Amicus Curiae Brief — City of Cibolo, Texas, Petitioner v. Green Valley Special Utility District

No. 17-938

_______________

In the Supreme Court of the United States

_______________

CITY OF CIBOLO, TEXAS,

Petitioner,

v.

GREEN VALLEY SPECIAL UTILITY DISTRICT,

Respondent.

_______________

On Petition for a Writ of Certiorari to the United

States Court of Appeals for the Fifth Circuit

________________

BRIEF OF AMICI CURIAE TEXAS MUNICIPAL

LEAGUE, TEXAS CITY ATTORNEYS

ASSOCIATION, NATIONAL LEAGUE OF

CITIES, AND INTERNATIONAL MUNICIPAL

LAWYERS ASSOCIATION IN SUPPORT OF

PETITIONER

_________________

HEATHER M. LOCKHART

Counsel of Record

ASSISTANT GENERAL COUNSEL

TEXAS MUNICIPAL LEAGUE

1821 Rutherford Lane, Suite 400

Austin, Texas 78754

Telephone: (512) 231-7400

heather@tml.org

Counsel for Amici Curiae

i

TABLE OF CONTENTS

TABLE OF AUTHORITIES ....................................... ii

INTEREST OF AMICI CURIAE ................................ 1

SUMMARY OF ARGUMENT ..................................... 2

ARGUMENT ............................................................... 4

A. The History of Section 1926

infrastructure loans underscores the

importance of the issues presented

in the Petition for Certiorari. ........................... 4

B.

The purpose of the curtailment

provision, to expand rural

development, is undermined by the

circuit split. ....................................................... 7

C.

The Fifth Circuit’s

interpretation of 1926(b), and the

ensuing circuit split, places cities at

a competitive disadvantage. ........................... 10

CONCLUSION .......................................................... 14

ii

TABLE OF AUTHORITIES

Page

CASES

City of Madison, Miss. v. Bear Creek Water Ass'n,

Inc., 816 F.2d 1057 (5th Cir. 1987) ............. 7, 11, 12

Green Valley Special Util. Dist. v. City of Cibolo,

Texas, 866 F.3d 339 (5th Cir. 2017) .................... 7, 8

Public Water Supply Dist. No. 3 v. City of Lebanon.

605 F.3d 511, 520 (8th Cir. 2010) ........................ 8, 9

Rural Water Sys. No. 1 v. City of Sioux Center, 202

F.3d 1035, 1038 (8th Cir. 2000)............................... 9

STATUTES

7 U.S.C. § 1926(b) .............................................. passim

Pub. L. No. 87-128, 75 Stat. 307 (codified in 7 U.S.C.)

.................................................................................. 5

The Act of August 28, 1937, Pub. L. No. 75-399, 50

Stat. 869 (repealed by Act of August 8, 1961, Pub.

L. No. 87-128, 75 Stat. 294, 318) ............................. 5

OTHER AUTHORITIES

Amazon HQ2 ............................................................. 13

iii

City of Cibolo, Mission & Vision ............................... 13

Historical Statistics of the United States Colonial

Times to 1970: Volume 1 .......................................... 8

President John F. Kennedy, State of the Union (Jan.

30, 1961) ................................................................... 5

Press Release, U.S. Census Bureau, New Census

Data Show Differences Between Urban and Rural

Populations (Dec. 8, 2016) ............................... 10, 11

Timothy M. Brady, The Farmers Home

Administration Community Facility Program: A

Mandate for Rural Development, 23 S.D. L. REV.

585, 586 (1978) ..................................................... 5, 6

United State Census Bureau, Measuring America,

Dec. 8, 2016 .............................................................. 4

1

INTEREST OF AMICI CURIAE1

The Texas Municipal League (“TML”) is a nonprofit association of over 1,150 Texas municipalities.

Over 13,000 mayors, council members, city

managers, city attorneys, police chiefs, and other

department heads are member officials of TML by

virtue of their cities’ participation. TML established

a legal defense program to monitor major litigation

that affects municipalities and to file briefs on behalf

of cities in cases of special significance to

municipalities.

The Texas City Attorneys Association

(“TCAA”), an affiliate of the Texas Municipal League,

is an organization of attorneys who represent Texas

cities and city officials in the performance of their

duties.

