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The Dillon Rule and Fairfax County

February 6, 2005

SUMMARY:  The "Dillon Rule," in contrast to "home rule," is often blamed for the inability of local governments to raise revenues, produce policy innovations, and control growth. That is a misunderstanding of the Dillon Rule. In fact, in every state the power available to a local government is based on a grant of that power from the state. The issue, then, is how much authority the state constitution and legislature give to the localities. In the case of Fairfax County, it seems that the complaints of the Dillon Rule preventing the raising of revenue, the adoption of innovative solutions, and the control of growth aren't justified by the facts.


Every year, about the time the Virginia state legislature goes into session, many of the counties, and particularly Fairfax County, will bemoan the fact that the Dillon Rule makes it impossible for them to raise revenue and govern properly. They'll tell you that it's unfair that cities, some of which are the size of many counties, get much more leeway. Then they'll mention all the good things they could do if only the Dillon Rule didn't exist and Virginia, like Maryland, were a "home rule" state. Hearing all that, it's probably worth knowing what the Dillon Rule is, why it exists, and whether it's the problem that local officials would have you believe.

The History of "Dillon's Rule"

John Forrest Dillon was an Iowa state judge from 1858 to 1868, spending the last six years on the Iowa State Supreme Court and the last two of those years as Chief Justice. President Grant appointed him a U.S. circuit judge for the 8th Judicial Circuit in 1869 and he served until 1879. He was the author of Municipal Corporations (1872), the standard text on the law and local governments, which is still quoted in court decisions today. From 1879 to 1882 Judge Dillon was a professor in the Columbia Law School, subsequently returning to private practice in New York. He was president of the American Bar Association from 1891 to 1892.

In 1868, Dillon wrote an opinion on the topic of the relationship between state and local governments in the case before the Iowa Supreme Court, City of Clinton v. Cedar Rapids and Missouri River Rail Road Company. He argued that

It is a general and undisputed proposition of law that a municipal corporation possesses, and can exercise, the following powers, and no other: First, those granted in express words; second, those necessarily or fairly implied in, or incident to, the powers expressly granted; third, those essential to the declared objects and purposes of the corporation not simply convenient, but indispensable. Any fair, reasonable doubt concerning the existence of power is resolved by the courts against the corporation, and the power is denied.

This opinion was restated in 1907 by the United States Supreme Court in Hunter v. City of Pittsburgh:

Municipal corporations owe their origin to, and derive their powers and rights wholly from, the legislature. It breathes into them the breath of life, without which they cannot exist. As it creates, so may it destroy. If it may destroy, it may abridge and control. . . [Local governments] are, so to phrase it, the mere tenants at will of the legislature.

As a result, the status of local governments is set by U.S. Supreme Court decision following Dillon's Rule – local governments have no inherent powers, and may only exercise such powers as are granted to them by their state government They may not take actions, pass laws or ordinances, or levy taxes for which they have not been specifically granted permission by their state constitution or the state government – and the courts will enforce this principal. Therefore, the only way that localities may exercise home rule is if their legislature or state constitution grants them the power to do so.

The impetus behind Dillon's Rule was the wild west atmosphere of local government at the time. Three of the manifestations of this were the "rape" of the cities by the industrial robber barons, the localities' awarding of utility franchises based on patronage and payoffs, and, perhaps most importantly, the borrowing of large sums of money by local officials to further economic growth, often to attract factories and railroads. If such an investment went bad, the local government might (and often did) terminate the city charter, putting the city out of existence and therefore avoiding having to pay off the debt.

Dillon's Rule Today

People often like to contrast states as Dillon Rule states or home rule states. Virginia is said to be the former, Maryland the latter. However, this distinction is less useful than it appears since no locality may exercise power not granted to it, and state governments may revoke powers previously granted. The real question is which powers are specifically granted, which are generally granted, and which are withheld in each case. An additional question would be how willing the state government is to grant powers when asked by a single locality, some localities, or all of them.

