Bainbridge Ratepayers Alliance 1st Amended Complaint

1 2 3 4 5 6 7 SUPERIOR COURT OF WASHINGTON FOR KITSAP COUNTY

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BAINBRIDGE RATEPAYERS ALLIANCE, a non-profit corporation, Plaintiff,

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CITY OF BAINBRIDGE ISLAND, a municipal corporation, Defendants,

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Plaintiff alleges as follows:

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1.

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No. 09-2-01023-6

FIRST AMENDED COMPLAINT

The City of Bainbridge Island offers water, sewer, and stormwater

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management utilities, collectively referred to as the waterworks utilities (BIMC Sec. 3.44),

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through its Department of Public Works. The City water and sewer services are available to

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only a small portion (approximately 25%) of the island. Despite the requirement that utility

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funds only be used for their intended purpose; that the individual funds and their capital

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improvements be segregated; and that fund monies not be commingled, the City has a record

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of commingling all cash from all sources belonging to all its tax-supported and proprietary

FIRST AMENDED COMPLAINT - 1

GROEN STEPHENS & KLINGE LLP 11100 NE 8th Street, Suite 750 Bellevue, WA 98004 (425) 453-6206

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funds. Recently, the City has sought financing through Bond Anticipation Notes and Revenue

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or Limited Tax General Obligation (LTGO) Bonds in an amount that is almost 50% greater

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than that required to finance completion of the Waste Water Treatment Plant (WWTP) capital

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improvement for which the financing is purportedly sought. This lawsuit seeks declaratory

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and injunctive relief holding the financing proposal in excess of the amount necessary to

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complete the WWTP project as unauthorized, and thus an illegal, tax and enjoining the City

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from implementing these financing proposals or using any funds secured thereby for any

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project other than completion of the WWTP.

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PARTIES, JURISDICTION AND VENUE 2.

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Plaintiff Bainbridge Ratepayers Alliance is a non-profit organization

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incorporated under the laws of the State of Washington. The Alliance’s members include

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Bainbridge Island citizens who pay utility charges imposed by the City and who are

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concerned about the City’s utility rates, taxes, and municipal finances. 3.

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Defendant City of Bainbridge Island is a municipal corporation of the State of

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Washington located in Kitsap County. The City’s jurisdiction encompasses the entirety of the

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island.

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4.

The Court has jurisdiction over this matter under RCW 2.08.010 because

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Plaintiff is challenging the legality of a tax and jurisdiction has not been vested exclusively by

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law in some other court.

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5.

Venue is proper in this Court under RCW 4.12.025 because Defendant City of

Bainbridge Island is a municipal corporation located in Kitsap County.

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FIRST AMENDED COMPLAINT - 2

GROEN STEPHENS & KLINGE LLP 11100 NE 8th Street, Suite 750 Bellevue, WA 98004 (425) 453-6206

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FACTS 6.

The Bainbridge Island Public Works Department manages sewage collection

and treatment in the Winslow area of the City. 7.

The Winslow sewer service area encompasses only a small portion of the

City’s jurisdiction. 8.

The City has proposed completion of the improvements to the Winslow service

area Wastewater Treatment Plant. 9.

The City has proposed to finance improvement completion by issuing LTGO

or revenue bonds that substantially exceed the cost of financing such completion of the

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WWTP. The estimated cost of completion ranges from $4.2 million to $4.6 million, while

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financing is being sought for $6 million.

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10.

These LTGO or revenue bonds will be paid for by increased utility fees levied

on Winslow sewer service area utility customers. 11.

The City has made this proposal without having first released a utility rate

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study that shows the projected impact on the ratepayer of the proposed financing; without

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evidence that current and future ratepayers can afford proposed rate increases; without

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providing currently available information on the financial impact of other capital

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improvements that might be required for the affected utility to be in compliance with

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applicable local, state, and federal laws; without disclosing why the proposed financing is

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excessive; and without receiving advisory recommendations from the Utility Advisory

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Committee as required by Bainbridge Island Municipal Code chapter 2.33.

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12.

Plaintiff contends that the City has violated and is in violation of the laws as

specified below. The City denies it has violated or is violating these laws. Therefore, there

FIRST AMENDED COMPLAINT - 3

GROEN STEPHENS & KLINGE LLP 11100 NE 8th Street, Suite 750 Bellevue, WA 98004 (425) 453-6206

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are actual disputes and controversies among the parties which are capable of resolution by this

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Court. Declaratory relief as prayed for herein is appropriate.

3 FIRST CAUSE OF ACTION ILLEGAL TAX

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13.

Plaintiff herein incorporates by reference paragraphs 1 through 12 as if fully

set forth herein. 14.