The National League of Cities (“NLC”) is

dedicated to helping city leaders build better

communities. Working in partnership with the 49

state municipal leagues, NLC serves as a resource to

and an advocate for the more than 19,000 cities,

villages and towns it represents.

1

Counsel of record for all parties received notice at

least 10 days prior to the due date of the amicus curiae's

intention to file this brief. The parties have consented to the

filing of this brief. The author of this brief is a salaried

employee of TML. No counsel for a party authored this brief in

whole or in part, and no counsel or party made a monetary

contribution intended to fund the preparation or submission of

this brief. No person other than amicus curiae, their members,

or their counsel made a monetary contribution to its

preparation or submission.

2

The

International

Municipal

Lawyers

Association (“IMLA”) is a non-profit, professional

organization that is an advocate and resource for

local government attorneys.

TML, TCAA, NLC, and IMLA (Amici)

advocate for the interests common to local

governments. TML and NLC member cities provide

vital services to both city residents and nonresidents, while TCAA and IMLA members represent

local governments in these endeavors. Amici have an

interest in ensuring that local governments maintain

their authority to provide efficient services to

customers. Believing that the issue before this Court

is of great significance to all local governments,

Amici respectfully submit this brief in support of the

City of Cibolo’s Petition for Writ of Certiorari.

SUMMARY OF ARGUMENT

Amici urge the Court to grant the Petitioner’s

Petition for Writ of Certiorari to resolve the split

between the Fifth and Eighth circuits in interpreting

7 U.S.C. § 1926(b), the federal statute protecting

water and wastewater development in rural areas.

The Fifth Circuit Court of Appeals concluded that

section 1926(b) protection of a rural association is not

limited to the service for which the association is

indebted to the federal government. The court

extended the protection to any other service provided

or that could be provided, even if that service is not

financed through loans by the Department of

Agriculture.

In contrast, the Eighth Circuit Court of

Appeals concluded that only the service funded by a

3

federal loan is protected under 1926(b). Amici agree

with the Eighth Circuit’s analysis of section 1926(b)

protection, which relies on the purpose behind that

section: to encourage rural development and to

provide greater security for federal loans. More

importantly, Amici seek clarity from this Court on

this important issue, which impacts local

governments’ ability to provide services intending to

expand development in rural areas. The history of

section 1926 federal loans for water infrastructure

reveals the purpose of this funding is to promote

rural development.

The Fifth Circuit’s broad

interpretation of section 1926(b), particularly if

developed

elsewhere,

would

hinder

rural

development, deprive citizens of necessary and basic

low-cost services, and place cities at a competitive

disadvantage. Local governments outside the Fifth

and Eighth Circuits, in particular, need this Court’s

guidance on this important question of federal law.

4

ARGUMENT

A.

The

History

of

Section

1926

infrastructure

loans

underscores

the

importance of the issues presented in the

Petition for Certiorari.

Because the circuit split creates a situation

where many cities will forego providing water and

wastewater services to their citizens out of fear of

being sued by a rural association with a federal loan

for a different service, the history of Section 1926

provides insight and context into the importance of

the issues presented in the Petition. For most of the

nation’s history, the United States has been a

predominately rural place. The first census taken in

1790 revealed that 95 percent of the nation’s

population lived in rural areas. Historical Statistics

of the United States Colonial Times to 1970: Volume

1 available at https://www.census.gov/library/publica

ations/1975/compendia/hist_stats_colonial-1970.html

(last visited: Jan. 23, 2018). This began to shift over

time.

As urban areas and the criteria used to define

them have evolved, the share of the total population

living in rural areas has decreased. The 1910 census

showed that more than half of the total population

(54.4 percent) lived in rural areas. In contrast, the

2010 Census revealed that only 1 in 5 of the total

population (19.3 percent) lived in rural areas. United

State Census Bureau, Measuring America, Dec. 8,

2016:

https://www.census.gov/content/dam/Census/library/

visualizations/2016/comm/acs-rural-urban.pdf (last

visited: Jan. 23, 2018).

5

Urbanization is problematic to an entity

providing water and sewer service in a rural area. A

decreasing rural population results in a decrease in

rural water users. This decrease in water users

necessarily results in a decrease in revenue for a

water provider. When fewer water users exist, but

are spread over large distances, the cost of

constructing the necessary infrastructure to provide

water service increases.

