HomeMy Public PortalAboutBox 521 - Memo from Bieter 6-5-2000MOORE SMITH BUXTON Sr TURCKE, CHARTERED
"Also Adnuilh d in Oregon
$ Aka) Admillt d in Washington
AI•I()HN1YS.1I LAW
NIN I II & 1llA110 CI 1•H, Su111 420
225 Nt1wi 11 911I SI1tLL-I. 11U151 , 1D 87702
'I"1111.11[7NI: (208) 371.1800 FAX: (208) 371.1202
MEMORANDUM
TO: Robert Strope, City Manager
City of McCall
FROM: David H. Bieter
RE: DEQ Funds — J-Ditch Project
DA IT: June 5, 20000
In response to your request to review the possible availability of additional funds for the
J-Ditch Project_ I met with Kirby Vickers and reviewed information he provided on a $227, 340
reimbursement request signed by Brian Olson, Mr. Vickers had asserted that the City of McCall
should have these funds available for use on the current project. I have prepared this memo with
a summary of the events and documents that trace the path of these funds.
1-et me make it clear at the outset that nothing l have reviewed or understand points to the
possihility of any wrong doing in regards to this project. Rather, I helieve there has heen a
misunderstanding in the administration of the financing of this project that I am hopeful could
allow for as all to proceed with more confidence in the final result —completion of the project on
time and in budl1el.
While there are several aspects to this issue, the main issue for the City surrounds former
City manager Brian Olson's decision on September 9. 1998_ tiller lining -out the City Treasurer's
signature, to execute a reimbursement request in the amount of $227,340 (attached). l will
discuss the funding of the project in more detail_ hut the reimhtlrscment gave apparent authority
for the release of funds to the farmers irrigation group, the J-Ditch Pipeline Association (.1l)PA1).
even though, we assert, the City had already fulfilled its obligation under its agreement with
,IDPA1. The reimbursement apparently came at the Slate's request and released funds to .IDPAI
Robert Strops Memo
June 5, 2000
Page 2
that were eventually returned to DEQ. Indeed. the fact that JDPAI did not expend the funds. as
they had already been compensated, helps show that the funds should still he available.
Nevertheless, the actions of Mr. Olson should not preclude the City, in any legal sense, from
using such funds for the J-Ditch project.
While the reimbursement request is the central action of the City we need to review. some
background on the project funding is necessary to understand the situation. On July 9, 1996, in
Contract QCO31000 between DEQ and JDPAI, (attached) JDPAI committed to design and
administer construction of the pipeline and improvements for the J-Ditch project. Ultimately this
contract with amendments was for $227.049. However, the [anus for this agreement do not
interrelate to the funds discussed below. Indeed. not only was the City not a signatory to that
agreement, hut nothing in the language of that agreement refers to any of the other funding
sources for the project.
In September of 1996, J-LJ-I3 submitted a completed Facility Plan for the City of McCall
with cost estimates and sources of funding. The Plan and the subsequent modifications. although
perhaps reflected in somewhat different amounts as the projeet progressed, identified the
following limding sources:
1) State challenge grant
2) State supplemental cram
3) revolving loan/city obligation
4) interest earned
5) 2" `� State supplemental grant
6) additional interest
TOTAL
$1,000,000;
$1,500,000;
$3,140,850;
$ 50.000;
$1.000.000;
$ 50.000.
$6,900,850
Originally, the funds that came in the form of the 2"a supplemental grant were to come
from what is referred to as the ("SAWQP-) grant for the pipeline and farm improvements.
However. the landowners indicated that they would not provide the 25% match required by the
SAWQP program. Consequently, the funds were then provided to the City of McCall in the form
of a 2" `� supplemental grant and paid to JDPAI as work progressed. The other sources of funding
came together in various agreements, attached as exhibits to this memo, but the most legally
significant document is the agreement between the City_ an irrigation district, and the farmers.
