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February 2008 No. 159 REPORT Supreme Court Considers Taxpayer Protections in NVTA Tax Case By primarily because an unelected board cannot Joseph Henchman Introduction and Summary impose taxes without voter approval under the Tax Counsel On January 1, 2008, residents of Northern Tax Foundation Virginia Constitution. Indeed, in this case, Virginia began paying seven new taxes that will voters have on several occasions explicitly re- raise $326 million a year. The taxes are im- jected NVTA-type taxes. posed by the Transportation Authority (NVTA), a governmental entity cre- Oral arguments were heard by the state ated in 2002 but not given the power to tax supreme court on January 8, 2008, after a 1 and issue bonds until 2007. lower court judge (Judge Benjamin Kendrick) had ruled the NVTA to be constitutional.2 Only an elected body can issue debt Many states have taxpayer protections built into their state constitution, and Virginia or impose taxes. Here, the Northern is no exception. Some of these Virginia tax- Virginia Transportation Authority, payer protections include: not the , is imposing taxes • Legislative power is vested with the and issuing debt. Because its legislature and cannot be delegated without constraints.3 This limits the members are not elected, its actions legislature if it seeks to avoid responsi- should be held to violate Article VII, bility by turning over the Section 7. decision-making power to other entities. • The power to tax, once described The taxes may not last long. The Virginia by Chief Justice as Supreme Court is considering a lawsuit chal- the “power to destroy,”4 cannot be lenging the NVTA as unconstitutional,

1 The NVTA website’s FAQ helpfully notes that the Northern Virginia Transportation Authority is distinct from the Northern Virginia Transportation Alliance, the Northern Virginia Regional Commission (NVRC), and the Northern Virginia Transportation Commission (NVTC). 2 See NVTA v. Marshall, No. 07-923 (Arlington Co. Cir. Ct. August 31, 2007). 3 See VA. CONST. Article IV, Sec. 1. See also 1 A. Howard, Commentaries on the (1974) at 468 (“The vesting of legislative power in the General Assembly reflects the notion that legislative power cannot be delegated.”). 4 M’Cullough v. Maryland, 17 U.S. (4 Wheat.) 316, 431 (1819). SPECIAL 2 REPORT

delegated to an unelected body.5 This ing’ and ‘omnibus bills,’ and to ensure gives taxpayers recourse against those separate consideration by the legislature who impose destructive taxes. for distinct proposals.”9 • Measures to raise taxes or borrow money must be approved publicly by elected officials, with votes recorded.6 Many states have taxpayer This helps ensure that taxes and bor- protections built into their state rowing are scrutinized publicly and constitution, and Virginia is no enjoy a broad range of support beyond that of a narrow special interest. exception.

• Debt to be repaid with tax revenues 7 must be approved by a referendum. NVTA’s Governance Politicians are thus limited in their abil- The NVTA Board consists of the following 16 ity to spend future tax revenues today. members, none of whom are directly elected by • Laws cannot embrace more than one voters to the NVTA Board: object.8 “Single-object” or “single-sub- • Nine mayors, chairs, or designees from ject” rules are in virtually every state each of the nine NVTA jurisdictions constitution, and they arose in “the ( of Alexandria, Arlington , 1830s to eliminate the evils of ‘logroll- NVTA Taxes The NVTA has approved the imposition of seven taxes within its region, estimated to generate over $326 million per year in revenue.