At the same time the nation’s rural population

was decreasing, rural farming regions were

experiencing devastation from the Dust Bowl and

drought conditions of the 1930s. Timothy M. Brady,

The Farmers Home Administration Community

Facility Program: A Mandate for Rural Development,

23 S.D. L. REV. 585, 586 (1978). To address these

conditions, Congress passed the Water Facility Act of

1937. Id. This Act authorized the Secretary of

Agriculture to make low-interest loans to help

construct water facilities. The Act of August 28,

1937, Pub. L. No. 75-399, 50 Stat. 869 (repealed by

Act of August 8, 1961, Pub. L. No. 87-128, 75 Stat.

294, 318). To qualify for a loan, though, the proposed

facilities had to specifically benefit farm families. Id.

Economic conditions for farmers remained

dismal, even after the Dust Bowl era ended. As

President Kennedy put it: “The present state of our

economy is disturbing. We take office in the wake of

seven months of recession, three and one-half years

of slack, seven years of diminished economic growth,

and nine years of falling farm income.” President

John F. Kennedy, State of the Union (Jan. 30, 1961),

http://www.presidency.ucsb.edu/ws/index.php?pid=80

45. Under this backdrop, Congress passed the

6

Consolidated Farmers Home Administration Act of

1961 to address the economic issues that continued

to plague farmers. Pub. L. No. 87-128, 75 Stat. 307

(codified in 7 U.S.C.). Sections 304 and 306 of the

1961 Act replaced the Water Facility Act of 1937.

Section 306 expanded the Department of

Agriculture’s (“USDA”) authority to make water

facility loans. More specifically, the USDA would

now be able to provide loans to associations serving

non-farming rural residents. The legislative history

indicates that Congress expected the expanded loan

program to result in a reduction in the cost per-user

in addition to the community benefits of a safe and

adequate supply of household running water. Brady,

supra at 588 quoting S. Rep. No. 566, 87th Cong., 1st

Sess. 1.

Section 306 also included the provision at

issue in this case, which is now known as 7 U.S.C.

1926(b):

(b) The service provided or made

available through any such association

shall not be curtailed or limited by

inclusion of the area served by such

association within the boundaries of

any municipal corporation or other

public body, or by the granting of any

private franchise for similar service

within such area during the term of

such loan; nor shall the happening of

any such event be the basis of

requiring such association to secure

any franchise, license, or permit as a

7

condition to continuing to serve the

area served by the association at the

time of the occurrence of such event.

7 U.S.C. § 1926 (1976).

This curtailment provision was intended to

protect the territory served by a USDA loan from

encroachment by competitive facilities that might be

developed with the expansion of municipal

boundaries and to protect rural development. These

policy considerations are important issues that will

be undermined by the circuit split that has developed

on this important issue. Without this Court’s

intervention, local governments who might be willing

to provide rural communities with water or sewer

service may decide not to, out of fear of being sued by

an association, even if that association does not

currently provide the desired services.

B.

The purpose of the curtailment provision,

to expand rural development, is undermined

by the circuit split.

As the preceding discussion demonstrates, the

overriding purpose permeating through the passage

of both the Water Facilities Act of 1937 and the

Consolidated Farmers Act of 1961 was to stimulate

the economy in rural areas by expanding

development while still protecting the U.S.

Treasury’s investment in rural associations. City of

Madison, Miss. v. Bear Creek Water Ass'n, Inc., 816

F.2d 1057 (5th Cir. 1987).

It is undisputed that the U.S. Treasury’s

investment in this case was in Green Valley’s water

infrastructure. (“In 2003, Green Valley obtained a

8

$584,000 loan from the United States to fund its

water service.” Green Valley Special Util. Dist. v.

City of Cibolo, Texas, 866 F.3d 339, 340 (5th Cir.

2017)). Amici agree that section 1926(b) protects the

territory of Green Valley’s federally financed water

service. However, this protection does not and should

not extend to non-federally financed services. In this

case, the non-federally financed service is

wastewater service, which the City of Cibolo seeks to

provide.

