City Moves to Bifurcate Water Rate Portion of Lawsuit Allowing Finance of Bonds

lawsuitAttorneys for the city are seeking to separate some of the questions facing them in the lawsuit filed by the Yolo Ratepayers for Affordable Public Utility Services (YRAPUS) and John Munn.  The city is arguing that the fourth, sixth and seven causes of actions should be bifurcated from the remaining claims, for release with a separate hearing date on the merits of those causes of actions.

Harriet Steiner, the city attorney, argues in the brief that “bifurcation of this action will result in a more efficient resolution of this litigation, preserve judicial resources, and minimize undue prejudice to the City.”

A hearing on the matter is set for July 24 before Yolo County Judge Dan Maguire, with a tentative ruling on the merits by 2 pm the preceding day.

The city reportedly is having difficulty selling bonds to finance the project with the looming lawsuit, and they are hoping the portion of the lawsuit regarding the city’s water rates can be resolved in order to avoid impact on the bonds.

The plaintiffs, however, oppose the bifurcation, arguing that the “City is requesting that the damages portion of this action be tried first, before the liability portion is resolved.”

In his response, Mr. Harrington argues, “The requested relief, if granted, would do nothing to further judicial efficiency. Moreover, such relief would severely prejudice the rights of Plaintiffs by depriving them of the right to make a complete presentation with cross examination of witnesses.”

He adds, “The City is attempting to have the issues decided on an incomplete administrative record based on documents of the City’s selection.”

In late January, the group, represented locally by attorney Michael Harrington, filed a suit that claims, “The Current Water Rates violate Proposition 218 and are unconstitutional and illegal in that, inter alia, they impose a fee or charge incidental to property ownership which exceeds the proportional cost of the services attributable to the parcel. The City knows this, and staff and/or paid city water consultants acknowledged such constitutional deficiencies at various meetings of the City Water Advisory Committee.”

The suit continues, “Plaintiff contends that Current Water Rates are in violation of Proposition 218 and therefore unconstitutional and illegal. The City disputes this contention.”

The suit also contends that the city is illegally not paying for its own water use, pointing to the 2010 case involving the city of Sacramento.

The city has acknowledged that it does not directly pay for the water use, but instead the balance of funds between the two accounts – enterprise and general fund – largely balance.

“The City knows how much water it is using,” the city said in a statement received by the Vanguard in February. “Over the past decade, the City has been installing meters for all of its facilities, so that we can accurately measure our water use. The City has approximately 85% of its meters in place, and installation of the remainder is in process. The meters are read just like all other meters in the city. The water use for the areas that are not yet metered is estimated based on water use for similar facilities.”

The city claims, “The City’s water use and payment by the City is included in the current and proposed rate structures. Individual ratepayers are not subsidizing the City’s water use. If the City does not pay its bill, it is money owed to the Water Fund.”

The city manager told the Vanguard that claims of non-payment are “a gross oversimplification.”

Measure I would pass on March 5, 2013 and the city has proceeded to adopt the necessary water rates to fund the project.

The filing by the city notes, “The City committed in the JPA to a ‘firm schedule’ to commence construction of the Project by late 2013.”

The city now needs to authorize the issuance and sale of bonds or certificates of participation to fund its share of surface water project capital costs by August 15, 2013 with the JPA Board awarding a contract to design and commence construction by September 30, 2013.

The city attorney notes, “The bonds or certificates of participation will be secured by the City’s water rates. If the City misses its deadlines under the JPA or is required to revisit its new rates as a result of this litigation, the City will be liable to Woodland for costs incurred and will also have to reimburse Woodland for its reasonable costs for having to redesign the Project.”

The city argues, “This lawsuit impacts and will impair or delay Project financing and the construction of the Project and subject the City to additional costs under the JP A if the validity of the City’s water rates is not resolved in the next few months. In addition, economy and efficiency will be promoted by bifurcating the Petition for Writ of Mandate concerning the water rates from the other causes of action.”

In late May, the Vanguard reported that the city will need to produce 30 to 40 million dollars by this fall to finance some of the costs the city has incurred to date on the surface water project.

