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Court of Appeals Rules Cecil County Can Sell Water/Sewer Plants to Artesian; Court Orders ARCA to Pay Some County Legal Fees

June 21, 2011
By Nancy Schwerzler

The state’s highest court ruled Tuesday that the Cecil County Commissioners had the legal right to sell water and sewage treatment plants to the private Artesian firm, ending a nearly three year legal battle that cost county taxpayers over $203,000 in legal expenses and up to $1 million in total costs.

The protracted legal battle was initiated by the Appleton Regional Community Alliance, ARCA, an anti-growth group based in the northeastern area of the county near the Delaware state line. Apart from the substantive ruling in favor of the county, perhaps the most important fine-print of the Court’s decision was its brief directive that the “appellants”—ARCA—must “pay the costs” of the appeal.

County Budget Director Craig Whiteford has previously calculated that the total legal bills to the county to defend itself against the ARCA lawsuit on Artesian amounted to about $203,543. The costs of the Circuit Court legal fight are estimated at $150,000 while the appeal costs account for the balance. Thus, the county could take action to try to collect about $53,543 from ARCA.

(See previous Cecil Times report here: http://ceciltimes.com/2011/06/arca-lawsuits-cost-county-citizens-up-to-1million-and-counting-on-artesian-sale/

Joseph A. DiNunzio, executive vice president and secretary of Artesian, told Cecil Times Tuesday that the company was “pleased with the decision.” He indicated the final sale arrangements, which he said the firm hoped would be concluded quickly now that the court has ruled, would be essentially the same as they were when the deal was initially struck nearly three years ago. That deal called for a $13 million sales price—despite the fact that the water and sewer facilities are now several years older and have deferred major maintenance while the sale was blocked by the ARCA legal challenge.

In practical political terms, it is in Artesian’s best interest not to change the original sales contract because any changes could result in a new vote by the county commissioners and it is likely that the Board’s new voting bloc of 3-2 would go against a sale.

A press release issued by the County Commissioners late Tuesday, expressed no opinion or reaction to the ruling, and simply noted that the Commissioners had been “advised today that the Maryland Court of Appeals upheld the Circuit Court ruling that Cecil County has the right to grant franchises for water and wastewater systems and sell county owned water and wastewater facilities to Artesian Water Maryland Inc., and Artesian Wastewater, Maryland Inc. “

In particular, Commissioner Diana Broomell (R- 4) has opposed the Artesian sale and indicated Tuesday that she was concerned that any press release should not welcome the court decision.

The Maryland Court of Appeals ruled, on a 4-3 vote, that the county had the legal right both to grant a franchise to Artesian to provide services in areas where there were no current county-operated water and sewer services and also to sell currently-owned water and sewage plants to a private firm.

The sale would allow the county to pay off about $10 million in bond debt it incurred for the facilities, put $3 million into the county coffers and relieve the county of the ongoing costs of maintenance and upgrades, especially on older plants that will need future repairs to comply with state environmental mandates.

In its decision filed on Tuesday, 6/21/11, (see ruling here: http://mdcourts.gov/opinions/coa/2011/137a09.pdf a majority of the court ruled in a 30-page opinion that the county had the “discretion” under the law to both grant a franchise and to sell the facilities and the court noted, in previous cases the Court of Appeals has ruled that such “discretion signifies choice.”

ARCA had challenged the county’s right to, initially, award a franchise to Artesian to provide water and sewage services and the group then also challenged the county’s subsequent decision to sell its water and wastewater treatment facilities to Artesian, with the exception of the Seneca Point facility.

A visiting judge sitting in the Cecil County Circuit Court ruled against ARCA on all counts. For the appeal, ARCA stipulated that the county had the right to grant a franchise to Artesian in the first place, but still challenged the county’s power to sell the facilities to Artesian.

The appellate court agreed with the county’s argument that ARCA “would permit the Commissioners the power to grant exclusive franchises to Artesian but would deny them the statutory authority to convey the very systems which would allow Artesian to carry out the services attendant to those franchises. Further, having granted lawful water and wastewater Franchise s within the franchise area, the County would be constrained to own and to operate Facilities, “for public use,” in perpetuity, in effect creating two operating and competing water and wastewater systems within the same geographic area. The statute cannot, it should not, and it need not be read to create such an implausible result. “

The majority opinion concluded: “We agree with this argument. It would be unreasonable and illogical to hold that, although expressly authorized to grant the franchises, the Board is prohibited … from performing its duty “to avoid the duplication of [water and sewerage] facilities.”

In the dissenting opinion, a minority of the Court concluded that the majority made a “succinct analysis” that failed to consider conflicting interpretations of the phrase “no longer needed for public use” as it pertains to public facilities. The minority said the facilities were indeed still needed for a “public use” and should not be sold to a private party.

The minority opinion included detailed discussion of public hearing comments by the opponents of the sale who complained that they might face higher user fees if the facilities were sold to a private company. “The majority’s attempt at singing that harmony is off key,” the minority declared.

“On the one hand, the Board claims that the County will save nine million dollars, as
well as the twenty-seven million dollars required to make capital improvements to the
facilities. On the other hand, Appleton contends that the franchises will lead to rate increases and high density development in the franchise areas. As a private company, Artesian is held accountable to its investors and not necessarily the citizens using the facilities; therefore, as the argument goes, increasing profits may outweigh maintaining reasonable rates.”

Artesian’s operation of the Cecil County facilities is subject to regulation by the state Public Service Commission, which reviews and must approve rate increases and fees.

Artesian is currently operating some of the facilities in question under an interim services contract that is due to expire soon. The county commissioners put off action Tuesday on a decision on whether to renew the accord or terminate it and hire independent contractors for a brief period. Several commissioners said they wanted more time to digest Tuesday’s appellate court ruling before deciding how to proceed.

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5 Responses to Court of Appeals Rules Cecil County Can Sell Water/Sewer Plants to Artesian; Court Orders ARCA to Pay Some County Legal Fees

  1. Diane Carabetta on June 21, 2011 at 9:46 pm

    The funds received from any sale should go into the enterprise fund to offset costs for the users whose user fees and hookup fees paid for the equipment. The funds should be used to reduce the rates not further expand the system. Expansion costs should be funded by the new users through front foot assessments.

    It is also not fair to those on the system maintaining the enterprise fund to have the funds go into the general fund coffers. Repeatedly over the past few months the Commissioner have stated that the enterprise fund needs to stand on its own and be paid for by the users as it was designed to do. That was the justification used to rationalize the recent sewer rate increase.

  2. Ed Burke on June 22, 2011 at 8:14 am

    This shows the arrogance and stupidity of appointing Thorne to the Planning Commission. I love the court minority quip that “The majority’s attempt at singing that harmony is off key.” Could just as well have been talking about the “3 Amigos.” Unfortunately, they merely lip sync the Smigiel instructions.

  3. Bill Johnson on June 22, 2011 at 11:37 am

    As the county will still own and operate Seneca Point, it will continue to maintain an enterprise fund for the remaining wastewater assets. It seems logical that they would post the funds from the sale of the wastewater assets to the appropriate enterprise fund. Although the article said “county coffers,” it likely meant “wastewater enterprise fund.”

  4. Al Reasin on June 23, 2011 at 7:28 am

    It was good that the Court of Appeals finally ruled a year after the hearing was held. This case seems to have fallen into a crack in their decision making schedule.

    • Diogenes on June 23, 2011 at 1:03 pm

      Makes you wonder if it had anything to do with the O’Malley administration’s environmental agenda for rural areas.

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