In deciding this case, the Fifth Circuit states

that section 1926(b) refers to “[t]he service,” and

section 1926 does not include statutory language

that defines or limits “service” to a service funded by

a USDA loan. Id. at 342. Though the court

acknowledges it is possible that Congress “intended

to limit § 1926(b)'s protection to services directly

financed by a federal loan,” the court nevertheless

concludes that 1926(b)’s plain language does not

limit the statute’s protection to “services that have

received federal financing.” Id. at 343–44.

The Eighth Circuit by contrast, considered the

purpose and context of the statute in deciding the

identical question in Public Water Supply Dist. No. 3

v. City of Lebanon, 605 F.3d 511, 520 (8th Cir. 2010).

City of Lebanon involved an association’s challenge

to the City of Lebanon’s provision of water service to

customers within a district’s boundaries. The

district’s USDA loan was for its sewer system;

however, the District argued that the USDA sewer

loan triggered section 1926(b) protection with respect

to its water service. The court reiterated its prior

holding that the purpose of section 1926 is “to

encourage rural development and to provide greater

9

security for [USDA] loans.” Id. quoting Rural Water

Sys. No. 1 v. City of Sioux Center, 202 F.3d 1035,

1038 (8th Cir. 2000). Interpreting that “[t]he service”

referred to in 1926(b) is limited to the financed

service, the court cautioned:

adopting the District’s broad view of

the scope of protection would

undoubtedly benefit the District and

other rural districts, it would not

promote rural water development

because other services a rural district

might happen to provide are irrelevant

to

maintaining

the

necessary

economies of scale to allow rural utility

associations to remain viable and to

keeping the per-user cost low for the

service financed by the loan.

Id. (emphasis added).

If the Fifth Circuit’s interpretation of section

1926(b)’s protection stands, it would hinder rural

development by providing seemingly limitless

protection for an association. Moreover, the circuit

split creates uncertainty for local governments

outside of the Fifth and Eighth Circuits. Rural

development in those areas, the vast majority of the

country, will also be stymied due to the lack of clarity

on this issue. For example, would an exclusive

franchise to provide solid waste service in the

territory covered by a USDA water loan be

protected? A certificate of convenience and necessity

to provide electricity service? Natural gas service?

Under the Fifth Circuit’s broad interpretation, an

10

association will hide behind the protections of section

1926(b) for any service the association chooses to

provide simply because they offer a service that is

financed through a USDA loan. Associations outside

the Eighth Circuit will certainly make these

arguments as well, providing a disincentive for local

governments to provide competitively priced services

to rural citizens. Accepting this broad interpretation

would discourage rural water development by

allowing an association unlimited monopolies on

services simply because they have received a loan for

water service from the USDA.

The intent since section 1926’s predecessor’s

passage in 1937 is to reduce costs of service in order

to expand rural development. Section 1926(b) was

enacted as a shield to ensure that an association has

the means to repay its debt to the federal

government. It is not intended to monopolize services

unrelated to that federal debt. This Court should

grant the Petition to prevent further economic harm

to rural communities.

C.

The Fifth Circuit’s interpretation of

1926(b), and the ensuing circuit split, places

cities at a competitive disadvantage.

As the trend towards urbanization continues,

the need for city services continues to expand. The

latest U.S. census shows that rural areas cover 97

percent of the land area of the United States, yet

only contain 19.3 percent of the population (about 60

million people). Press Release, U.S. Census Bureau,

New Census Data Show Differences Between Urban

and

Rural

Populations

(Dec.

8,

2016),

11

https://www.census.gov/newsroom/pressreleases/2016/cb16-210.html. The Fifth Circuit Court

of Appeals’ expansive interpretation of section

1926(b) in this case, coupled with the confusion

created by the circuit split, places cities at a

competitive disadvantage to associations, like Green

Valley, in meeting the needs of rural users.

To help illustrate the problem created by the

lower court’s decision, take another example from

the Fifth Circuit. In Madison v. Bear Creek, the Fifth

Circuit Court of Appeals looked at the City of

Madison’s efforts to condemn Bear Creek’s water

system facilities located within its expanded city

limits. City of Madison, 816 F.2d at 1058. The Bear

Creek water system was financed by five USDA

loans. Concluding that section 1926(b) prohibits a

city from condemning an association’s facilities

during the term of its loan, the court explained the

purposes behind the USDA’s section 1926 loan

program: “This history indicates two congressional

purposes behind § 1926: 1) to encourage rural water

development by expanding the number of potential

users of such systems, thereby decreasing the peruser cost, and 2) to safeguard the viability and

financial security of such associations (and FmHA's

loans) by protecting them from the expansion of

nearby cities and towns.” Id. at 1060.

