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In re Petition for Referendum on City of Trenton Ordinance 09-02

April 6, 2010

IN RE PETITION FOR REFERENDUM ON CITY OF TRENTON ORDINANCE 09-02


On certification to the Superior Court, Appellate Division, whose opinion is reported at 411 N.J. Super. 135 (2009).

SYLLABUS BY THE COURT

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

The referendum power is one of the key provisions of the Faulkner Act. It is an exercise in democracy that profoundly affects the relationship between the citizens and their government by affording the people the last word if they choose to take a stand against the wisdom of an ordinance that the government has enacted. The issue in this appeal is whether a provision in the Municipal Utilities Law authorizes a municipality to sell a municipal water system without being subject to challenge by referendum under the Faulkner Act.

The City of Trenton, a Faulkner Act municipality organized under a mayor-council form of government, controls a water distribution system which consists of two parts: the Inside Water Utility System (IWUS), which serves residents and businesses within the City, and the Outside Water Utility System (OWUS), which serves residents in surrounding townships. In 2000 and 2005, the City commissioned two consulting firms to report on whether the OWUS could be separated from the IWUS. The firms concluded that separating the two systems would serve the interests of both Trenton and the townships.

In 2007, the City negotiated a contract for the sale of the OWUS to the New Jersey-American Water Company (NJAW), a shareholder-owned water utility. The City submitted a petition to the Board of Public Utilities (BPU) pursuant to N.J.S.A. 40:62-3.1 of the Municipal Utilities Law (MUL). Section 3.1 provides for the transfer of a water utility system serving less than five percent of the population by ordinance and subject to review by the BPU. After the townships serviced by the OWUS and other organizations intervened, the BPU transferred the matter to the Office of Administrative Law (OAL), which conducted a hearing.

On February 3, 2009, the Trenton City Council adopted ordinance 09-02, which authorized the sale of the OWUS to NJAW. The mayor approved the sale. An administrative law judge (ALJ) found that the agreement was acceptable and recommended that the decision be adopted by the BPU. Shortly thereafter, a group of Trenton citizens filed a petition for referendum pursuant to the Faulkner Act. The Faulkner Act confers on the voters of Faulkner Act municipalities, such as Trenton, the right to approve or reject an ordinance upon the proper filing of a referendum petition. N.J.S.A. 40:69A-185. The City countered with a complaint seeking that the petition be declared null and void. NJAW moved to intervene.

The Law Division judge found in favor of the City and NJAW, concluding that the Legislature had opted to limit the power of the Faulkner Act when it enacted section 3.1 of the MUL. The judge concluded that the IWUS and the OWUS are separate entities, not two portions of the same system, and that dividing them would not cause harm. The BPU issued an order adopting the initial decision of the ALJ and finding the acquisition would have multiple positive benefits.

The Appellate Division affirmed, upholding the trial judge's conclusion that the sale of the OWUS was subject to the exception under MUL section 3.1, and declaring the trial judge's factual determinations supported by the record. In addition, the panel held that the alternative process set forth in section 3.1 supersedes the general provisions of the Faulkner Act. The citizens filed a petition for certification limited to the legal issue of whether section 3.1 of the MLUL negates the public's right to referendum under the Faulkner Act. The Court granted the petition.

HELD: The relevant provision of the Municipal Utilities Law, N.J.S.A. 40:62-3.1, eliminates only the mandatory requirement of a referendum; it does not affect the citizens' right to contest an ordinance as provided by the Faulkner Act. Ordinance 09-02 of the City of Trenton, which authorizes the sale of a municipal water utility system to a private entity, must be submitted to the voters.

1. This appeal concerns the intersection of the Faulkner Act and the MUL and thus constitutes a question of statutory interpretation. This is purely a legal issue and no deference is owed to the trial court's legal conclusions. The Court's task in statutory interpretation is to determine and effectuate the Legislature's intent. In doing so, the Court looks first to the plain language of the statute, seeking further guidance only if the statutory language is not clear and unambiguous. When reviewing separate enactments, the Court has an affirmative duty to reconcile them, so as to give effect to both. (pp. 9-12)

