Report on Issues Regarding the City of Great Falls

Extension of Service Agreements

for

Southern Montana Electric Generation and Transmission Cooperative, Inc. (SMEGTC)

Prepared for:

Citizens for Clean Energy (CCE)

Montana Environmental Information Center (MEIC)

Submitted by:

Kathleen McMahon (AICP), Applied Communications

7/20/07

1. Background

On June 5, 2007 the Great Falls City Commission approved the following two agreements with SMEGTC:

• · “Potable Water Service Agreement”
• · “Reservation of Wastewater Treatment Capacity Agreement”

The purpose of this report is to discuss planning and procedural issues related to the agreements in regards to:

Ÿ Compliance with state and city regulations

Ÿ Consistency with planning documents

Ÿ Procedural questions and precedents for approving such services

This is not a legal review. This report is an assessment of those issues that should be further investigated by legal counsel or should be addressed as a matter of public policy.




2. Consideration of Agreements by City Commission

On June 5, 2007 the Great Falls City Commission voted to approve water and sewer services agreements for SMEGTC. An agenda report is available on the City of Great Falls web site. The agenda report on the web site did not include the proposed agreements and it is not known if the agreements were included in the City Commission packet prior to their voting on the matter. Upon request, the City Clerk provided CCE with copies of both agreements. The “Reservation of Wastewater Treatment Capacity” Agreement makes repeated references to Exhibit 1. It does not appear this exhibit was included in the City Council packet and it was not made available to CCE until several weeks after they requested a copy of the exhibit.

The Agreements that were provided by the City Clerk were signed and dated by John Lawton on May 30, 2007. This is six days before City Commission took action to approve the agreements. The agreements contain the following clause:

“IN TESTIMONY WHEREOF, Witness the signatures of SMEGTC and the City, each by its proper officers thereunto duly authorized and ratified by their respective governing bodies.”

Since the agreements were signed prior to ratification by the City Commission there is a question about the legal standing of these contracts. For comparison purposes, the similar agreements with the International Malting Plant were not executed until after the Commission’s approval.

3. Annexation Requirements

At the June 5, 2007 meeting, Mr. Lawton referred to city policy that properties must annex to the city in order to receive water and sewer services. This policy is codified in the City Code as follows:

13.02.070 Service area.

The utility system service area shall be:

A. Inclusive of all premises annexed to the City and bounded by the incorporated City limits, as such limits may be adjusted by the City Commission; and

B. Restricted to those premises abutting a public right-of-way or easement and directly adjacent to a sanitary sewer or water main location therein. The sole exception thereto shall be those buildings and service lines in place and legally existing prior to the adoption of the ordinance codified in this section. (Ord. 2645, 1993; Ord. 2529 (part), 1989), §13.24.040 (part); Ord. 2386 Exh. A (part), 1985, prior code §13.20.160 (part); Ord. 2356 Exh. B (part), 1984, prior code §13.08.020 (part)).

13.02.075 Annexation Requirements.

Property owners of parcels located outside the city limits receiving city water and/or sewer service must consent to annexation into the city of such parcels as a condition of continuation of city water and/or sewer service. Failure of the property owners to consent to such annexation into the city will result termination of water and/or sewer services to such parcels located outside the city limits. (Ord. 2930, 2006)

At the June 5, 2007 meeting Mr. Lawton noted that the agreements contained the following language to satisfy the City Code requirement. (13.02.075)

“WHEREAS, the City requires that SMEGTC agree not to protest annexation by the City for the provision of the services to be provided pursuant to this Agreement and SMEGTC agrees not to protest such future annexation. As a condition of receiving City water service, SME agrees to be annexed to the City at a time which the City deems is appropriate; additional terms of the annexation will be the subject of a separate agreement to be entered into between the parties.”

It should be noted that the above clause is located in the preamble section of the agreement. Typically, only the provisions in the body of the agreement that follow the preamble are binding. There is no provision for annexation in the body of the agreement and it is questionable if a statement in the preamble section would be enforceable.

Even if the clause on annexation was properly located with other binding clauses in the agreement, it is not clear if such a statement would satisfy the provisions of the city code. At the June 5, 2007 City Commission meeting Mr. Lawton noted that the International Malting Plant and the Upper/Lower River Road projects established a precedent for extending water and sewer agreements to properties outside the city limits prior to annexation. The International Malting Plant and Upper/Lower River Road agreements are available on the city web site and were reviewed to determine if the SMEGTC did follow the precedents that were established in those projects.