The Fifth Circuit was especially critical of the

City of Madison “skim[ming] the cream by annexing

and condemning those parts of a water association

with the highest population density (and thus the

lowest per-user cost).” Id. The court concluded that

this would undermine Congress's purpose of

facilitating inexpensive water supplies for farmers

12

and other rural residents and protecting those

associations' ability to repay USDA loans. Id.

Amici understand the court’s rationale in the

Madison decision: a city cannot swoop in and seize

the most profitable portion of an association’s

infrastructure and source of revenue for federallybacked loans. Doing so would increase the cost peruser for those served by the rural association in

contravention of the purposes of 1926(b).

Both the facts of the case and the intention of

the City of Cibolo are distinguishable from Madison

and lumping them together puts local governments

all around the country at an economic disadvantage.

Here, Green Valley provides no wastewater service.

The City of Cibolo does not intend to acquire

customers or facilities from Green Valley: there are

neither customers nor facilities to acquire. Instead,

the city seeks to provide actual wastewater service to

individuals who are currently without this service.

There can be no increase in the cost per-user if the

City of Cibolo begins providing wastewater service

because the users are not currently being served.

The City of Cibolo2 and the surrounding area

continue to urbanize. This urbanization has created

a need for wastewater service that Green Valley has

been either unable or unwilling to fill. Thus, the City

has attempted to offer wastewater services to fill the

void, which complies with its vision statement “to be

2

The 2010 census determined the population of Cibolo was

15,349. The 2016 estimated population is 27,855. Quick Facts,

Cibolo City,

https://www.census.gov/quickfacts/fact/table/cibolocitytexas/PS

T045216 (last visited Jan. 24, 2018). Cibolo is located 21 miles

from downtown San Antonio, Texas.

13

cognizant of its businesses and citizens first and

foremost.” City of Cibolo, Mission & Vision,

http://www.cibolotx.gov/index.aspx?NID=209

(last

visited Jan. 24, 2018). This is not an uncommon

scenario.

The availability of reliable wastewater is an

important factor in a new business’s location

decision. Cities fiercely compete in the economicdevelopment arena to attract jobs for its citizens. See

generally

Amazon

HQ2,

https://www.amazon.com/b?node=17044620011 (last

visited Jan. 24, 2018). Allowing an association, like

Green Valley, to use section 1926(b) as a protection

to fail to offer, or to offer inadequate, service places

cities that are willing and able to offer such service

at a severe disadvantage in their ability to attract

and retain businesses and create a desirable place to

live for their citizens.

The Fifth Circuit’s liberal interpretation

cripples cities’ efforts to provide services to citizens.

More importantly, the circuit split exacerbates this

problem for thousands of local governments outside

the Fifth and Eighth Circuit as they will be reluctant

to provide essential services to citizens out of fear of

being sued by an association providing a different

service backed by a federal loan. This Court should

grant certiorari to provide clarity to these local

governments around the country. An increase in

development and the number of users will serve to

drive down the cost per-user, thereby achieving the

purpose of section 1926: to encourage development

while still protecting the U.S. Treasury’s financial

interests.

14

CONCLUSION

The USDA loan program was created to

promote rural development of infrastructure. To

further this objective, the curtailment protection of

section 1926(b) should be limited to the specific

service financed through USDA loans.

The split between the Fifth Circuit and Eight

Circuit’s interpretation of the meaning of “[t]he

service” in section 1926(b) has created uncertainty

for local governments. Amici curiae seek clarity for

local governments seeking to provide services to and

urge the Court to grant the City of Cibolo’s Petition

for Writ of Certiorari.

Respectfully submitted,

HEATHER M. LOCKHART

Counsel of Record

ASSISTANT GENERAL COUNSEL

TEXAS MUNICIPAL LEAGUE

1821 Rutherford Lane, Suite 400

Austin, Texas 78754

Telephone: (512) 231-7400

heather@tml.org

Counsel for Amici Curiae