role was not to decide for

itself in the first instance which expert was correct. Instead, it was required to give

deference to the City’s decision to rely on Mr. Hartman, and accept that decision

unless patently erroneous. Boschen v. City of Clearwater, 777 So. 2d 958, 967

(Fla. 2001). “Evidence of the ‘mere disagreement of experts’ is insufficient basis

for disturbing the [local government’s] findings.” Donovan v. Okaloosa Cnty., 82

So. 3d 801, 811-12 (Fla. 2012) (citing City of Winter Springs v. State, 776 So. 2d

255, 261 (Fla. 2001) (“[A] mere disagreement of experts as to the choice of

methodology is legally inconsequential” in bond validation). The fact that Mr.

Guastella’s opinions conflicted with Mr. Hartman’s opinions is not sufficient to

overcome the presumption that the City’s legislative findings are valid.

The City reasonably relied on Hartman’s reports, valuations, and

recommendations. Mr. Hartman was (and is) a reputable and experienced licensed

engineer, who has worked on approximately 350 public utility acquisitions and

impact fee analyses in Florida since 1976. (App. 363-69, 907-09, 980-86 ). Mr.

Hartman’s practice focused on government-owned utilities. (App. 985.) Because

Hartman previously did work for the City in connection with its wastewater

28

system, Mr. Hartman was familiar with the City and its needs. (App. 986-87.)

After conducting extensive due diligence on the proposed transaction with FPUC,

Hartman generated valuations, reports, and recommendations, and also discussed

with the City the pros and cons of various alternative approaches to value the

Water System and the Excess Capacity. (App. 115-502, 506-11, 987-88.)

At trial, Hartman extensively described the steps he took in preparing the

reports and the methodology used to value the Excess Capacity and calculate the

Capacity Fees. (App. 987-1039, 1111.) He testified the method he used was the

industry standard for calculating Capacity Fees where a government acquires

additional capacity to support new residents. (App. 1012-19.)

At Mr. Hartman’s recommendation, the City calculated the Capacity Fee

using the equity, excess capacity or buy-in approach, which is used when an

existing facility has “the capacity to serve new growth.” Bryan A. Mantz & Henry

L. Thomas, Utility Impact Fees: Practices and Challenges 104 J. Am. Water

Works Ass’n E218, E219 (Apr. 2012) (App. 1469; see also App. 1459-67, 1470-

75.) Because the City was acquiring a water system with excess capacity, this

approach was most appropriate.

Under the equity, excess capacity or buy-in approach, a capacity fee is

calculated by dividing (i) the equity or value of the system (ii) by its capacity. In

determining “the equity or value of the system,” Mr. Hartman used the

29

“replacement cost new” method of valuation. Under this method, if the capacity

fee will be used to pay for capacity alone, depreciation is not a factor. (App. 1013-

14, 1068-70, 1075.) This is because capacity is perpetual and does not decrease

over time. (App. 1015-16.) Mr. Hartman valued the Water System at $19,792,000,

and divided that amount by the total number of the Water System’s EMCs, 13,363.

(App. 1017-18, 166-68.) This resulted in replacement cost new value of $1,481 per

EMC as of December 2, 2002. (App. 1066-68; see App. 788-99.) Since the

Capacity Fee was to be applied starting in 2003, the replacement cost new value of

$1,481 per EMC was adjusted for inflation to $1,499.51. Rounding this up to the

closest dollar, Mr. Hartman recommended a water capacity fee equal to $1,500 per

EMC. (App. 1067.)

Given Mr. Hartman’s qualifications, extensive experience with public

utilities in Florida, and the City’s familiarity with his work, it was reasonable for

the City to rely on his analyses. The City considered this information at public

meetings held on the proposed acquisition of the Water System and imposition of

the Capacity Fee. No one at the public meetings presented conflicting

information. In fact, Mr. Guastella’s testimony at trial—held a decade after the

City imposed the Capacity Fee—was the first time the City was presented with any

opinion to the contrary. Without any conflicting information or any other reason

not to rely on Mr. Hartman, the City was fully within its rights to do so. Boschen,

30

777 So. 2d at 967 (“Although testimony of the expert traffic engineer conflicted

with the City's ultimate conclusions regarding the level of service, these contrary

conclusions were never submitted to the City”). On the information before it, the

City properly exercised its legislative judgment in imposing the Capacity Fee in

the amount of $1,500.