The City’s proposal to increase utility rates on all City utility customers

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constitutes a tax, rather than a regulatory fee, because (1) a primary purpose for a significant

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portion of the rate increase is to raise revenue, rather than to regulate utility service, and (2)

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there is no relationship between the funding needed to complete the WWTP and the bond

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financing proposal because the latter is in an amount that is substantially greater than the

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financing required to complete the WWTP.

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15.

The City lacks authority to levy a tax on Winslow service area utility

customers to provide public benefits. 16.

Plaintiff accordingly seeks a judgment declaring any excess proposed utility

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rate increase to be an illegal tax, and an injunction enjoining the City from encumbering the

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Winslow sewer service area utility customers with debt in excess of that reasonably estimated

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for completion of the WWTP.

19 SECOND CAUSE OF ACTION FAILURE TO COMPLY WITH BIMC 2.33

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17.

Plaintiff herein incorporates by reference paragraphs 1 through 16 as if fully

set forth herein.

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FIRST AMENDED COMPLAINT - 4

GROEN STEPHENS & KLINGE LLP 11100 NE 8th Street, Suite 750 Bellevue, WA 98004 (425) 453-6206

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18.

The Bainbridge Island Municipal Code requires that a Utility Advisory

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Committee “shall…[c]onsult with and make recommendations to the mayor and the city

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council, give advisory recommendations to the city council relative to the planning for,

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financing, operation and maintenance of water and sanitary sewer utility capital facilities.”

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BIMC 2.33.040(D).

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19.

The City has failed to follow the legal directive to establish a Utility Advisory

Committee.

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20.

The City’s wastewater treatment plant is a sanitary sewer utility capital facility.

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21.

There are no advisory recommendations from a Utility Advisory Committee

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regarding the planning or financing of the proposed improvements to the wastewater

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treatment facility.

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22.

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The 1995 City of Bainbridge Island Water System Plan was updated in 2006 as

prepared by Gray and Osborne, Inc., Consulting Engineers. 23.

WAC 246-290-100(8) requires that purveyors of water systems such as the

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City hold informational meetings for the water system consumers and notify customers about

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waters system plan updates.

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24.

The City held no informational meeting for the waters system consumers

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before approving the 2006 water system plan update prepared by Gray & Osborne. Nor was

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a Utility Advisory Committee given the opportunity to review the proposed Plan update or to

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provide recommendations to the City regarding the 2006 Plan update.

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25.

The City’s failure to follow the duly authorized processes under both BIMC

2.33 and WAC 246.290.100 renders the City’s bond proposal arbitrary and, hence, denies

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FIRST AMENDED COMPLAINT - 5

GROEN STEPHENS & KLINGE LLP 11100 NE 8th Street, Suite 750 Bellevue, WA 98004 (425) 453-6206

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Plaintiff and its members their rights to due process guaranteed under the Washington

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Constitution.

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26.

Plaintiff accordingly seeks a judgment declaring the proposed bond issue void

and an injunction enjoining the City from proceeding with the bond issue.

5 THIRD CAUSE OF ACTION VIOLATION OF BIMC 2.33.040

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27.

Plaintiff herein incorporates by reference paragraphs 1 through 26 as if fully

set forth herein. 28.

Because there was no Utility Advisory Committee created, there were no

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recommendations from such a committee regarding two 2008 reports prepared by Ductile Iron

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Pipe Research Association (DIPRA Reports) pursuant to a contract with the City. Included

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within the DIPRA Reports were data and findings from the review of a section of field pipe

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and testing of soil samples from Wing Point Way to the wastewater treatment plan and pump

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station. A DIPRA Report states that “the pipe along the shoreline is subject to corrosive soil

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and corrosion is proceeding” and that “the failures have been brought about by corrosion

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pitting in the metal pipe wall.” Approximately 70% of the surface of the 6–inch pipe near the

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Wastewater Pump Stations was pitted half-way through the pipe wall, and 50% of the surface

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of the 16-inch force main was pitted about two-thirds through the pipe wall.

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29.

The residents of the City of Bainbridge Island, including Plaintiff and its

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members, were denied an advisory recommendation to the mayor and city council relating to

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these reports and other utility matters that may be relevant to the operation and management

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policies of the city’s water, sanitary sewer, and other utilities as required by BIMC 2.33.040.

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FIRST AMENDED COMPLAINT - 6

GROEN STEPHENS & KLINGE LLP 11100 NE 8th Street, Suite 750 Bellevue, WA 98004 (425) 453-6206

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30.

The public health, safety and welfare of both the community and state and

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local waters were unnecessarily put at risk when a severely eroded 30-year old iron sewage

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pipe ruptured on May 30, 2009, and poured approximately 287,000 to 493,000 gallons of

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sewage into the state waters of Puget Sound at Eagle Harbor before a repair stopped the

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leakage.

