Bainbridge ratepayers slap city with lawsuit over sewer | UPDATED

The citizen group Bainbridge Ratepayers Alliance filed a lawsuit in Kitsap Superior Court Wednesday afternoon, challenging the city's use of utility revenues.

The move comes after weeks of tension over a $6 million utility bond the city has been working to secure in order to complete its Wastewater Treatment Plant (WWTP) project.

The Ratepayers Alliance has demanded a halt to the bond issuance until some of their grievances are addressed.

"We greatly regret that the city has pushed the ratepayers so far that it became necessary to file this lawsuit to counter the misuse of utility ratepayer fees," said Bainbridge Ratepayer Alliance spokesperson Sally Adams.

Despite the legal action by the Ratepayers Alliance, at its Wednesday meeting the City Council agreed to a $6 million bond-anticipation note from Cashmere Bank (essentially a line of credit to be repaid with a future bond) for the WWTP.

The motion passed by a 4-3 vote, with some council members objecting to issuing a line of credit with a lawsuit pending. Others felt there was no other option for financing the project.

"I believe that the bond anticipation note can still properly be passed or funded whether there is a lawsuit or not," said council member Barry Peters.

The lawsuit, filed by attorney Richard Stephens of Groen, Stephens & Klinge, argues that the bond is an illegal tax, and as such the bond should be declared void. It also claims the $6 million bond is above the amount needed to complete the WWTP.

The lawsuit calls for an independent audit of the city's utilities and that an independent citizen's Utility Advisory Committee have oversight on all utility bond matters.

"As the suit indicates there are some other issues that seem problematic in the way the city runs its utilities," Stephens said. "I think there is a serious problem here and I would expect the court to take a serious stance."

Ratepayers believe the construction of the WWTP and the upcoming Winslow Way reconstruction will inflate already high utility rates.

Bainbridge Island has utility rates that are higher than state and county averages.

For 700 cubic feet of flow through a sewer system, ratepayers pay roughly $66 per month. In Bremerton the cost is $60; in Poulsbo, $50; and across the county it is $51.70.

Sewer District 7, located on the south end of Bainbridge Island, has approximately 265 connections and 255 connections that are provided to the city for customers in the Lynwood neighborhood. Their rates are $40 per month per household.

Although disparities between rates depend largely on upcoming capital projects and the number of connections on a system, the city has recognized that its higher rates are potentially problematic for citizens.

Last year, City Administrator Mark Dombroski drafted a white paper that highlighted some of the factors causing increased utility rates and presented solutions to tackle high fees.

In the memorandum, the city attributed much of the high cost to aging infrastructure, lack of state and federal funding, and the blurred line between utility operations and government operations. Because city staff work on both government and utility matters, almost 80 city employees charged some portion of their salaries to at least one of the city's three utilities last year.

A small service area and limited customer base for the sewer and water system is also a large contributing factors – upgrades to sewer infrastructure largely falls on the owners of the 1,800 sewer connections and 2,200 water connections.

The memorandum suggests running the utilities more like a business with an independent board to provide a clear separation between government and utility operations.

More radical restructuring is also contemplated such as cutting a 6 percent annual tax on utility fees, divesting the city's water utility or contracting with an operator for sewer and water services.

"Utility strategy is on the work plan for 2009, and that means we would examine the very issues that are included in Mark's white paper," council member Barry Peters said. "That includes how to run the utilities in the most cost effective way and maybe making some changes."

The city is taking a three step approach. The first is to complete a rate study, the second is to come to a council consensus on utility strategy, and the third is to deal with cost allocation issues that inflate the administrative overhead of running the utilities.

"The city doesn't have a formal policy," Peters said. "It has a lot of general practices on how we allocate costs between the utility fund and the general fund."

The city is in the midst of a rate study, which is expected to be completed by July 2009, by the Redmond-based FCS Group.

Preliminary results indicate that the city will not have to raise water utility rates over the next six years. But the city will likely revise the rate structure toward a conservation approach, by lowering the base rate and putting more emphasis on consumption fees.

"While we have said that we may not require rate increases, changing the structure may change peoples bills," Finance Director Elray Konkel said. "For those who use more or less water, it could have an affect on their bills."

However, rates could remain high after the study, because the aim of the study looks at making the utilities sustainable by making sure that charges to ratepayers can cover reserves, debt service and upcoming capital projects.

There is also no word yet if storm and surface water management (SSWM) and water rates will rise after the report is completed.

The Ratepayers Alliance predicts that downtown sewer and water utility costs will go up by $2,000 per connection over the life of a potential $6 million utility bond for the WWTP.

Despite the city council passing the bond anticipation note on Wednesday, the Ratepayers Alliance has vowed it would continue to voice their grievances.

"We're still going to press forward," Adams said. "It should not be costing so much money to serve the needs of utility rate payers."

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