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Springs transfer stalls over cash

Council asks to include monetary transfer in proposal to divest city of springs property

A proposal to transfer ownership and operation of four springs north of the city into control of a local water association was postponed last week when the City Council voted to consider requiring roughly $350,000 be paid to the city along with the transfer.

The dollar amount comes from a $707,000 capital improvement project in 2008. The council directed that the springs customers would pay half, while the city would pick up the rest of the bill. That same year a council resolution directed that springs operation and maintenance costs would also be fully covered by springs customers through increased rates.GARY ALLEN - Water supply - The four springs proposed for a transfer out of city control are located on the hills north of Newberg and vary in how remote they are. Oliver Spring is the closest to town, just northwest of Medici Vineyard.

But the rates did not increase to accommodate the resolution’s intent for seven years.

It’s unclear why exactly the rates were not increased accordingly until 2014. During last week’s council meeting Councilor Tony Rourke, who was chairman of the citizen’s rate review committee before serving as city councilor, said the CRRC was not asked by the council to look at springs rates until 2014.

Former city attorney Terry Mahr said it likely would have been the public works department’s responsibility to present it to the CRRC for review. He also stated that politics have a role in rate increase issues as well, maybe playing a part in the postponed rate adjustments.

Whatever the cause, the springs rates did not increase until this year — and increase they did: beginning Jan. 1 the springs user rate jumped 25 percent. When Jan. 1, 2016, rolls around the springs customers’ volume charge will increase by 70 percent.

“If they would have raised it incrementally over that time it would be one thing, but now it’s really gonna zap them,” Mahr said.

Even if the incremental rates had been adopted earlier, though, part of the issue is the size of the population served by the springs. With 72 users picking up the same portion of the capital improvement bill as the entire city ratepayer group, the large rate increases are required to recoup the money.

“That’s why there’s a large increase proposed in 2016, because there isn’t enough people,” Public Works Director Jay Harris said in September.

Over the past 18 months the city and the springs customers have been working toward a proposal that would transfer ownership and operation of Oliver, Atkinson, Snider and Skelton springs to the Chehalem Springs Water Association, a nonprofit formed last winter to represent the springs customers. The CSWA proposes to contract with Hiland Water Corporation to manage the water supply and plans to keep springs water rates at their current level without the 70 percent volume charge increase slated for Jan. 1.

Because the city would be getting rid of property, there are certain requirements such as a public hearing. Another is that the city disclose any information about valuation of the property — an issue that is a bit tricky when it comes to the springs.

“We talked internally about whether we should go out for an appraisal on this and we decided it wasn’t really in the taxpayers’ interest to spend a bunch of money, because there’s a real difficulty in trying to figure out how to appraise this,” City Attorney Truman Stone said.

The property can be appraised in terms of its assessed value, system assets, business value or liquidation value.

The county assessor’s office considers the property’s assessed value to be about $1.4 million, but that’s considering it as potentially developable land, which can be misleading given its use as a water source.

“That assessed valuation, as a private property owner you might challenge,” Harris said. “We don’t pay taxes though so nobody ever challenged it.”

As part of the proposed agreement the city is requiring a conservation easement so the property remains as open space forever. That means if the springs ever ceased to be used the land could not be developed, likely decreasing the assessed value of the land to what the city estimates to be $145,000.

“The assessed value should have taken (into) consideration that it’s protection of a watershed for a water source. The real value of the property is just protection of the watershed as a resource to the spring box,” Harris said.

With the adjusted assessed value, water treatment systems, piping systems and water rights, the total asset valuation is estimated at $865,000, in addition to the $350,000 owed in repayment from the springs customers.

While an analysis found that the city would obviously lose rate revenue from the transfer, it also noted that the city would not have to pay for capital projects, operations or maintenance associated with the springs. Over a 30-year period, the study found, the city would break even on the transaction.

During the Oct. 5 meeting CSWA board member Mike Roos spoke on behalf of the nonprofit water association. He referenced a June 2014 letter of intent signed by the association and the city agreeing to a future transfer of the springs through a divestiture process. Similar language referencing an eventual transfer was included in the 2008 council resolution.

“We hope that in the participation of that letter of intent that the city maintains its agreement and maintains the process to divest those springs to the ownership of the springs association,” he said, asking council to approve the transfer.

Two other attendees offered public testimony, opponents Lon Wall and Robert Soppe.

Wall, who is chairman of the budget committee but was not speaking in that capacity, expressed concern that the city would be giving away something of value.

“To me it would seem reasonable, fair and realistic because I’m a ratepayer who might have to end up paying some of this through my water, it would seem reasonable to ask something of substance for this property, because in 2015 I don’t think there’s any real property in the state of Oregon that has zero value,” he said.

Councilor Tony Rourke also aired some concerns with the debt that would be erased with the proposed transfer.

“As I see it the $350,000-plus that, according to the 2008 resolution they are required to pay back, will not be paid back with the adoption of this resolution,” he said.

Rourke also praised the idea of including a proviso in the transfer agreement that would return the springs land to the city if the water association ever decides it is not needed any longer.

“If we’re going to give them something, I want it back if they don’t want it anymore,” he said. “It should be doable, I would think, and if it’s not doable I think maybe we should charge them and sell it to them, $350,000-plus.”

Other councilors thought the transfer could solve a long-standing problem that is only getting worse as time goes on.

“I’m at a point where I think we’re getting out now, we’re getting out cheaper than we would if we continue this relationship,” Councilor Denise Bacon said. “It’s got to end somewhere and it should have ended many, many years ago and I’d like to get this finished today.”

But in the end, Rourke requested the proposal be returned to city staff to add a request that the CSWA pay the city back 50 percent of the $707,000, as was stipulated by the city in 2008.

Councilors were split evenly for and against the proposal, with Mayor Bob Andrews left to break the tie.

“I hate this,” he quipped after a pause, ultimately voting in favor of sending the proposal back to staff to consider including repayment in the transfer contract. He did so “on the basis that we come back and see what the results of that negotiation are. That negotiation may prove futile and then we will have to reconsider what we have right now.”

Following the meeting Harris said the next step is up in the air right now, as he had not communicated with the water association about its intent in the future.

Representatives for the water association could not be reached for comment by press time Tuesday morning.


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