As a result, it is almost impossible to classify states as Dillon Rule or home rule. One attempt to do so is contained in a 2003 study by the Brookings Institution ("Is Home Rule the Answer? Clarifying the Influence of Dillon's Rule on Growth Management"), which relies solely on whether the state courts "employ a rule of statutory construction that reads identically or very close to the rule originally set forth by Judge Dillon." However, the authors go on to say

But this in large part misses the point. As we have seen, the extent of local government autonomy depends not upon whether a state court employs Dillon's Rule but rather on the propensity of the state legislature to endow local governments with autonomy. If the state legislature expresses clear intent to grant broad discretion to local governments, Dillon's Rule poses no roadblock. In some home rule states, the legislature has passed a multitude of laws prohibiting municipalities from engaging a wide variety of practices. That approach hampers municipalities more than Dillon's Rule. The legislature holds the power to expand or contract local government autonomy and to repeal Dillon's Rule. (page 25)

Citing a 1981 U.S. Advisory Commission on Intergovernmental Relations study which attempted to combine legal doctrine with actual legislative practice, the Brookings authors note its surprising results.

Virginia ranked 8th in the degree of discretionary authority enjoyed by its localities despite the fact that Virginia courts arguably apply Dillon's Rule more stringently than any in the country. In fact, of the top 10 states, ranked in descending order of local discretionary authority, seven use Dillon's Rule in all circumstances. (page 26)

So, while studies show that Virginia gives its localities wide discretionary authority, that hardly dissuades localities from attempting to blame Dillon's Rule for local problems. It's therefore useful to see what powers Fairfax County has and doesn't have and how that squares with the difficulties you'll hear described. Essentially the argument made is that under the Dillon Rule, localities can't raise new types of taxes and are more dependent than ever on real estate tax as their predominant source of funding. It is also argued that localities don't have the powers to respond creatively, or at all, to local problems such as growth and sprawl (there's that word again). Or, as a combination of the two, that it creates unfunded mandates imposed by the state.

Raising Revenue

The problem of revenue sources is the easiest to deal with. Of course localities hate to rely on real estate taxes because homeowners (read voters) are very sensitive to them. You can't hide the amount of real estate tax that a voter must pay, so raising that tax risks losing votes. Politically, it's much better to tax businesses and people who don't vote in your jurisdiction (such as tourists). Despite what you'll hear, however, the Virginia legislature has given Fairfax County the power to levy a number of taxes, including the following (with the references to the enabling provisions of Code of Virginia in parentheses):

Of course, the state legislature did give Fairfax County several alternative sources of funds which it did implement, the best known of which is the recent increase in the cigarette tax, but also the imposition of a 10% of the first $30 of the cell phone bill tax, neither of which were subject to a referendum.

The message here is that Fairfax County hasn't been denied funding opportunities by the state legislature. It's rather the County voters who have turned down, or would turn down, these funding opportunities if given the chance.

A related issue is the adequate public facilities laws that many supervisors would dearly like to have. This is essentially a large fee imposed on developers requiring them to pay money to the County to provide schools, roads, libraries, and a host of other public facilities for the people who will move into the homes they are building. The problems with this fine-sounding idea are, as many elected officials will readily admit, two-fold. First, these fees simply get passed on the home buyers by the developers, making home prices that are well above the national average even higher. Especially when County officials ardently talk about the desperate need for more affordable housing in the next breath, they're creating a contradiction they can't reconcile. Second, as I've written elsewhere, the cost of new housing, especially at high density, on an annual basis produces a net fiscal loss when resulting tax revenue is matched with service costs. And that's just operating costs. It doesn't begin to take into account the capital costs of all those new public facilities. If you imposed both operating costs and costs of new public facilities on home prices, only Bill Gates could buy a new home here.