Tax Description Rate Annual Funding Grantors Tax Applies to sale of property in NVTA region 40 cents per $100 $171.0 million valuation (e.g., sale of $400,000 property is $1,600 tax) Initial Vehicle One-time on purchase or initial registration 1 percent of the $64.6 million Registration Fee* of vehicles in NVTA region vehicle’s value Sales Tax on Extends sales tax to parts, materials, and 5 percent $33.2 million Auto Repairs labor associated with auto repairs in NVTA region Transient Occupancy Tax Applies to hotel room rentals in NVTA region 2 percent $25.3 million Regional For annual registration of vehicles $10 per year $17.0 million Registration Fee* in NVTA region Safety For annual vehicle safety inspection $10 per year $16.2 million Inspection Fee* in NVTA region Motor Vehicle Rental Tax Applies to car rentals in NVTA region 2 percent $9.0 million

Source: Northern Virginia Transportation Authority.10 *Although labeled a “fee,” these three assessments are more accurately described as taxes. The money raised by these three assessments goes into a common fund and is spent on projects not related to the services upon which they are imposed. Instead, the assessments raise money in excess of what is needed to pay for the services provided by government, with the money used for general spending on transportation construction projects in the NVTA region. For this reason, all seven charges are more accurately described as taxes.

5 See County of Fairfax v. Fleet Indus. Park Ltd. Partnership, 410 S.E.2d 669, 672 (Va. 1991) (“This Court has uniformly held that the power to exercise legislative authority may not be removed from the control of the local legislative representatives of the people.”). 6 See VA. CONST. Article VII, Sec. 5. 7 See VA. CONST. Article VII, Sec. 10; Article X, Sec. 9. 8 See VA. CONST. Article IV, Sec. 12. 9ROBERT F. WILLIAMS, STATE CONSTITUTIONAL LAW (4th ed. 2006) at 754. 10 http://www.thenovaauthority.org/PDFs/Fact Sheets/Taxes and fees Fact Sheet Final.pdf. SPECIAL 3 REPORT

City of Fairfax, Fairfax County, City of • In 1998, Virginia voters rejected (56% Falls Church, Loudoun County, City of to 44%) Question 3, which would have Manassas, City of Manassas Park, and amended the state constitution to allow Prince William County). These offi- for regional governing bodies with the cials, while elected to some office, are power to collect taxes and issue bonds.14 not directly elected to the NVTA. • Also in 1998, Virginia voters rejected • Two appointed by the Speaker of the (62% to 38%) Question 4, which Virginia House. would have permitted local govern- ments to form a compact to issue • One appointed by the Virginia Senate bonds, without voter referendum.15 Committee on Privileges and Elections. • In 2002, Northern Virginia voters re- • Two appointed by the of jected (55% to 45%) a measure which Virginia. would have authorized the NVTA to • The Director of the Department of Rail issue $2.8 billion in bonds for transpor- tation projects, secured by a half-cent and Public Transportation 16 (non-voting). regional sales tax increase. • The Commonwealth Transportation Commissioner (non-voting). The assessments raise money in excess Voters Rejected Prior Efforts to Impose of what is needed to pay for the Transportation Taxes services provided by government, Prior to the state legislature’s creation of with the money used for general NVTA and grant of taxing power to it, Vir- spending on transportation ginia voters consistently rejected ballot measures that would have allowed regional construction projects in the NVTA bodies to impose taxes and issue debt for trans- region. For this reason, all seven portation purposes:11 charges are more accurately described • In 1990, Virginia voters rejected (76% as taxes. to 24%) Question 3, which would have amended the state constitution to per- mit local governments to issue bonds These results suggest that Virginia voters for transportation projects, secured by did not support the creation of a new regional pledged tax revenues.12 entity with the power to impose taxes or issue debt without further voter approval. The fre- • Also in 1990, Virginia voters rejected quent attempts to amend the state constitution (78% to 22%) Question 4, which to do so suggest that absent constitutional would have similarly given the state amendment, the legislature has no power to government the power to issue bonds create regional bodies with the power to raise for transportation projects secured by taxes and issue debt. pledged tax revenues, without voter ref- erendum.13

11 See Brief of Robert G. Marshall, et al., Marshall v. NVTA (hereafter “Marshall Brief”), at 19-20 (Va. 07-1959) (filed Nov. 27, 2007). 12 Id. 13 Id. 14 Id. 15 Id. 16 2002 General Election Results, Virginia State Board of Elections, http://www2.sbe.state.va.us/web_docs/election/results/2002/nov. SPECIAL 4 REPORT