In the case of the International Malting Plant the water and sewer agreements referenced an approved Interlocal agreement that addressed annexation. In the case of the Upper/Lower River Road project there was an approved Memorandum of Understanding between the city and the water and sewer district that addressed annexation. In both cases, these separate agreements required the parties to petition for annexation in order to receive city services.

The clause in the SMEGTC agreements states that SMEGTC shall annex, “...at a time which the City deems is appropriate”. There is no requirement that the property eventually be annexed. Annexation would occur only if at some future date the city deems such action appropriate. Since the property is located eight miles from the city limits and there are no foreseeable plans for intervening property owners to annex to the city, the city may not have the ability to annex the subject property because it may not ever become contiguous to the city limits. In both the International Malting Plant and Upper/Lower River Road projects, the city was able to annex right-of-way to bring the properties into the city limits. There is no right-of-way that connects the subject property to city.

If the city does not or cannot pursue annexation, water and sewer services could potentially be provided to a property that is indefinitely located outside of the city limits and subsequently be in direct conflict with the definition of “service area” in the city code. A search of the City’s web site did not yield any report or minutes that contained a legal review to address this matter.

4. Growth Policy Plan

Following is an excerpt from the Attorney General's Opinions – Vol. 49, Opinion No. 23 (dated 9/26/02)

“A municipal governing body may not extend municipal boundaries, pursuant to the Planned Community Development Act of 1973, without conforming to a growth policy.”

The growth policy plan does not mention any type of industrial development for the subject property or anywhere in close proximity to the subject property. There are no maps anywhere in the growth policy that include the subject area. If the International Malting Plant and the Upper/Lower River Road projects are precedents for extending services, it should be noted that both of these projects were specifically addressed in the Growth Policy Plan and requiring annexation was in conformance with policies in the plan. (See Land Use Element – Pg. 14, “Future Growth Areas” and Environment Element – pg. 8, “Groundwater”)

The following are policies from the Community Facilities element of the Growth Policy regarding extension of water and sanitary sewer services.

1. The City shall continue to maintain and improve the potable water and sanitary sewer systems. Proposed improvements shall be evaluated according to the following criteria:

a) Improvements that are needed to protect the public health, safety, and the environment;

b) Consistency with this Policy and applicable Federal, State, and local laws and

regulations;

c) Improvements that are necessary to meet deficiencies in capacity or performance,

including the retrofitting of deteriorating facilities that threaten health, safety or

environmental standards;

d) Improvements that extend water and sewer to previously unserved but developed areas in the City or County, provided these areas are eventually annexed;

e) Improvements identified in adopted functional plans that address details that are beyond the scope of this Growth Policy but are consistent with these goals and policies; and

f) Cost-effective improvements to expand capacity, maximize operational efficiency, and increase productivity.

Extension of water and sanitary sewer services to the SMEGTC property does not meet any of these criteria. Given that the Attorney General opinion requires that extension of municipal boundaries comply with growth policy, the City needs to first amend the growth policy to address industrial development in this location prior to entering any agreement that presumes annexation at some future date.

5. Compliance with Planning Documents

One of the Growth Policy Plan criteria notes that improvements identified in functional plans be considered in the extension of services. The city has both a “Water Master Plan” completed in 2006 and a “Wastewater Treatment and Collection System Facility Plan” completed in the 1990’s. The service area map for the Water Master Plan is included as an attachment. Neither of the service areas in the plans includes the area where the subject property is located.

In October, 2006 the City Commission approved a contract with Tishler Bise Inc. to evaluate fiscal impacts from the plant that may have information to supplement these planning documents. The agenda report authorizing the contract for the consultant, (10-3-06) contained the following comment:

“Although no commitment regarding annexation has been made, analyses of the feasibility of such a request requires and evaluation of pertinent issues such as annual fiscal impacts from the plant during the plant construction phase and during the plant’s 35+ year operating phase.”

Inquiries with the Department of Fiscal Services indicated that the final study has not been released or reviewed by the City Commission. Since the fiscal impact study was specifically authorized to study the feasibility of extending city services prior to committing to annexation, it seems premature to approve an agreement extending city services prior to the examining the results of the study.