2. The version of the Faulkner Act relating to the referendum power states, in pertinent part: "The voters shall have the power of referendum which is the power to approve or reject at the polls any ordinance submitted by the council to the voters or any ordinance passed by the council, against which a referendum petition has been filed as herein provided." N.J.S.A. 40:69A-185. In other words, members of the public dissatisfied, for any reason, with an ordinance passed by the municipal council are entitled to protest that ordinance and express their opposition thereto by filing a referendum petition. Under the Faulkner Act, there are only two exceptions to the public's right to demand a referendum: "The provision of this section shall not apply to any ordinance which by its terms or by law cannot become effective in the municipality unless submitted to the voters, or which by its terms authorizes a referendum in the municipality concerning the subject matter thereof." N.J.S.A. 40:69A-185. This Court has stated that the Faulkner Act should be liberally construed to promote the salutary objective of popular participation in local government. (pp. 12-15)

3. For guidance regarding how to interpret the Faulkner Act, the Court looks to its most recent expression on the subject. In re Ordinance 04-75, 192 N.J. 446 (2007). There, the Court explained that where the Legislature has made clear its intention to carve out of the Faulkner Act a particular type of ordinance, courts must follow that mandate. The Court held, however, that where the legislative intent is not clear from the statute's text, legislative history, or place in the larger statutory scheme, an intention to immunize an ordinance from a Faulkner Act challenge will not be found. (pp. 15-17)

4. The MUL provides that a municipality may sell a public utility plant or system to a non-public entity upon the adoption of an ordinance and upon the approval of the sale by a majority of the municipality's voters in a general election. N.J.S.A. 40:62-5. Thus, under the MUL, an ordinance authorizing a transfer of a water utility to a non-public entity cannot become effective without prior voter approval. That required voter approval, in turn, immunizes the ordinance from a later referendum petition under the Faulkner Act. However, the MUL contains an exception to the required mandatory prior voter approval. N.J.S.A. 40:62-3.1 provides that where a municipality deems it in the public interest to transfer a water utility serving less than five percent of the municipal population, it may do so without the prior voter approval ordinarily required under N.J.S.A. 40:62-5. Instead, the ordinance is subject to review by the BPU. (pp. 17-20)

5. Section 3.1 of the MUL does not say that a less-than-five-percent sale may take place "without any referendum." Nor does it say that such a sale "shall not be subject to referendum." Rather, in a narrow and precise way, it excepts a less-than-five-percent sale only from the procedural requirements and mandatory voter approval specifically commanded by the MUL. There is a chasm between that limited carve out and the ones the Court recognized in In re Ordinance 04-75. There is nothing in the words the Legislature chose in section 3.1 that would suggest an intention to take away the right of citizens to protest an ordinance under the Faulkner Act. It is one thing to say that every less-than-five-percent sale should not be subject to automatic referendum under the MUL. It is quite another to silence the electorate altogether. (pp. 20-21)

6. The legislative history of the MUL sheds no more light on the section 3.1 exception than the words of the Act itself. Nor can the Court glean from the larger scheme provided by the MUL any intention to eviscerate the provisions of the Faulkner Act. It seems evident to the Court that the Legislature understood that BPU approval is not a substitute for a Faulkner Act referendum. Here, the citizens are challenging the "concept" of the sale as an unwise one-time budget fix. The BPU has no interest in that political question. Because N.J.S.A. 40:62-3.1 is entirely silent regarding the Faulkner Act, the Court cannot find in it a clear intention on the part of the Legislature to muzzle the electorate. (pp. 21-26)

The judgment of the Appellate Division is REVERSED.

CHIEF JUSTICE RABNER has filed a separate, DISSENTING opinion, stating that he would affirm the Appellate Division substantially for the reasons expressed in Judge Carchman's opinion.

JUSTICES LONG, LaVECCHIA, ALBIN, WALLACE, and HOENS join in this opinion. CHIEF JUSTICE RABNER filed a separate dissenting opinion. JUSTICE RIVERA-SOTO did not participate.

Per curiam.

Argued March 22, 2010

"The Legislature has conferred on the voters of Faulkner Act*fn1 municipalities, such as Trenton, 'the power of referendum,' the right to test a challenged ordinance in the crucible of the democratic process." In re Referendum Petition to Repeal Ordinance 04-75, 192 N.J. 446, 450 (2007) (citing N.J.S.A. 40:69A-185) (footnote omitted). The referendum power is one of the key provisions of the Faulkner Act. It is an exercise in democracy that profoundly affects the relationship between the citizens and their government by affording the people the last word if they choose to take a stand against the wisdom of an ordinance that the government has enacted. Thus, "[w]hen a referendum petition is properly filed, the voters have the final say in approving or rejecting an ordinance at the ballot box." Ibid.