Passage of H.B. 3202, Enactment of Constitutional Challenge 1: Taxes, and Lawsuit No Delegation to Unelected Officials Nevertheless, the Virginia legislature in 2007 As in the federal Constitution, Virginia’s con- passed House Bill 3202, which authorized the stitution explicitly vests legislative power in the NVTA to impose regional taxes and issue debt. legislature: The bill also unified “numerous, separate pieces of legislation, some having been rejected The legislative power of the Common- in substantially similar form at the 2006 special wealth shall be vested in a General session of the General Assembly,” including Assembly, which shall consist of a Sen- 18 new driver surcharges, acquisition of school ate and a House of Delegates. sites, park and open space management, and an The implication of such a clause is that no increase in salaries for Virginia Tech profes- 17 one else can exercise legislative power except sors. Governor (as he is the General Assembly. For example, the Gov- empowered to do in Virginia) returned the bill ernor cannot simply decree a legislative act into to the General Assembly, recommending a effect. substitute by adding the phrase “relating to transportation” to the otherwise non-descript Because are busy and not usu- title. The substitute was enacted and signed ally detail-oriented, such “vesting clauses” have into law in April 2007. more nuanced application when legislatures delegate work to other bodies. At the federal In July 2007, the NVTA Board imposed level, for instance, Congress can delegate rule- the taxes, and approved the issuance of $130 making to other agencies so long as Congress million in bonds to pay for 22 “ready-to-go” “clearly delineates the general policy, the public transit, roadway, and pedestrian projects. agency which is to apply it, and the boundaries None of the tax increases, nor the bond issu- of this delegated authority.”19 Virginia has ap- ance, will be submitted to voters for approval. plied this rule also.20 But a delegation that sets Anticipating a challenge, the NVTA filed no guidelines and allows the agency to do for a declaratory judgment that it had the con- whatever it wishes exceeds delegation power 21 stitutional power to raise taxes and issue debt. and violates the constitution. The Northern Virginia Transportation Alli- The Virginia Supreme Court has applied ance—a separate pro-NVTA group—and the similar rules to its state provision. One case Transportation Authority—a involved a 1987 law setting up advisory boards body similar to NVTA in the region that had to approve certain county enactments of the state, created at the same time—joined before they could take effect.22 The Court the case to support the NVTA. ruled this to be an unlawful delegation:

Intervening as defendants in the challenge In requiring the consent of private land- were Virginia House Delegate Robert owners or the advisory board as a Marshall, several members of the National condition precedent to the County be- Taxpayers Union Foundation, and Loudoun ing able to implement changes in the County. The case has been consolidated as zoning ordinance, the amendment effec- Marshall v. NVTA, and concerns three consti- tively delegates the legislative authority tutional challenges to NVTA’s asserted power of the County to a non-legislative body to issue the bonds and impose the taxes.

17 Marshall Brief, at 4, citing Joint Appendix, at 109-10, Marshall v. NVTA (Va. 07-1959). 18 VA. CONST. Article IV, Sec. 1. 19 Mistretta v. United States, 488 U.S. 361, 372-73 (1989), citing American Power & Light Co. v. SEC, 329 U. S. 90, 105 (1946). 20 See Ames v. of Painter, 389 S.E.2d 702, 703 (Va. 1990). 21 See generally A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495 (1935). 22 See County of Fairfax v. Fleet Industrial Park Limited Partnership, 410 S.E.2d 669 (Va. 1991). SPECIAL 5 REPORT

