OpenCDA

November 10, 2012

Ordinary and Necessary

Filed under: Probable Cause — Bill @ 8:30 am

The agenda for the Coeur d’Alene Public Works Committee meeting on Tuesday, November 13, has a seemingly innocuous item: “Judicial Confirmation – Revenue Bonds.”  Anyone reading that would not have the foggiest idea about the importance of the agenda item.   There are two good reasons for voter interest in this first step in a longer process.

First, the price tag on the proposed CdA City sewer project is about $31 million.  Second, it will be an opportunity for voters in the First Judicial District to see if a District Court Judge follows the Idaho Constitution and statutes or whether he simply and expediently rubber-stamps a project to buy the support of the City of Coeur d’Alene.

This information from the Public Works Committee packet on the City’s website will give readers some overview of the project and the process the City proposes using to fund it.

Idaho’s Constitution, Article VIII, §3,  provides that the City is usually forbidden to incur any debt or liability in any manner or for any purpose exceeding in that year the income and revenue provided for it in that year without first getting a two-thirds vote of approval from the voters.  However, that same section has a provision which allows the City to issue revenue bonds to own, purchase, construct, extend, or equip water systems, sewage collection systems, water treatment plants, and sewage treatment plants with the assent of a majority of the qualified electors voting at an election to be held for that purpose.

The City is choosing not to submit the approval for $31 million in revenue bonds to any vote of the people.  Instead, it is seeking to have a District Court Judge declare the revenue bonds to be an “ordinary and necessary” expense of the City under a statutory process known as “judicial confirmation” provided in Idaho Code, Title 7, Chapter 13.

Readers will note from the statute that the City can’t just sneak over to the chambers of its favorite always-agreeable to everything as long as it will buy him votes District Court Judge and have him apply the automatic rubber stamp of approval of the First Judicial District.  The City must first hold a public hearing at which the Mayor and Council must take public comments if there are any.  A review of the Public Works Committee packet linked above indicates that the public hearing is tentatively scheduled to be held at the regularly-scheduled City Council meeting on December 18, 2012, at 6 p.m.  (This meeting is just seven days before Christmas.  The City of Coeur d’Alene likes to schedule potentially controversial hearings at times when the public is less likely to be able or inclined to attend.)

Presuming the City of Coeur d’Alene will apply its well-worn rubber stamp and approve the proposed resolution to submit the petition to the District Court Judge, readers should know that judges beyond the First Judicial District diligently do their jobs to ensure that expensive projects to be funded with public money are actually “ordinary and necessary” as that term was contemplated by the framers of Idaho’s Constitution.

To get a very clear and readable understanding of how an honest and competent district court judge adjudicated a judicial confirmation petition from the City of Boise for a new police station, read Fourth District Judge Cheri Copsey’s decision In the Matter of City of Boise, Petitioner.  Here’s the essence of her decision on page 1 and 2:

For the reasons stated below, the Court denies the Petition. The Court finds that construction of the Boise Police Department Fairview facility does not constitute an “ordinary and necessary” expense, and further finds that its proposed financing arrangement (denominated a “lease” by Boise) would create a liability exceeding Boise’s income and revenue provided for it for each year in violation of the Idaho Constitution.

Thus, this expenditure must be approved by Boise voters.

The more instructive material comes later in the decision when Judge Copsey explains the obligations of a District Court Judge even in the absence of any opposition to a petition for judicial confirmation.  That is succinctly summarized in the first paragraph of Judge Copsey’s “Analysis” section of the decision:

By filing a Petition, Boise requests the Court examine the Agreement and determine whether the Agreement can be validly executed in the absence of voter approval. While the judicial confirmation law has not been tested in higher courts, the law clearly requires the Court to independently examine the Petition and the Petitioner’s claims even in the absence of property owner, taxpayer, or elector objections. The Court is not allowed to simply “rubber stamp” a Petitioner’s request. [emphasis mine]

It is the Court’s responsibility to determine whether the Petitioner has legal authority for its proposed actions, whether the obligation or agreement is permissible under the general laws of the state and whether Idaho’s Constitution requires voter approval.

Fourth District Court Judge Cheri Copsey has a clear understanding that her responsibility was to determine if the proposed obligation met the requirements of the general laws of the state and Idaho’s Constitution even in the absence of any opposition to a petition for judicial confirmation.

It would have been easy for Judge Copsey to simply rubber-stamp the City’s funding proposal for a new police station.  After all, surely no taxpayers would oppose spending public money to build a new police station.  Could anyone dispute the worthiness of that project for funding?  Ah, but the issue in Boise wasn’t the worthiness of the project; it was the legality of the method chosen by the City of Boise to fund it.  And a very honorable and courageous Fourth District Court Judge chose the right path:  She said the City of Boise had failed to follow the law.