A technical issue comes with trying to administer the new public facilities fees. Obviously when a neighborhood school is full, you can't assess the next developer of 20 homes who comes along the price of a new school. You can only assess a part of the cost of a school and put the money in a trust fund. In theory, over time the trust fund will accumulate enough money to build the new school. However, until that money has accumulated, the new children will still need to go to school, the new cars will crowd the road, and the new residents will want more library space. If you accommodate that with temporary fixes, there will no money saved for the permanent fixes some years on.

So the bottom line, as even its supporters will admit, is that adequate public facilities provisions won't pay for those facilities. They will raise some additional money, but the money raised will quickly be eaten up by the costs of County services that the new residents will require. And the adequate public facilities revenue will come by increasing the price of new homes, greatly exacerbating the problem of affordable housing. Because new homes share the housing market with existing homes, the price of existing homes will go up as well. That's great for home sellers, but hurts the people who aren't selling and have to pay increased real estate taxes. And that's where we came in to the revenue question.

Innovative Solutions

Because localities face different problems, it would be nice if they could implement different and innovative solutions to those problems. They could serve as laboratories for things that might ultimately be adopted statewide. The downside of this ability is the fact that such solutions would balkanize the state. As you crossed county and city lines, you wouldn't know what law to obey. A prime example is the red light cameras that have been tested in some local jurisdictions. If localities were able to implement them at will, drivers wouldn't know if these cameras existed or not in any given locality. Uniformity throughout the state isn't a problem that counties have to consider, but it certainly seems appropriate that the state do so. A good analogy regionally can be seen in the varying rules on cell phone use by drivers. Quick, off the top of your head, explain the differences in the laws of Maryland, Virginia, and the District of Columbia. Now, imagine that every county, city, and town in Virginia could set its own rules on this.

What actually happened with the red light cameras was that the legislature gave several counties, including Fairfax, the ability to test this approach for a year. It was then up to those jurisdictions that wanted to retain them to make their case before the legislature. As of this writing, it appears that the proponents of the cameras were not able to do so successfully. But the bottom line is that the Virginia legislature often gives localities quite a bit of opportunity to be innovative.

A second example of the lack of uniformity within Virginia was the circumstance that cities, towns, and counties imposed different restrictions on where firearm owners with concealed-carry permits were allowed to take their firearms. As a result, whenever a permit holder crossed a local jurisdiction boundary, a different rule might apply, with possibly serious consequences to the permit holder. The legislature acted to rein in some of this discretion.

Finally, while Virginia counties can't dissolve themselves when they over-spend, the burden of a county that is suddenly without revenue to pay its debts and maintain its services may become the burden on the other residents of the state – if not in terms of a bailout, perhaps in lower bond ratings for other localities and an increase of state funds that might have to go to the defaulting localities.

The bottom line here is that Virginia gives its localities lots of opportunity to innovate, but plays the role of the chaperone who keeps the localities from doing foolish things or taking actions that will affect the other residents of Virginia. So when the state legislature allows policy experimentation in only one or two places at a time, disastrous policies are much easier to unwind than if they were implemented statewide.

Controlling Growth

Does the Dillon Rule inhibit the ability of localities to control growth? The previously cited Brookings study says that it does not. The authors conclude that

Dillon's Rule, in a word, probably has almost no affect on growth management activity. However, if Dillon's Rule does have an impact, it (at least theoretically) appears to be positive. By providing some certainty that local governments may engage only in the actions clearly allowed to them by the state legislature, Dillon's Rule may promote consistency, which advances sound regional and statewide growth management. On the other hand, increased local autonomy, which does not necessarily follow from abolishing or relaxing Dillon's Rule, promotes fragmented and uncoordinated growth management. Such a regime results in sprawl. (page 34)

One of the points the authors make is that localities may try to restrict growth, driving it further out to the more rural periphery and putting the pressure on the new localities to deal with it. They cite the example of Boulder County, CO where this occurred. However, the authors miss another significant problem. By trying to manage growth with "smart growth" measures that significantly increase local density, localities such as Fairfax may drive a number of homeowners who originally moved to the County for a suburban lifestyle out of the County to the outlying counties of Loudoun and Prince William, thus producing the exact same result. With regional problems like growth, oversight by the state can actually produce a positive effect on existing beggar-thy-neighbor tendencies of both kinds.

