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Bainbridge water utility can be transferred to KPUD without election or bidding process

An opinion prepared by Inslee Best, Bainbridge Island’s contracted law firm, presumes that it would be legal for the city to transfer its water system to Kitsap Public Utility District without an election or bidding process.

Former interim City Manager Lee Walton asked Inslee Best attorney Rod P. Kaseguma last month to review KPUD’s proposal given to the city. The proposal was general in nature and meant as a starting point for further discussion between the city and KPUD, which this week began a more in-depth, “due diligence” evaluation of the city’s water system.

Kaseguma’s memo also cited state law in presuming “there will not be any cash paid by the PUD for the transfer of the water system.”

The attorney for the Bellevue firm said the authority for such a transfer in Washington is RCW 39.33.10, which provides, in part, as follows:

“... any municipality or any political subdivision ... may sell, transfer ... or otherwise dispose of any property, real or person, or property rights, including but not limited to the title to real property, to ... any municipality or any political subdivision thereof ... on such terms and conditions as may be mutually agreed upon by the proper authorities of ... the subdivisions concerned.

Both the city and KPUD are “municipalities” and “political subdivisions,” and the KPUD proposal involves a transfer, according to the memo. “Thus,” it continued, “the city and PUD may provide for transfer of the water system upon agreed terms and conditions.”

The memo said that a member of the city’s Utility Advisory Committee asked whether the transfer would be governed by RCW 35.94, which requires an election to approve the sale or conveyance of a “public utility works, plant or system.”

Kaseguma’s report said that RCW 39.33.10 is an alternative to RCW 35.94 and it does not require a public vote. One of the reasons for using 39.33 as an alternative is that RCW 35.94, “when read as a whole, logically applies to conveyance of a public utility system to a private person or entity, and not to a public municipality or political subdivision.”

The memo also said that the use of RCW 39.33 instead of RCW 35.94 “is consistent with the reasoning and rationale of some older attorney general opinions.”

Bob Hunter, assistant general manager for Kitsap PUD, said the memo “is all in all a good research job.” He said KPUD has experience with other municipalities transferring their water systems to the Kitsap agency and the law is “pretty much accepted” as being done without a public vote unless a private entity is involved.

The memo also suggested that “the transfer of publicly owned real property is not exempt” from a SEPA environmental review. It said while there probably wouldn’t be any environmental consequences of such a transfer, “to be safe and conservative, the city should carry out SEPA review...”

Hunter said he questioned the need for SEPA review, “but it’s not a big deal for us.”

The city also asked whether “the transfer of the water system for no payment by the PUD is a gift of public funds?” The memo said Washington courts have held that the prohibition of gifts isn’t applicable when municipalities are involved.

However, RCW 39.33 must comply with RCW 43.09.210, which says that “...no department ... institution or public service industry shall benefit in any financial manner whatsoever by an appropriation or fund made for the support of another...”

A state Attorney General opinion, however, authorized “the two governments to arrive at a bargain by which property will be transferred in exchange for some consideration (money or other property services performed for the transferring government), or perhaps even relief from a burden,” according to the memo.

Hunter said that won’t be a problem.

“That happens when there’s real property that comes with the system, an asset that the community may use,” he said. “But we’re not in the business of managing land. All we would want is an easement across the property. We’re not going to be making money on this. Our job is to collect only what we need to retain the system. That’s it.”

The city also asked Inslee Best to consider a transfer’s impact on the union’s collective bargaining agreement and employee rights.

“We are in the process of such consideration and research,” Kaseguma wrote in his memo.

Hunter said he has received a considerable amount of documentation from the city’s Public Works Department this week, and will soon make site visits to inspect the system’s infrastructure. Next, he said, will be requests for various contracts and agreements involving such institutions as the school district.

“The issue for us is wrapped around the capital program (between 2011-14) and the water fund,” Hunter said. KPUD may seek a one-time-only surcharge from users if it is required to perform necessary capital projects.

KPUD has said the review will take 90 days or less, with the goal of taking over the system by the end of this year.

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