and to private individuals.... These pro- backed by tax revenue must be subject to voter visions impermissibly give private approval. Because the General Assembly did individuals and a non-legislative body not possess the power, it could not have del- total discretion as to whether a land use egated it to the NVTA either.26 Marshall also ordinance or regulation affecting them argues that if the NVTA imposed the taxes on will be enacted.23 its own authority, it violated Article VII, Sec. 7 of the Virginia Constitution, which bars any In this case, the General Assembly autho- appropriation, imposition of tax, or issuance of rized the NVTA to impose the taxes and issue debt without a recorded majority vote by all the bonds, but did not require the NVTA to the members of an elected “governing body.” do so. The NVTA disputes this, arguing that Because the NVTA is not elected, it could not because the General Assembly set the tax rates, constitutionally issue the debt or impose the 24 it maintains “ultimate supervisory control.” taxes. However, the General Assembly cannot impose the taxes and issue debt without a public vote. The NVTA counters that it is not a “gov- The set-up appears to allow both the General erning body” and is therefore outside the scope Assembly and the NVTA to point to each of Article VII, Sec. 7, which it argues applies other as the one imposing the taxes, because only to governing bodies. The lower court whichever one imposed them did not follow judge agreed with this view, holding that be- the constitutional rules. The NVTA cannot cause NVTA members are unelected, it is not a have it both ways: either it imposed the taxes “governing body” and therefore not subject to and therefore violated the nondelegation doc- the restrictions of that section.27 Thus, the trine, or the General Assembly constitutional provision that states that debt unconstitutionally imposed the taxes without a can only be issued after a recorded vote by all public vote. members of a governing body is not restrictive if there are no members of a governing body. If the NVTA had discretion whether or not to impose the taxes, it exercised some legis- This conclusion is problematic because it lative control. Marshall’s brief argues that the holds that while elected officials cannot be delegation of taxing power to the NVTA is es- trusted to impose taxes or issue debt without pecially problematic: ensuring full public consideration, unelected officials would be so trusted. If true, the Vir- Taxation power bestowed on individu- ginia legislature need never again submit a tax als who are not immediately increase or bond issuance to an unpredictable accountable to the voters and not di- referendum. Instead it could simply create an rectly elected to the office responsible unelected entity to impose the tax or issue the for imposing the tax offends the most debt. That cannot be the proper reading of the fundamental of principles on which the Virginia Constitution, and at oral argument, Virginia Constitution was adopted and Virginia Supreme Court Justice Barbara over which the Milano Keenan expressed this concern, asking, 25 was fought. “Is there any limit at all? Could we literally 28 Marshall argues that the General Assembly have hundreds and thousands of these?” would not have the power to issue bonds itself, A more consistent reading would be that because the Constitution requires that debts only an elected body can issue debt or impose

23 Id. at 673. 24 NVTA Brief, at 9. 25 Marshall Brief, at 11. 26 See Marshall Brief, at 15. 27 Transcript of Judge Benjamin N.A. Kendrick’s Ruling, Marshall v. NVTA, at 5 (Arlington Co. Cir. Ct. Aug. 28, 2007). 28 Dan Genz, “Va. Justices Question NVTA Power to Tax,” D.C. EXAMINER (Jan. 9, 2008). SPECIAL 6 REPORT

