PRESTONSBURG — The Floyd County Fiscal Court is once again on the hook for over $2.6 million used to expand Southern Water and Sewer District to near-universal water service, after a “gentlemen’s agreement” between the county and the utility was nullified by the state.
During Friday’s meeting of the court, magistrates approved paying a $50,000 semi-annual payment on the bond debt that was used to finance the addition of 27 miles of water lines for Southern. After the subject was broached by Judge-Executive R.D. “Doc” Marshall, District 1 Magistrate John Goble asked how much Southern had contributed to the payment.
“They didn’t contribute anything,” Marshall said. “The [Public Service Commission] ruled they don’t have to.”
Marshall was referring to a PSC order issued in July. The PSC was responding to a request by Southern to raise its water rates, in part to help pay for the bond payments. However, the PSC ruled against the increase, saying Southern had no obligation to repay the county.
“When Southern District first presented the waterworks improvements project to the Commission for approval in 2002, it represented to the Commission that Floyd County Fiscal Court was contributing, not lending, approximately $2,474,000 towards the cost of the project,” the PSC order notes. “Rural Development loan documents also reflected that Floyd County Fiscal Court’s funds were a contribution.”
The PSC also found that the notion of an oral agreement between Southern and the county to be absurd.
“The existence of a ‘gentlemen’s agreement’ between the two governmental entities, moreover, is so removed from sound government and business practices to strain credulity,” the order says. “Public officers are presumed to act in a reasonable, competent, and honest manner. The Commission questions whether such officers would obligate their organization to pay $2 million over a 20-year period or to lend such an amount to another with the expectation of repayment over a similar period without reducing the terms of the agreement or arrangement to a legally enforceable writing. To do so places their organization at significant financial risk.”
The PSC order notes that Southern’s past payments to the county may have been the result of embarrassment, rather than any perceived sense of obligation.
“Southern District did not make any payments to Floyd County until 2010, when it made a partial payment,” the PSC order says. “Thereafter, it paid varying amounts every year for total of $250,41 5.02. Southern District’s current chair stated that Southern District began making payments only after the publication of numerous negative newspaper articles regarding the water district’s failure to pay its alleged debt.”
The Attorney General’s Office also weighed in on the issue, coming down on the same side as the PSC.
“While the Attorney General is sympathetic to the fact that the Floyd County Fiscal Court’s contribution was a key element to funding the project, the Attorney General has a concern as to the precedent that would be set by an authorization for water districts to voluntarily repay grant and contribution amounts,” Attorney General Jack Conway wrote in his comments to the PSC. “True: It may be the case that in the absence of such contributions there will be a scaling back or abandonment of projects. Nonetheless, a precedent creating uncertainty in the actual liability and obligations of a water district with regard to the financing of various projects would likely prove very disruptive. It would also stand to significantly undermine the Commission’s role to supervise financing under KRS 278.300.”
Magistrate Ronnie Akers said after Friday’s meeting that Floyd County is now obligated to make the $100,000 in annual bond payments until 2035.