The authors also contrast Virginia and Maryland, producing another conclusion that goes against conventional wisdom. Maryland is usually seen as a much stronger home rule state, yet that state government

provides substantially more direct infrastructure and public facilities funds to localities than does Virginia. As a result, Maryland has more influence over where such funding goes, making an important impact on growth policies. Virginia provides some funding (for example, for transportation and higher education facilities) but much less to localities, which must often rely upon general obligation bonds to finance infrastructure needs. (pages 32-33).

Arguably, then, by using state control of the ability to provide infrastructure, a state can counteract at its discretion poorly thought out local policies – though of course the state could use infrastructure spending to provide incentives for poor policies as well.

Finally, the authors note the strong judicial and legislative emphasis on property rights, allowing "by right" development. It is unlikely that any grant of authority to localities could produce an end run of this traditional right in Virginia.

The Real Problem

The biggest problem for Fairfax County is not the Dillon Rule. We've seen that the state legislature has been willing to grant a number of opportunities for the County to raise revenue and to experiment with innovative policy. For most counties, having to go to the legislature is usually more an annoyance than a real hindrance. Fairfax County, however, has had great difficulty getting its (often radical, at least as seen by the rest of the state) agenda through the legislature. Despite being the richest county in Virginia, and arguably the second richest in the nation, Fairfax never stops complaining about the support it gives to the rest of Virginia. Its policy choices seem almost calculated to offend the rest of state, and state legislators report that Fairfax County officials come to Richmond to testify with an arrogance seen from no other jurisdiction.

Further, the days where Northern Virginia legislators presented a united front in the legislature are gone. This is partly due to the change of the Republican Party from a small minority virtually without influence to the majority party. It also reflects the fact that Alexandria, Arlington, and Fairfax County are controlled by the Democratic Party whose initiatives are more and more out of touch with those of the Republican majority. Whereas in days past Republican legislators from Northern Virginia could accomplish more by working with their Northern Virginia Democrat colleagues than with downstate legislators from their own party, now the reverse is true. With the rise of much more conservative Loudoun and Prince William Counties, it seems as if a united Northern Virginia delegation is gone for good. It's easy to wonder how the County has managed to get as much as it has from Richmond.

But the increasing unwillingness or inability of Fairfax County to work with the legislature highlights the final benefit of the Dillon Rule. It serves as protection for local government officials by allowing them to use it as an excuse for their inability to solve certain problems. They have a wonderful solution, but the state legislature just won't let them implement it.

Coda:  Eminent Domain and the Dillon Rule

June 27, 2005

The recent decision of the U.S. Supreme Court, Kelo et al v. City of New London, provided an expansive definition of the power of eminent domain, the ability of a government to take (with compensation) private land for public purpose. Justice Stevens, writing for the majority, allowed the taking of homes by the city of New London, CT for the benefit of a private developer since the anticipated result is more jobs and tax revenue for New London. Stevens wrote that, "Promoting economic development is a traditional and long accepted function of government." Justice Kennedy, agreeing with the majority, noted that states and localities are free to pass additional protections for existing homes and businesses if those governmental entities wish to do so.

Several members of the Virginia General Assembly have already announced their intention to impose additional restrictions on the power of eminent domain during the next legislative session in 2006. Expect great wailing and gnashing of teeth from Fairfax County at this attempt to restrict the supervisors' new-found authority – authority to disregard the County's own comprehensive plan and allow the supervisors to permit more high-density growth. Since any high-density project would create more tax revenue and jobs than older single-family homes and small businesses, under Kelo there is no property safe from taking under eminent domain.

This situation provides one more example of how the Dillon Rule might assist in controlling growth despite the wishes of local government.


This article can be found at
http://www.dougboulter.com/policy/dillon.html


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