However, because the trial court gave no deference to the City’s

decisionmaking, it chose to accept Mr. Guastella’s opinion based on nothing more

than a difference in opinion. Mr. Guastella testified that the City should have used

an approach that would take depreciation into account. (App. 21.) This is directly

in conflict with Mr. Hartman’s opinion that it is inappropriate to do so where water

capacity fee revenue will be used to pay for capacity, a non-depreciable asset.

Mr. Guastella also opined that the City’s calculation should have been based on a

cost-recovery approach, which uses the actual cost to make the improvements to

the utility. (App. 21.) This, too, is directly in conflict with Mr. Hartman’s opinion

that the calculation should have been based on value because the City did not make

the improvements itself.10 Instead, it purchased the Water System from FPUC

based on its value.

10 It also interferes with the City’s ongoing legislative process of reevaluating itsCapacity Fee every five years. § 2-543, City of Fernandina Beach Code ofOrdinances (“The water capacity fee amount shall be reviewed as necessary by thecity in order to determine if the fee continues to accurately reflect costs associatedwith the capacity available in the system. At a minimum such review shall be

31

In accepting Mr. Guastella’s opinion, the trial court second-guessed the

City’s judgment based on testimony (i) that merely conflicted with Mr. Hartman’s

opinions; and (ii) was not presented to the City before it imposed the Capacity Fee.

Neither of these factors has any bearing on the reasonableness of the City’s

reliance on Hartman in imposing the Capacity Fee. Instead, the trial court

improperly substituted its judgment for that of the City. Panama City Beach Cmty.

Redevelopment Agency, 831 So. 2d at 669.

IV. THE CITY WAS NOT REQUIRED TO PREPARE A FORMALIMPACT FEE STUDY

Although the trial court faulted the City for not preparing a formal impact

fee study, the City did in fact conduct a full impact fee analysis. The City was not

required to prepare a separate document specifically entitled “Impact Fee Study”

for the Capacity Fee to be valid.

In substance, an impact fee study was conducted in connection with the

Water System acquisition. The reason there is no separate document entitled

“Impact Fee Study” is because the impact fee study was conducted in connection

with the City’s acquisition of the Water System and the Excess Capacity from

FPUC and is incorporated in the transaction and finance documents associated with

the acquisition. In an acquisition, the level of effort needed for the impact fee

conducted every five years.”) A 2008 impact fee study conducted by a differentoutside consultant concluded that the Capacity Fees could be raised. (App. 800-13.)

32

study is relatively low because all of the information and analyses required in

calculating an impact fee is obtained and conducted as a part of the acquisition.

For instance, Hartman already valued the Water System, determined the capacity,

and obtained other information as part of its due diligence. Since the necessary

components of an impact fee study were already being done with respect to the

acquisition, the only step left was for Hartman to calculate the impact fee using

that information.

Therefore, the lack of an “Impact Fee Study” does not mean that the

Capacity Fee was determined arbitrarily without any supporting documentation.

Much to the contrary, the amount of the Capacity Fee was based on the due

diligence, reports, and valuations prepared Mr. Hartman and submitted to the City.

Ten years later, in connection with the issuance of the 2013B Bonds, Hartman was

able to summarize in detail its impact fee analysis for the current City Commission

using information contained in the original reports. (App. 788-99.)

While it is arguable that the process to impose the Capacity Fees would be

different today in light of the Impact Fee Act, the Impact Fee Act does not apply

retroactively to the City’s imposition of the Capacity Fees. In 2003, when the City

imposed the Water Capacity Fees, the vast majority of utility acquisitions did not

include a separate impact fee study; the substance of the fact-finding and

calculation was all rolled into the other acquisition documents. The City not only

33

complied with then-existing law, but also complied with the common practices

within the industry. (App. 1017-18, 1034-35, 1049-52, 1158-59.)

V. THE “NEED” FOR THE CAPACITY FEES IS OUTSIDE THESCOPE OF INQUIRY IN BOND VALIDATIONS

The final judgment is in part based on the trial court’s conclusion that the

City had no “need” to impose impact fees to pay for the Excess Capacity or the

debt service on the 2013B Bonds. (App. 6, 20-22). However, the need for revenue

is outside the limited scope of inquiry in bond validations and, therefore, is not a

legitimate basis for refusing to validate the 2013B Bonds.

This Court has repeatedly rejected arguments that bonds should not be

validated for reasons involving the government’s business policy and judgment,

such as financial feasibility or need. E.g., Town of Medley v. State, 162 So. 2d

258-59 (Fla. 1964) (“questions of business policy and judgment . . . are beyond the

scope of judicial interference and are the responsibility and prerogative of the

governing body of the governmental unit”); Lodwick v. Sch. Dist. of Palm Beach

Cnty., 506 So. 2d 407 (Fla. 1987) (affirming trial court’s decision that need for

bonds collateral to validation); State v. City of Daytona Beach, 158 So. 300 (Fla.