On December 19, 1996, the City. Lake Irrigation District, and JDPAI entered into an
agreement setting forth the obligations of the parties on J-Ditch Phase I. On Page 6, Item 11 of
the contract. (attached) it limits the City of McC all's financial participation with .JDPAI to
$1,800,000 plus accrued interest. Thal same section of the December '96 Agreement goes on to
state that the City's obligation shall he "decreased by any sum which the City in fact returns to
the State under such Contract upon denumd having been made for such return.- Page 6. Item
11.
Robert Strope Memo
June 5, 2000
Page 3
On April 30, 1997, DEQ approved the Supplemental Grant Offer from the State of Idaho
to the City which brought the total grant amount to $2,500,000 (attached). The City approved
this agreement on May 23, 1997. Ilowever, in the document a State "challenge grant' is
referenced, but not addressed beyond is listing in the budget. 1 have no documents which address
the challenge grant, nor are such grants addressed in the stale regulations.
The project apparently proceeded as proposed in the agreements outlined above. But then
on July 14. 1998, Brian ❑lson signed a reimbursement request in the amount of $227,340 which
apparently authorized the City to pay for JDPAI work.
Finally, ❑n May 28, 1999, several months after Brian ❑lson's reimbursement request,
DEQ removed $227,340 from City's supplemental gram SG-1894-04 and returned to DEQ
QC0 31000. This completed the return of the funds to DEQ.
Hie issues presented by these facts are, first. on what authority the Slate acted in gaining
the return of the fimds, since no authority exists in the contracts we have; second, whether Brian
Olson's authorization of' the reitnhursenient hinds the City to give up the funds.
Under the documents I have reviewed, the City's financial obligations are cousistent—the
City borrowed a total of $3.1 million from the stale revolving loan fund, of which a maximum of
$ 1.8 milliou was to go to JDPAI cinder the City's agreement with ,IDPAI. The city borrowed and
spent that Viho1e $3.1 million on the project. However, the commitment between DEQ and
JDPAI should not work against the City to require the City to also pay that amount. That is, the
funds returned to the State should have either reduced the City's debt, or should still he available
to the City, plus interest, to .spend on this project. There was a finite City financial
committmentand specific grant Binds on top of that. To have required the return of' these funds
to DEQ decreased the grant portion of the funding to the detriment of the City.
It appears DI .Q was mistaken in obtaining the funds hack from .IDPAI. JDPAI must have
already been fully compensated or they would not have returned the funds to DEQ.
Moreover, the process followed does not appear consistent with state regulations
governing DE•Q grants. ❑ne such regulation addresses costs considered "ineligible costs". Such
ineligible costs include "costs incurred prior to award of the grant" IDAPA 16.01.04.030.n.
The grans agreement with DI?Q is dated May 23, 1997. The agreement between DEQ and
JI]PAI is dated June 19, 1996. There are no references in either agreement to the existence of the
other agreement, Indeed. the only document that references money returned to the State is the
agreement between the City and JDPAI which, in the language referenced above, weighs iu favor
of the City retaining use of the funds returned to DEQ. Therefore, unless DEQ has additional
Robert Strope Memo
June 5, 2000
Page 4
information that shows some other reason why the City is obligated, their regulations run counter
to their actions in obtaining the funds back from the City.
If Brian Olson was told to approve the reimbursement, it appears he was mistakenly told
to do so, Perhaps most important, absent the consent of the City' Council, Brian Olson did not
have the authority to bind the City to releasing $2 i0,000. Therefore, unless there is something
more, the City's claim to the funds may be a strong onc.
Based on the information above, I recommend you contact DEQ as soon as possible and
provide them with this information. It is my opinion that you would be able to use the funds
listed to extend the contract management agreement with Mr. Levihn, reinstate selected items
removed from the contract due to lack of fonds, or to fund the addition of the second (hack up)
450 hp pump required by DEQ.