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31.

The City’s failure to provide comprehensive information, including these

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reports, to a Utility Advisory Committee, to the community, and to the City Council has

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denied the appropriate decision-making bodies of relevant information and exposed utility

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ratepayers to unnecessary financial risks while alternative utility projects received, or were

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promised funding that might otherwise have been used to fix corroded pipes. 32.

Plaintiff seeks an order directing that the utility ratepayers should not be

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charged for any excess costs incurred, or that may be incurred, related to the May 30, 2009

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sewage spill into Eagle Harbor.

14 FOURTH CAUSE OF ACTION VIOLATION OF RCW 43.09.210

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33.

Plaintiff herein incorporates by reference paragraphs 1 through 32 as if fully

set forth herein. 34.

RCW 43.09.210 relates to local government accounting and requires, among

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other things, that inter-departmental charges “shall be paid for at its true and full value.” The

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City has a practice of allocating personnel costs from tax-supported funds to the utility funds

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without compliance with the “true and full value” standard.

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35.

RCW 43.09.210 provides that no government fund or other government

agency “shall benefit in any financial manner whatever by an appropriation or fund made for

FIRST AMENDED COMPLAINT - 7

GROEN STEPHENS & KLINGE LLP 11100 NE 8th Street, Suite 750 Bellevue, WA 98004 (425) 453-6206

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the support of another.” Over the years, the City and the Bainbridge Island School District

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(School District) have entered into a series of inter-local agreements involving a number of

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issues. Under a 1994 agreement, the City purchased the School District’s water system for

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the benefit of the water utility, which water system was then valued at $731,000. When the

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City acquired the School District-owned water system, the City paid a significant portion of

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the acquisition cost by waiving School District storm water and sewer participation fees

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prospectively, which resulted in an illegal financial benefit.

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36.

Additionally, the City has given the School District lower than typical water

and sewer rates and a discount on water bills up to 95%, which shifted the burden of water

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and sewer service costs to other water and sewer ratepayers. The agreement in 1994 was

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based in part on an assumption that the School District’s water bills would remain at $30,000

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per year from 1998 to 2014. However, before the discount is applied, the School District’s

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water bills have averaged $100,000 per year over the last four years.

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37.

The municipal water and sewer utility ratepayers, who constitute a minority of

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the City’s population, have been subsidizing the School District’s water bills since 1994.

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Plaintiffs are informed and believe that the City has failed to charge other districts for the

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“true and fair value” of the utility services provided by the City.

18 FIFTH CAUSE OF ACTION VIOLATION OF RCW 35A.34.220

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38.

Plaintiff herein incorporates by reference paragraphs 1 through 37 as if fully

set forth herein. 39.

RCW 35A.34.220 requires that “Moneys received from the sale of bonds or

warrants shall be used for no other purpose than that for which they were issued.” BIMC

FIRST AMENDED COMPLAINT - 8

GROEN STEPHENS & KLINGE LLP 11100 NE 8th Street, Suite 750 Bellevue, WA 98004 (425) 453-6206

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3.44.010 similarly requires that the three utilities within the “city’s unified waterworks utility

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… shall be accounted for as though those utilities were separate funds.” BIMC 3.45.010

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explicitly requires that, “a utilities improvement fund” be established “to provide segregated

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accounting and control for expenditure of moneys identified for the purpose or making capital

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improvements.”

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40.

The City’s practice is to commingle all cash from all sources belonging to all

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its tax supported and proprietary funds. The effect is the use via de facto loans of bond

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proceeds for other purposes.

9 SIXTH CAUSE OF ACTION ILLEGAL TAX RE GROUNDWATER STUDY

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41.

Plaintiff herein incorporates by reference paragraphs 1 through 40 as if fully

set forth herein. 42.

The City has incurred or intends to incur $500,000 in costs to fund an island-

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wide groundwater monitoring study running from 2006-2010. The City has illegally charged

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this cost to the City’s water utility, rather than the City’s general fund. This study does not

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benefit only the City’s water utility or its customers, but rather will benefit other private and

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public water systems, allowing the ratepayers of other utilities to benefit without sharing the

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cost of the study.

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43.

Accordingly, Plaintiff seeks a judgment declaring the charging of $500,000 to

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the water utility to be unlawful and that the City reimburse the water utility out of the General

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Fund all amounts charged related to this survey.

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FIRST AMENDED COMPLAINT - 9

GROEN STEPHENS & KLINGE LLP 11100 NE 8th Street, Suite 750 Bellevue, WA 98004 (425) 453-6206

1 SEVENTH CAUSE OF ACTION ILLEGAL STORM AND SURFACE WATER FEES

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Plaintiff herein incorporates by reference paragraphs 1 through 43 as if fully

set forth herein. 45.