1934) (courts cannot be concerned with the wisdom of a city's business policy to

“anticipate and borrow against the future earnings of its water supply system in

order to enlarge and improve the facilities forming a part of it so as to extend and

increase its capacity and ability for service”); Partridge v. St. Lucie Cnty., 539 So.

34

2d 472, 473 (Fla. 1989) (whether drainage improvements were needed was

political question that fall exclusively within power of the board); State v. Sunrise

Lakes Phase II Special Recreation Dist., 383 So. 2d 631, 632 (Fla. 1980) (“The

wisdom or desirability of this type of bond issue is not a matter for our

consideration. Our review concerns only the legal validity of the bonds.”).

The City’s decision to impose the Capacity Fee to pay FPUC for the Excess

Capacity and to repay the 2013 Bonds issued to pay the remaining balance due on

the Excess Capacity are matters of business policy and judgment. The Capacity

Fees were imposed because the City made a policy decision not to require existing

users pay for new development. The decision to use Capacity Fees to repay the

2013B Bonds is one for the City, not the courts. Likewise are the City’s

determinations of how to use its revenue sources.

VI. ALTERNATIVELY, THE CAPACITY FEE IS A VALID USER FEE

Even if the Capacity Fees do not meet the requirements of the dual rational

nexus test, it is a valid utility facilities user fee. See Pinellas Cnty. v. State, 776 So.

2d 262, 266-69 (Fla. 2001). User fees are

charges based upon the proprietary right of the governing bodypermitting the use of the instrumentality involved. Such fees sharecommon traits that distinguish them from taxes: they are charged inexchange for a particular governmental service which benefits theparty paying the fee in a manner not shared by other members ofsociety, and they are paid by choice, in that the party paying the fee

35

has the option of not utilizing the governmental service and therebyavoiding the charge.

City of Gainesville v. State, 863 So. 2d 138, 144 (Fla. 2003). See also Pinellas

Cnty., 776 So. 2d at 267 (user fees “are charged in exchange for a particular

governmental service which benefits the party paying the fee in a manner not

shared by other members of society”). In determining whether a fee constitutes a

user fee a court considers the following:

the name given to the charge; the relationship between the amount ofthe fee and the value of the service or benefit; whether the fee ischarged only to users of the service or is charged to all residents of agiven area; whether the fee is voluntary-that is, whether a propertyowner may avoid the fee by refusing the service; whether the fee is amonthly charge or a one-time charge; whether the fee is charged torecover the costs of improvements to a defined area or infrastructureor for the routine provision of a service; whether the fee is for atraditional utility service; and whether the fee is statutorily authorizedas a fee.

City of Gainesville, 863 So. 2d at 145. But “[n]one of these factors is controlling;

nor are they necessarily exclusive.” Id. Each factor must be considered “in light

of the circumstances as a whole in each particular case.” Id.

In Pinellas County, the county “proposed to incorporate into its existing

water and sewer facilities a reclaimed water service component.” 776 So. 2d at

263. The county proposed to fund the reclaimed water service with revenue bonds

secured by an availability charge or "readiness to serve" charge. Id. at 264. The

availability charge was imposed only on properties that would have access to the

36

reclaimed water service. Id. The availability charge was calculated to cover part

of the cost of the capital improvements associated with the reclaimed water

service. Id. Once the cost of the capital improvements was recovered, the

availability charge would no longer be assessed. Id. The Court held that the

availability charge “provides a special benefit to those paying the fee: unlimited

access to reclaimed water.” Id. at 267. “Rather than going into the general fund,

the money which is recouped through the [a]vailability [c]harge is tied directly to

payment for the reclaimed water distribution line improvements extending to the

individual properties . . ., and collection of the charge ceases when those costs have

been recovered.” Id. “[T]hose paying the fee receive unlimited access to

reclaimed water, a benefit which is not shared by persons not required to pay the

fee.” Id. at 267-68. For these reasons, the Court held the availability charge is not

a tax, but a valid utility facilities user fee. Id. at 268.

While there are some factors that might weigh against the Capacity Fee

being a user fee,11 the more persuasive factors point in favor of it. The Capacity

Fees are based on the value of the benefit (connection to and use of the Excess

Capacity) received by the payer of the Capacity Fee. Also, the money that is

11 For instance, the City officially calls the fee a “water capacity fee,” but doesrefer to such fee as an "impact fee" throughout chapter 2, article VII, division 7 ofthe Code of Ordinances of the City. However, "the name given to the charge is notcontrolling; it is the reason for the charge which controls its nature . . . ." City ofGainesville, 863 So. 2d at 144.