Note:

In June MEIC received a packet of information from the City Clerk with documents related to the Highwood Generating Station. A draft of the TischlerBise “Fiscal Impact Analysis of the Proposed Highwood Generating Facility” was included in this packet. The draft was dated January 3, 2007. The Fiscal Services Department did not indicate when a final draft would be available. Following is a statement from the draft study.

“Under the Annexation Scenario a cumulative net surplus of over $4.2 million dollars is produced over the 14-year analysis period. While, the Servicing Scenario, produces a cumulative net deficit of over $1.2 million dollars. As discussed above, only the Annexation Scenario benefits from the property tax generated by the proposed Highwood Generating Facility once it is operational.”




6. Legal and Policy Questions

The following is a summary of the issues and questions regarding the City Commission’s action to approve water and sanitary sewer agreements for SMEGTC.

• · Are the signed agreements valid if they were executed prior to City Commission’s approval? Did the City Commission have all relevant documents prior to granting their approval?
• · Was Exhibit 1 available and reviewed at the time the agreements were approved? Isn’t a technical review by DEQ of this agreement and exhibit required prior to approving the agreement?
• · Is the annexation clause enforceable if it is located in the preamble section?
• · Does the annexation clause satisfy Section 13-02-075 of the City Code if there is no specific provision requiring the SMEGTC to petition the city for annexation as there was for the International Malting Plant and Upper/Lower River Road?
• · Are the agreements to extend services to the SMEGTC property in compliance with Section 13-020-070 and the definition of service area?
• · In accordance with the Attorney General Opinion (Vol. 49 No. 23), can the city extend services based on the presumption of annexation when such annexation does not conform to the Growth Policy? Should the Growth Policy be amended first?
• · Should City Commission examine the results of the final fiscal impact study prior to agreeing to extend services? The draft fiscal impact study indicates that servicing the project without annexation will result in a negative fiscal impact.
• Has there been any formal legal review and discussion by the City Commission on these issues?

7. Recommended Action

The CCE and MEIC recommend that the City exercise the highest level of scrutiny in following appropriate procedural requirements and drafting legal documents regarding this project. A project of this magnitude has many complicated issues and a higher level of review is necessary to insure that decisions can withstand legal challenges. It is costly to the city and other interested parties to engage in these challenges and it creates unnecessary delays for all parties concerned when proceedings or decisions must be revisited due to drafting errors or procedural lapses.

Furthermore, it is recommended that the city exercise due diligence by examining relevant documents prior to decision making and by considering the long-term consequences of these decisions. The fiscal impact study was commissioned for this purpose and should be available to the City Commission prior to consideration of these agreements. All drafts and exhibits of agreements to be made available to City Commission and the public prior to voting on these matters. It is recommended that the following steps be taken to address these concerns.

1) Rescind the “Potable Water Service Agreement” and the “Reservation of Wastewater Treatment Capacity Agreement” approved on June 5 and signed on May 30^th on the following grounds:

• The agreements were executed prior to ratification by the City Commission and are consequently invalid.
• The annexation clause is located in the preamble section and is unenforceable. Therefore the agreement does not comply with 13.02.075 of the City Code.

2) Prior to considering any new agreement that requires the petitioner to consent to annexation, amend the Growth Policy in compliance with Attorney General Opinion (Vol. 49, #23 – 9/26/02) The amendment would specifically address land use, infrastructure service areas, and fiscal impact issues regarding the site for the Highwood Generating Station. The International Malting Plant and the Upper/Lower River Road established precedent for extending services outside the city and these projects were specifically addressed in the Growth Policy. Amendments to the Growth Policy should be done in accordance with MCA requirements. (MCA 76-1-604. Adoption, revision or rejection of growth policy.)

3) As part of the Growth Policy amendments consider the policy implications discussed in the TischlerBise fiscal impact study. Policies in the Growth Policy Plan should be reviewed and if necessary revised in order to account for extension of services under the conditions described in the TischlerBise analysis. The fiscal impact study should be finalized and distributed prior to adoption of any amendments. Other impacts to public infrastructure and the environment should also be considered at this time.

4) All agreements, exhibits, and other documents related to the project should be posted on the web for public review with other agenda items being considered by City Council.




Attachment: Water Master Plan Service Area