The City imposes storm and surface water management fees pursuant to BIMC

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46.

These fees constitute an unconstitutional tax, rather than a valid regulatory fee.

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47.

The purpose of BIMC 13.24 is to raise revenue to pay for public services and

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13.24.

improvements, rather than to protect the public health, safety or welfare in that the fees

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imposed under BIMC 13.24 are not required to be used and are not used solely to regulate or

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address any issues related to storm or surface water management.

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48.

There is no direct relationship between the fees charged and any services

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received or the burden to the fee payer. The charges do not reflect the benefit or cost of

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providing a benefit from the storm water utility. The City charges identical fees to the owner

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of a single family home or condominium regardless of its location, size, slope, building site,

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on-site water management practices or impact to the storm water utility.

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49.

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illegal tax.

Plaintiff seeks a judgment declaring such unlawfully collected fees to be an

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PRAYER FOR RELIEF

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WHEREFORE, Plaintiff prays that the Court grant it the following relief:

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A.

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A judgment declaring any excess proposed utility rate increase over and above

that required to complete the WWTP to be an illegal tax;

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FIRST AMENDED COMPLAINT - 10

GROEN STEPHENS & KLINGE LLP 11100 NE 8th Street, Suite 750 Bellevue, WA 98004 (425) 453-6206

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B.

An injunction enjoining the City from using any financing secured in excess of

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that necessary for completion of the Winslow WWTP for anything other than financing such

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completion of the Winslow WWTP;

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C.

A judgment declaring the proposed bond issue void;

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D.

An injunction enjoining the City from proceeding with the proposed bond

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issue in the absence of review by a Utility Advisory Committee that has been provided

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sufficient time to review the pending bond proposal;

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E.

An order directing that the sewer utility ratepayers not be charged for any costs

incurred by the City related to the sewage spill that commenced on May 30, 2009 into Eagle

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Harbor, including costs for employee overtime related to the spill, clean up costs, and any

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state or federal fines that may be imposed.

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F.

An order requiring an independent audit or accounting of the City’s financial

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records to ensure compliance with RCW 43.09.210, RCW 35A.34.220, and any other state or

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local laws governing the imposition of charges on utility ratepayers;

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G.

An order directing that the City refund all improper charges to any City-

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operated utilities, including, but not limited to the estimated $500,000 charge to the water

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utility for the study of the island’s groundwater;

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H.

An order requiring a full independent accounting of transactions related to

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agreements between the City and other districts, such as the School District, and that the City

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reimburse the City’s utility funds to the extent full value was not paid by any district for any

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utility service;

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I.

An order declaring storm and surface water management fees to be an

unconstitutional tax;

FIRST AMENDED COMPLAINT - 11

GROEN STEPHENS & KLINGE LLP 11100 NE 8th Street, Suite 750 Bellevue, WA 98004 (425) 453-6206

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J.

An award of costs and attorneys’ fees; and

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K.

Such other and further relief as the Court may deem just and equitable.

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DATED this 6th day of July, 2009. GROEN STEPHENS & KLINGE LLP

5 6 By: 7 8

/s/ Richard M. Stephens Richard M. Stephens, WSBA #21776 Brian D. Amsbary, WSBA #36566 Attorneys for Plaintiffs

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FIRST AMENDED COMPLAINT - 12

GROEN STEPHENS & KLINGE LLP 11100 NE 8th Street, Suite 750 Bellevue, WA 98004 (425) 453-6206

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DECLARATION OF SERVICE

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I, Linda Hall, declare:

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I am not a party in this action.

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I reside in the State of Washington and am employed by Groen Stephens & Klinge

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LLP in Bellevue, Washington. On July 6, 2009 a true copy of the foregoing First Amended Complaint was placed in

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an envelope, which envelope with postage thereon fully prepaid was then sealed and

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deposited in a mailbox regularly maintained by the United States Postal Service in Bellevue,

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Washington, addressed to the following person:

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Attorneys for City of Bainbridge Island: Thomas F. Ahearne Foster Pepper PLLC 1111 Third Ave., Ste. 3400 Seattle, WA 98101-3299

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I declare under penalty of perjury that the foregoing is true and correct and that this declaration was executed this 6th day of July 2009 at Bellevue, Washington.

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/s/ Linda Hall Linda Hall

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FIRST AMENDED COMPLAINT - 13

GROEN STEPHENS & KLINGE LLP 11100 NE 8th Street, Suite 750 Bellevue, WA 98004 (425) 453-6206