37

recouped through the Capacity Fees are tied directly to the financing of the Excess

Capacity, which provides the available capacity necessary to accommodate the

new users required to pay the Capacity Fees. The Capacity Fees are only charged

to new customers connecting properties and improvements to the Water System for

the first time. In other words, the Capacity Fees provide the capacity necessary to

access the Water System.

Importantly, the Capacity Fees are voluntary as they may be avoided by

refusing use of the Water System. The City only requires new users actually using

the available capacity of the Water System to pay the Capacity Fee. Properties that

are undeveloped do not pay it. See id. at 146. Additionally, citizens can avoid

paying the Capacity Fees by choosing to purchase homes or businesses that are

already connected to the Water System. See id. Even if the Water Capacity Fee is

deemed to not be voluntary, “where a governmental entity provides access to

traditional utility services, the Court has not hesitated to uphold local ordinances

imposing mandatory fees, regardless of whether an individual customer actually

uses or desires the service.” Pinellas Cnty., 776 So. 2d at 268-69. Accord State v.

City of Miami Springs, 245 So. 2d 80 (Fla. 1971) (flat rate sewer charge for all

single family residences, unrelated to actual use, was not unreasonable, arbitrary or

in conflict with state or federal constitutions and law); Town of Redington Shores

v. Redington Towers, Inc., 354 So. 2d 942 (Fla. 2d DCA 1978) (mandatory sewer

38

charges against unoccupied property applied from the date the sewer main was

available to be used, and that sewage charges were reasonably related to the value

of service rendered either as actually consume or as readily available).

In addition, a “strong factor” in favor of the Capacity Fees being user fees, is

that the creation, construction, extension, purchase, operation and maintenance of

the Water System are all statutorily authorized. See id. at 145. Section 180.06,

Florida Statutes, authorizes a municipality to provide water for domestic,

municipal or industrial uses and to construct capital projects associated therewith.

Section 180.13, Florida Statutes, authorizes the City Commission to “establish just

and equitable rates or charges to be paid to the municipality for the use of the

utility by each person, firm or corporation whose premises are served thereby . . . .

There is ample authority under Florida's statutory law for local governments to

recoup the costs of providing water service in general.” Pinellas Cnty., 776 So. 2d

at 268 n.11 (citing section 180.02(3), Florida Statutes). It is not an arbitrary

decision for a local government to base the amount of a connection fee upon the

cost of financing the construction of the entire sewer system as opposed to the

actual cost of the connection itself when the connection fee is part of the overall

financing scheme. See Curson v. W. Conshohocken Mun. Auth., 611 A.2d 775,

777 (Pa. Commw. Ct. 1992). It is a “well-settled principle that the establishment

of utility rates is generally a legislative function.” City of Gainesville, 863 So. 2d

39

at 147 (citing Mohme v. City of Cocoa, 328 So. 2d 422, 424 (Fla. 1976)). In setting

these utility rates, municipalities “enjoy a certain latitude.” Id.

In Curson, the West Conshohocken Municipal Authority imposed a

connection fee of $1,200 per equivalent dwelling unit for connection to its sanitary

sewer system. Curson, 611 A.2d at 776. An apartment building was assessed a

separate connection fee for each of the 22 residential units in the building. Id. The

owners of the apartment building challenged the connection fee on the grounds that

the connection fee “was imposed without regard to the actual cost of the

connection.” Id. The Court held not basing a “connection fee on the actual cost of

the connection . . . is not necessarily an arbitrary decision.” Id. at 777. The Court

noted that the amount of the connection fee:

was an integral part of the financing scheme to construct the entiresewer system. . . . The connection fee was arrived at by subtractingthe proceeds of the bond issue and grant proceeds from the total costof construction, and then dividing the resulting amount by the numberof [equivalent dwelling units] in West Conshohocken. Thus, theconnection fee was based upon the cost of financing the constructionof the entire sewer system, not just the cost of connecting eachindividual [equivalent dwelling unit] to the system. Because eachdwelling unit uses the entire sewage system, and the entire systembenefits each unit in an identical manner, each unit is therefore madeto bear an equal share of the cost. Such a plan is not unreasonable andthe West Conshohocken Borough secretary testified at trial that theconnection fee was charged uniformly to all apartment buildings.

Id. (emphasis in original).