This case involves the interplay between the Faulkner Act, N.J.S.A. 40:69A-185, and the Municipal Utilities Law (MUL), N.J.S.A. 40:62-1 to -151. In particular, the question presented is whether N.J.S.A. 40:62-3.1, which governs the sale of a municipal water utility, was intended to strip the public of the power to challenge an ordinance by referendum afforded by N.J.S.A. 40:69A-185. Because there is no clear evidence of such an intention on the part of the Legislature, Ordinance 09-02 of the City of Trenton, which authorizes the sale of a municipal water utility system to a private entity, is subject to referendum under the Faulkner Act.

I.

The City of Trenton (the City), a Faulkner Act municipality organized under a mayor-council form of government, see N.J.S.A. 40:69A-32, controls a water distribution system, the Trenton Water Works (TWW). The TWW consists of two parts: the Inside Water Utility System (IWUS), which serves residents and businesses within the City, and the Outside Water Utility System (OWUS), which serves residents and businesses in the townships of Ewing, Hamilton, Hopewell and Lawrence. The TWW is a revenue-generating operation providing the City with over forty million dollars per year, about sixty percent of which comes from the OWUS.

In 2000 and 2005, the City commissioned two outside consulting firms to prepare reports to determine whether OWUS could be separated from IWUS. The firms concluded that separating the two water utility systems would serve the interests, public health and safety of both Trenton and the townships served by OWUS.

In 2007 the City negotiated a contract for the sale of OWUS to New Jersey-American Water Company (NJAW), a shareholder-owned water utility. The City submitted a petition to the Board of Public Utilities (BPU) pursuant to section 3.1 of the MUL, which provides that if the government deems it advisable to transfer a water utility system serving less than five percent of its population to another entity, the transfer may be authorized by ordinance subject to review by the BPU. N.J.S.A. 40:62-3.1.

Among the reasons advanced for the sale were: that the City would be relieved of operating and maintaining a water system that does not serve its residents; the proceeds of the sale would enable the City to pay down water system and other City debt; the sale would provide the City with the ability to finance needed infrastructure improvements and stabilize real estate taxes, thus encouraging economic revitalization; the City would continue to receive IWUS revenues; and residents and customers of OWUS would be better served if it was run by a qualified utility operator.

Several organizations, including the townships serviced by OWUS, intervened; consequently, the BPU referred the matter to the Office of Administrative Law (OAL), which conducted a public hearing. At that proceeding, the parties agreed on amendments to the contract, and the matter was referred back to the BPU for review.

On February 3, 2009, the Trenton City Council adopted Ordinance 09-02, which authorized the sale of OWUS to NJAW. The mayor approved the sale. An administrative law judge (ALJ) subsequently found that the agreement was acceptable and recommended that the decision be adopted by the BPU. Shortly thereafter, a group of Trenton citizens (the citizens) filed a petition for referendum pursuant to the Faulkner Act, N.J.S.A. 40:69A-185. According to the citizens, they opposed the sale because "it is a bad business arrangement, transforming the TWW from its current profile as a successful and profitable enterprise yielding healthy and vitally needed surpluses for the benefit of all users, to a state of virtual insolvency." Further, the citizens questioned the wisdom of selling a revenue-generating asset to fill an operating budget gap. The City countered with a Superior Court complaint seeking that the petition be declared null and void. NJAW moved to intervene.

The inquiry in the Law Division focused on whether section 3.1 supersedes the Faulkner Act; whether OWUS served more than five percent of the City's population; and whether OWUS and IWUS constitute a single system or two separate systems. The trial judge found in favor of the City and NJAW, concluding that the Legislature had opted to limit the power of the Faulkner Act when it enacted section 3.1 of the MUL. The judge concluded that IWUS and OWUS are separate entities, not two portions of the same system, and that dividing them would therefore not cause harm.*fn2

The BPU then issued an order adopting the initial decision of the ALJ and incorporating the amendments to the contract agreed upon at the public hearing. The BPU considered, as required by statute, "the impact of the acquisition on competition, on the rates of ratepayers affected by the acquisition of control, on the employees of the affected public utility or utilities, and on the provision of safe and adequate utility service at just ...


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