taxes. Here, the NVTA (not the legislature) is The General Assembly has provided imposing taxes and issuing debt, and because that the Northern Virginia Transporta- its members are not elected, its actions should tion Authority is an independent be held to violate Article VII, Section 7. political subdivision. It is a unit orga- nized for special purposes. The Constitutional Challenge 2: enabling legislation affirms that the debt No Debt Issuance Without Referendum incurred is the debt of the Northern Unless the General Assembly authorizes it, Virginia Transportation Authority, not the Commonwealth or any county, city, debt cannot be issued “by or on behalf of any 31 county or district thereof or by or on behalf of town, or other political subdivision. 29 any regional government or district thereof.” In essence, the NVTA concedes that the To authorize it, the General Assembly must legislature cannot constitutionally issue the submit the debt issuance to a public vote for NVTA bonds without voter approval, and nei- 30 approval or rejection. The provision specifi- ther could any other elected body in the state cally applies to counties, districts, and regional with power delegated from the legislature. governments, and because of this, both sides in However, they argued, an unelected body can the Marshall litigation concede that counties, be delegated the power to issue bonds without districts, and regional governments could not voter approval, because “regional authorities” issue the NVTA bonds without voter approval. are not prohibited from doing so by the state 32 Neither can the state government, because constitution. The NVTA compares itself to Article X, Section 9(b) requires that any debt sanitary districts that operate water and sewer systems, and do not require public votes for authorized by the General Assembly be backed 33 by the full faith and credit of the state and be the issuance of debt. approved by the public at a referendum. This Marshall responds that this is “clearly con- is why the state government could not simply trary to the structure of the Constitution….”34 issue bonds for the NVTA projects itself, with- Because the General Assembly does not have out submitting the issuance to voter the power to issue bonds backed by tax rev- referendum. enues without approval by voters, it cannot be The NVTA argues that while the debt can- able to delegate this power to someone else. not be issued without voter approval by a “If that were not the rule, the prohibition county, district, or regional government, the against issuing tax-supported debt without a NVTA is not defined as any one of these, so it referendum could be readily circumvented, thereby rendering Article X, Section 9(b) a vir- is not prevented from levying taxes and issuing 35 debt. Judge Kendrick adopted this argument tual nullity.” in his opinion: Even conceding the NVTA’s argument Because the Northern Virginia Trans- that it is not a “regional government,” this case portation Authority is not a county or a involves little more than a word game. So long district thereof and is not a regional as it avoids the magic words of “counties, dis- government or district thereof, the ref- tricts, or regional governments,” the NVTA erendum requirement of Section 10(B) believes it can avoid constitutional require- is not applicable. ments imposed on government entities that

29 VA. CONST. Article VII, Section 10(B). 30 See id. 31 NVTA v. Marshall, at 9. 32 See Joint Appendix, at 146-47, 190. 33 See NVTA Brief, at 17. 34 Marshall Brief, at 21. 35 Marshall Brief, at 17. SPECIAL 7 REPORT

engage in similar activities. The one exception tions between them must be “necessary” and pointed to by the NVTA is sanitary districts. “natural.”37 Of course, a title so vague as to If they are constitutional, it is because the encompass anything that might come up charges they assess on users of their services are would be problematic under the one-object “fees” as defined and understood in public fi- rule. At what point a title becomes so vague as nance. In contrast, the NVTA imposes taxes to be unconstitutional has been a difficult line on a variety of activities beyond its control, to draw. and this scope of taxation is meant to have lim- its placed upon it by the Virginia Constitution. Marshall claims that the act challenged in the case violates the one-object rule on two Constitutional Challenge 3: grounds. First, Marshall claims that the object Violation of the One-Object Rule added at the last minute to the bill’s title, “re- lating to transportation,” is too broad: Two of the most reviled legislative prac- tices in American history are “logrolling” Virtually every aspect of human activity (legislators who support two different bills somehow relates to transportation. The agreeing to trade votes to get both passed), and analysis suggested by the NVTA would “omnibus bills” (combining many ideas that render [the one-object rule] a nullity could not pass separately into one bill that can because it would allow all legislation in- be passed with them together). Such actions troduced at a session of the General put enormous pressure on a bill’s passage, even Assembly to be combined into a single as the ability to understand what the bill in- law under a title declaring as its object cludes grows more difficult. Consequently, “the improvement of the condition of many state reformers enacted “one-object” the Commonwealth’s citizenry” or “pro- rules in state constitutions; they forbid bills viding solutions to peoples’ [sic] from encompassing more than one object everyday problems….” Simply adding which usually must be clearly explained in the the phrase “relating to transporta- title. tion”… does not cure its constitutional defect of including multiple objects….38 Virginia has such a provision in its consti- tution, motivated by such concerns.36 Second, Marshall argues that even if “relat- Subsequent cases have clarified that the unify- ing to transportation” is not an overly broad ing idea between the various items in a bill and object, many of the bill’s provisions do not ac- the title may be a general one, but the connec- tually relate to transportation. Examples given by Marshall, with NVTA’s response, appear in Marshall Claim39 NVTA Response40 the table to the left. Funding salaries of Virginia Tech professors Funded by gas taxes already The NVTA’s responses are based on indi- Funding the Virginia Truck and rect causation and speculation, and it is Ornamentals Research Station Funded by gas taxes already difficult to believe that the challenged law is “The fees may reduce bad driving and reduce the number of accidents which contribute anything other than an omnibus bill with Mandating civil remedial surcharges on drivers substantially to congestion.” many unrelated provisions thrown in, includ- Acquisitions “encourage more intensive, denser development, which may reduce traffic ing ones not related to even the overly general Acquisition of open space by localities on main arteries and thereby congestion.” concept of transportation. However, courts Requiring audit reports by the have treated legislative acts deferentially under Metropolitan Area Transit Authority Not addressed