“While City staff will continue to pursue all available financing alternatives, the City’s financial advisors, NHA Advisors, believe that a private placement with sophisticated institutional investors is the most feasible financing alternative, considering the current lawsuit challenging the City’s water rates,” staff noted as reported in a May 24, 2013, Vanguard article.

“Our concern in talking to our financing consultant is that the pending litigation on the water project, at least for the first round of funding, likely precludes our ability to sell these through a public offering,” City Manager Pinkerton told council during the May 21 council meeting.  The city will need to consider doing a private placement  “and the additional costs that are typically associated with a private placement.”

Mr. Harrington counters that, prior to January 15, 2013, “the City announced its intention to increase, and in some cases triple, the rates to be charged for water to be furnished to the City’s rate payers. Immediately thereafter, plaintiff YRAPUS notified the City that these proposed rates are in violation of Proposition 218.”

However, the city “then persisted in pushing forward with these proposed rates.”  Now the plaintiffs seek to compel the city to “cease charging these illegal rates and to set up a claims procedure to provide refunds for amounts illegally charged.”

Mr. Harrington argues, “The City itself could have and should have brought the class certification motion as far back as early February 2013 if the City’s professional staff had properly analyzed their strategy options and recognized and acted upon the extra costs issue they are raising as the primary justification for attempting this ‘rocket docket’ maneuver.”

“Finally, the City’s rush to cut off discovery, eliminate the declaratory causes of action, and rush to hearing in September completely harms the public’s interest in ensuring there is a fair and cost-effective bidding process for the builder of the surface water plant,” Mr. Harrington writes. “The sole remaining bidder, C2M Hill Hanford Group, Inc. or its wholly owned subsidiary, two days after the March 5 Measure I election, pled guilty to federal charges of ‘widespread time card fraud.’ “

In conclusion, Mr. Harrington argues, “The City is attempting to avoid a proper evidentiary trial on the issues involving its water rates by forcing the Plaintiffs to try the issues based on an Administrative Record of the City’s own choosing, a record that to this day is not even available. To bifurcate and resolve the Mandamus causes of action first as requested would not result in judicial economy. To the contrary, it would create an out of order proceeding which would not make sense and result in substantial prejudice to Plaintiffs.”

Ms. Steiner counters that “the city stands to suffer substantial prejudice if the validity of Ordinance 2405 water rates are not decided promptly.”

The city “has committed in its JPA with Woodland to move the Project, approved by the City’s voters, with issuance of bonds or certificates of participation by August 15, 2013.”

She continues, “This lawsuit jeopardizes the City’s ability to go forward with financing as the litigation may result in a lower bond rating or make the bonds or certificates less marketable.”

“The City also faces significant exposure under the JP A in terms of funds already incurred in furtherance of the Project and reimbursement to Woodland for redesign costs the longer the Project is delayed,” wrote Ms. Steiner. “The more quickly this matter can be decided, the better to eliminate unnecessary prejudice to the City as it is required to incur costs for the Project without knowing whether the rates necessary to fund the Project will be available. The City seeks timely resolution of its water rates under Proposition 218 so all affected parties, including Woodland, will have certainty as to funding and construction timing for the Project.”

Measure I was passed by the voters on March 5, 2013 by a 54-46 margin.  The Prop 218 challenge failed in early April.  And on May 1, 2013, the new water rates took effect.

—David M. Greenwald reporting

About The Author

David Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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  1. Mr.Toad

    How does the plaintiffs actions save the rate payers money if it causes the city to pay higher interest rates? The recent backup in interest rates will eventually be passed through to rate payers so the delays pushed by opponents that caused the city to miss the post economic collapse low interest window has already cost us millions.

  2. Michael Harrington

    Everyone yelled at me back in the fall 2011 that the referendum and delay was going to cost the city hugely, but in fact, staff in the WAC proceedings admitted that the delay saved the city huge amounts of money due to an improved process.

    I have not said I wanted to STOP the project, just to study it more and see if there are less expensive alternatives that protect the ratepayers.

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