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Here, not only was the Capacity Fee based on the value of the available

capacity being accessed and used by the new user, but it was also an integral part

of the financing scheme to purchase the Purchased Assets and the Excess Capacity.

See Poe v. Hillsborough Cnty., 695 So. 2d at 679 (“the court cannot micromanage

the arms-length business negotiations of the parties by striking discrete portions of

a complex arrangement”). As evidenced by the Purchase Agreement, the Briefing

Report and the Consulting Engineer's Report, the use of the Capacity Fees to

finance the Excess Capacity was integral to the overall transaction and the City’s

plan from the very beginning. It was not an arbitrary decision on the part of the

City Commission to include the Capacity Fees as part of the overall financing

structure of the Capacity Improvements. Each new user connecting to the Water

System benefits from the unused capacity that is available as a result of the

Capacity Improvements. For the foregoing reasons, the Capacity Fees are a valid

utility facilities user charge, authorized to be imposed by the City pursuant to

chapter 180.

CONCLUSION

The trial court’s entire analysis is flawed because it applied the incorrect

standard review. The Impact Fee Act does not apply because (i) this is a bond

validation, not “an action challenging an impact fee;” and (ii) the Impact Fee Act

does not apply retroactively to the Capacity Fee imposed before it was enacted.

41

Even if the Impact Fee Act does apply, it does not change the dual rational nexus

test. Rather, it only prevents Courts from giving governments a greater degree of

deference than under then-existing case law. Therefore, the trial court was required

to give deference to the City’s legislative decisionmaking.

But the trial court gave no regard to the structure of the City’s transaction

with FPUC, under which it purchased two separate assets for separate purchase

prices. Similarly, the trial court rejected the opinions of the engineering firm that

the City retained to provide professional services and advice, in favor of opinions

that were not presented to the City until the trial. Based on the information before

the City, its decisions were not patently erroneous.

Because the trial court committed legal error by failing to give deference to

the City’s legislative findings, its final judgment should be reversed. Giving proper

deference to the City’s legislative findings based on the information before it, the

Capacity Fee satisfies the dual rational nexus test as a matter of law. Therefore,

the case should be remanded to the trial court with instructions to validate the

2013B Bonds.

Respectfully submitted on February 24, 2014.

42

/s/Elizabeth W. NeibergerSusan H. ChurutiFlorida Bar No. 284076Bryant Miller Olive P.A.One Tampa City Center, Suite 2700Tampa, FL 33602

Thomas B. ConstantineFlorida Bar. No. 869112Bryant Miller Olive P.A.111 Riverside Avenue, Suite 200Jacksonville, FL 32202

Elizabeth W. NeibergerFlorida Bar No. 0070102Jason M. BrethFlorida Bar No. 0040742Bryant Miller Olive P.A.101 North Monroe Street, Suite 900Tallahassee, FL 32301

Tammi E. BachFlorida Bar No. 179086City AttorneyCity of Fernandina Beach, Florida204 Ash StreetFernandina Beach, Florida 32034

Attorneys for Appellant

CERTIFICATE OF SERVICE

I certify that on February 24, 2014, a true and correct copy of the foregoing

has been furnished by email to:

Thomas E. Bishop, Esq.tbishop@tannerbishop.comMichael G. Tanner, Esq.mtanner@tannerbishop.com

Angela B. Corey, Esq.State Attorneyacorey@coj.netStephen W. Siegal, Esq.

43

Gilbert L. Feltel, Jr.gfeltel@tannerbishop.comC. Matthew Detzel, Esq.mdetzel@tannerbishop.comE. Clinch Kavanaugh, III, Esq.clinchkavanaugh@gmail.comYvonne Arnoldyarnold@tannerbishop.com,Stacy Hofnershofner@tannerbishoplaw.comSecondary E-mailservice@tannerbishop.comWells Fargo CenterOne Independent Dr., Suite 1700Jacksonville, Florida 32202

Attorneys for Joanne Conlon,Intervenor-Appellee

Assistant State Attorneyssiegel@coj.net.Nassau County Courthouse76347 Veterans Way, Suite 2105Yulee, Florida 32097

Attorneys for the State of Florida,Defendant-Appellee

/s/Elizabeth W. NeibergerElizabeth W. Neiberger

44

CERTIFICATE OF COMPLIANCE

I certify that the foregoing was word-processed using Times New Roman,

14-point font, in compliance with Rule 9.210(a)(2) of the Florida Rules of

Appellate Procedure.

/s/Elizabeth W. NeibergerElizabeth W. Neiberger