36 VA. CONST. Article IV, Sec. 12. See also Marshall Brief at 29-32; A. Howard, Commentaries on the Constitution of Virginia 528 (1974). 37 See, e.g., Commonwealth v. Dobson, 11 S.E. 120, 131-32 (1940). 38 Marshall Brief, at 29-30. 39 See Marshall Brief, at 32-33. 40 See NVTA Brief, at Addendum. SPECIAL 8 REPORT

the one-object rule, and judges often accept debt or impose taxes without voter approval, legislative rationales at face value. the bill’s authors created a regional “authority” composed of “indirectly elected” officials. These create sufficient ambiguity about Prior to the state legislature’s creation whether the relevant constitutional provisions apply. But when one understands the purpose of NVTA and grant of taxing power and meaning behind the provisions, a mere to it, Virginia voters consistently shift in wording should not be enough to over- come the same substance. Northern Virginians rejected ballot measures that would cannot vote out the NVTA Board as such, and have allowed regional bodies to the NVTA should not be able to exercise pow- impose taxes and issue debt for ers constitutionally denied to other transportation purposes. governmental entities. The NVTA cannot have it both Conclusion ways: either it imposed the taxes and The law authorizing the NVTA to impose therefore violated the nondelegation taxes and issue debt was a cleverly crafted one. Understanding the constitutional restraints, doctrine, or the General Assembly and frustrated by voter refusal to exempt trans- unconstitutionally imposed the taxes portation spending from those restraints, the bill’s authors made just enough changes to give without a public vote. the law a veneer of constitutionality. Concerned about the one-object rule, the Only with voter approval can debt be is- bill’s proponents appended the phrase “relating sued or local taxes imposed. If the General to transportation” at the end of the bill’s title Assembly enacted the NVTA taxes, it violated even after it had initially passed the General the public vote requirement. If the NVTA en- SPECIAL REPORT Assembly. If the Virginia Supreme Court (ISSN 1068-0306) is published at acted the taxes, it exercised legislative power in least 6 times yearly by the Tax holds that such a minimal and non-descript violation of the “vesting” clause. The law as Foundation, an independent effort is all it takes to comply with the one-ob- 501(c)(3) organization chartered passed makes it unclear which entity actually in the District of Columbia. ject rule, then the rule has lost all effectiveness imposes the taxes, enabling NVTA to adopt in restraining the exercise of state power. 4–20 pp. whichever legal argument best suits the mo- Single copy: free Multiple copies: $5 each ment. The lower court even held that Because many state constitutions have unelected bodies can impose taxes without any The Tax Foundation, a nonprofit, similar provisions to those at issue in the nonpartisan research and public public vote, essentially writing an important Marshall v. NVTA case, its outcome should be education organization, has moni- taxpayer protection out of the Virginia Consti- tored tax and fiscal activities at all watched and considered by all who wish to levels of government since 1937. tution. protect taxpayers from politicians seeking to impose new taxes or issue new debt without ©2008 Tax Foundation Similarly, because regional governments or following the rules. Editor and Communications bodies with unelected officials cannot issue Director, Bill Ahern

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