Likewise here in Coeur d’Alene, the issue before the Court will not be the worthiness of the proposed sewer capital improvements projects.  Rather, the sole issue to be decided by a First District Court Judge is whether or not the City of Coeur d’Alene’s project funding meets the “ordinary and necessary” provisions of the Idaho Constitution and Idaho Code.

It’s worth reading Judge Copsey’s decision thoroughly.  The City of Boise had tried to rely on court decisions from other states to bolster its case.  Judge Copsey wanted no part of that.  In her decision she observed:

Furthermore, Idaho courts have made it clear that Idaho strictly construes this provision and does not follow other jurisdictions’ interpretations.  In fact, the Idaho court has frequently been asked to revise its strict construction by local governments advocating adoption of other states’ interpretations. Each time, the Idaho court has resisted their requests, and this Court believes such resistance is proper.

Moreover, many of those other jurisdictions are “outcome” oriented – approving schemes to evade debt limitations because those courts find the outcome is in the people’s best interest writing things like “[i]t is never an illegal evasion to accomplish a desired result, lawful in itself, by discovering a legal way to do it.”  States that employ this circular reasoning are noted to generally approve any and all lease-purchase agreements. [footnotes omitted]

OpenCdA hopes that readers will pay close attention to the progress of the City’s proposed project.   We hope that the petition for judicial confirmation is not just another attempt by this City’s government to evade the law and circumvent voters.  We also hope that the City Council will require bond counsel Danielle Quade to satisfactorily explain precisely how the timing and timeline of this project conform to the “ordinary and necessary” provisions in Idaho’s Constitution and law.  Finally, we hope that if this petition is approved by the City Council, a First District Court Judge will follow the example set by Fourth District Court Judge Cheri Copsey in 1992 and use solid judicial reasoning to arrive at a lawful decision rather than simply applying the expedient rubber stamp so favored by the City.

 

7 Comments

  1. Bill, I appreciate the rhetorical question but I think we all know the answer.

    Comment by Ancientemplar — November 10, 2012 @ 11:38 am

  2. Ancientemplar,

    You are, of course, correct. But the public has almost no opportunity to see judges in action or judges’ inaction, and so when it comes time to reject or retain, the dead-enders are as likely to be retained as the good ones.

    Comment by Bill — November 10, 2012 @ 12:59 pm

  3. It is worthy to note that the city is seeking revenue bonds, not general obligation bonds. G.O. Bonds would be paid for by a specific tax. Revenue bonds would be paid from increased user fees. Direct taxes or user fees in this instance will be from the same payer. Generally, one can say the city is going to raise our taxes regardless of what connivance they come up with.

    Comment by Gary Ingram — November 10, 2012 @ 1:35 pm

  4. Gary,

    The sewer project itself may be completely valid. It might meet the “ordinary” part of the “ordinary and necessary” requirement. But is it “necessary” as Idaho’s courts (not Wisconsin’s) have interpreted that term? I’m less comfortable with that.

    My bigger concern is whether the City is using the appropriate and lawful mechanism to fund it. Is the City pulling an NIC caper to circumvent the law? Recall Mic Armon’s answer to Mary when she asked why the NIC Board of Trustees didn’t simply ask the voters to fund the bond for the Commercial Corridor: “We didn’t think the voters would pass it.” Uncertainty of success in getting voter approval does not create the condition of necessity as contemplated by the Constitution.

    Comment by Bill — November 10, 2012 @ 1:51 pm

  5. Still out there is the multimillion dollar judgment against the City in the Dixon decision. Gabriel has said that the City may also seek judicial confirmation to tax the City’s residents for that as well.

    I wonder if the City’s new Propagandist-in-Charge is beginning to get a better understanding of the scope of her duties? Maybe she will ask that her title be changed from P-i-C to Alchemist-in-Charge.

    Comment by Bill — November 11, 2012 @ 8:30 am

  6. Historically, user fees have always increased with new capital improvement projects. Wastewater upgrades are continuous and never ending to keep up with government standards. Gary is correct.

    However the City should not be leasing out properties, paid for by user fees, for any other use other than sewer management. I wonder if a Judge would award rate payers a refund for the cost of second administration building that has been included in monthly rates? If Wastewater rate payers have already paid for Harbor Center, than the cost of a new building should not be considered reasonable.

    Comment by LTR — November 11, 2012 @ 3:19 pm

  7. LTR,

    If the upgrades are necessary to comply with a newly-imposed standard, then that could meet the “ordinary” part of the “ordinary and necessary” requirement. The “necessary” part is a separate animal altogether. Let’s assume the City knew of the new standard a year or more ago and took no action to begin funding it. Instead, let’s assume the City used money that could have been applied to conform with the standard for some other less essential project. Outside the rubber-stamps of the First Judicial District, it would be hard to sell this as something exigent, something urgent. The old saying, “A lack of planning on your part does not constitute an emergency on my part” may apply. We’ll just have to wait and see.

    Comment by Bill — November 11, 2012 @ 4:33 pm

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