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City utility spending under fire

Critics charge Forest Grove is violating law that restricts funds

When Jeff King was hired as Forest Grove's first economic development director, many people in town were afraid he'd be too successful.

Back in 2005, the city had nearly 20 subdivisions in various stages of development, the state economy was racing and Forest Grove, with its pastoral views, solid schools and cheap water and electricity seemed poised for a boom.

While some community members were calling on city leaders to slow the growth, King's marching orders were to lure prospective employers to Forest Grove and goose the city's sleepy downtown.

Since then, the economy tanked, development ground to a halt and the city saw major employers, such as Times-Litho, Cedar Canyon Water and Gray and Co, shut down local operations.

Few would argue with the notion that King's job is more important than ever. But in recent weeks, a debate has kicked up over how to pay for it.

A legal question mark

For the past seven years, a portion of King's paycheck has come out of the budget of Forest Grove Light and Power, the city's electric utility. The rationale is that by promoting development, the office ensures a stable base of electricity users, which helps keep costs down for everyone.

Now, however, the city is proposing to pay for King's job

entirely with utility dollars. And critics say the move may break Oregon law.

Last Thursday, the Forest Grove Budget Committee (which includes all members of the city council) unanimously approved the city's 2012-2013 budget, including a provision to shift the entire $160,000 cost of the economic development office into the utility budget.

City officials say they're following other cities like McMinnville, which funds economic development efforts with that city's utility dollars.

But critics, including a former city councilor, a former director of the utility and a prominent lawyer, disagree.

Dave Bouchard, who headed Forest Grove Light and Power from 1992 to 2004, said the city shouldn't treat the utility fund like a cash cow.

'Our philosophy was that [Light and Power] really doesn't have any money. It's the customers' money,' he said. 'It's our job to be managers of that money for them. To bet on something as nebulous as economic development in hopes that it will somehow provide benefits to them, is a real stretch.'

Oregon law states that money from a city-owned utility can be spent only on operations directly related to the utility. But exactly what kind of expenditures fit the law and which ones don't isn't entirely laid out in the statute.

'The amount of money Light and Power customers pay is for the services they get,' said Bouchard argues. 'That's what the law requires. You can dream up a million different other things to do with it, none of which would be legal. '

Victoria Johnson, a former city councilor who worked for Portland General Electric, questioned the shift of the economic development funding at a budget committee meeting last month. 'My concern with Light and Power is focused on protecting these funds from being raided for general fund actions,' she said. 'The rates are meant to maintain the utility.'

But budget committee member Bud Bliss, himself a former city councilor, said economic development is directly tied to utility rates. The city, he notes, buys electricity from the Bonneville Power Administration. If the city's power usage drops too low, Bliss said, BPA could hike the city's rates.

Johnson and Bouchard disagree. 'Every incremental amount of power you purchase, you drive the average cost of the power you bought up, not down,' Bouchard said.

Ultimately the city is rolling the dice, he said, with no guarantee that economic development will happen or keep utility rates low.

'We're gambling with Light and Power money,' he said. 'Even though you may throw some money at economic development, it may not produce any tangible result.'

Plan fits city goals

Forest Grove City Manager Michael Sykes doesn't think the city's taking any risks. He said using utility dollars for economic development is fully within the law and fits with the city's goals.

'People are concerned that there are a lot of empty businesses here and people are concerned we aren't growing enough jobs,' he said. 'The city has taken that to heart.'

And when new businesses come to town, Sykes said, the overhead costs at the utility are shared by more people.

'When you're able to attract businesses it's good for the utility, because all of a sudden we are selling more power and it helps defray your fixed costs across the board,' Sykes said.

Still, Johnson's concerns were enough to prompt the city to ask for a legal opinion.

Attorney Chad Jacobs, who works for the city's contracted law firm, outlined a legal grounding for the policy. Jacobs pointed to a 1981 decision by the Oregon Court of Appeals that allowed the Eugene Water and Electricity Board to spend utility dollars on an energy conservation program.

That ruling, Jacobs wrote, showed that the state had already grappled with the statute that Johnson is raising questions about and sided with the city's position.

Sykes said other cities use utility funds for activities like economic development, including McMinnville.

McMinnville City Manager Kent Taylor said that six years ago the city began sending utility funds to a private non-profit economic development group.

'They've been extremely successful,' Taylor said. 'It's been renewed every year and people are very positive about it.'

'Jury's still out'

But Portland attorney John DiLorenzo said Forest Grove officials are wading into uncharted waters by spending utility dollars directly on city hall operations.

DiLorenzo said cases like this aren't particularly common, though cities are often tempted to try and crack into city-owned utility funds.

'Whenever you have a fund that appears to be unlimited in that it is controlled by ratepayers who have no choice but to pay the increased fees, there is always the temptation to use it for purposes that have nothing to do with what it was intended to support,' he said.

But DiLorenzo, who represents a group suing the city of Portland over its use of utility dollars, admits that the statutes governing utility money are hard to decipher.

'There is as strong an argument that spending the money on economic development violates the statutes as there is that it doesn't,' he said. 'The jury is out.'

DiLorenzo, however, questions the city's use of the 1981 Eugene case to defend its position. While courts in that case upheld the use of utility funds for an energy conservation plan, he isn't convinced they'd see Forest Grove's economic development program in the same light.

Economic electricity

King's position ($100,000 in salary and benefits) has always been funded in some way by Light and Power, according to Paul Downey, the city's finance director. Two years ago, he said, the allocation was made an even 50/50.

This year, Downey said extra revenue from last year's Light and Power budget will cover the cost of the economic development position, meaning ratepayers won't see an increase to their utility fees tied to King's duties.

Forest Grove Mayor Pete Truax said asking ratepayers to fund the city's economic development effort is completely appropriate - and has been from the start.

'What we are doing is right and legitimate for the citizens of Forest Grove,' he said. 'I didn't see the controversy then, and I don't see the controversy now.'