‘DROPS IN THE BUCKET’?

Updated: February 5, 2016
In early 2014, Missoula Mayor John Engen announced he would pursue ownership of Mountain Water Company’s assets through a complicated legal process known as condemnation.

At the time, the mayor estimated that legal costs for the entire case would be approximately $400,000 and only paid on contingency of winning. He later clarified that he meant $400,000 per side, acknowledging that the city would likely be responsible for paying the legal expenses of Mountain Water and co-defendant Carlyle Group.

drop-in-the-bucket_2016_221x251Even so, it didn’t take long for the vast underestimation of legal costs to become clear.

By mid-October 2014, with five months still to go before the case’s first day in court, the city’s legal bills passed $700,000.

Missoula City Council member Adam Hertz, for one, wasn’t surprised: “It’s going to go into the millions, and I’ve said that from the beginning,” Hertz told KGVO News. “It’s abusive to the taxpayers and is bordering on malfeasance. It’s absolutely ridiculous that a city would spend this kind of money to take over a private company that historically has served its customers very well.”

In response to such criticism, the mayor said he had always expected total acquisition costs for the system, including financing costs, on the order of $4 million. Thereafter, the mayor more specifically estimated total acquisition costs at $4.24 million. However, that figure is the price that the city’s investment banking consultant, Barclays Capital, estimated for bond issuance services alone.

In other words: The overrun legal fees are in addition to the “acquisition costs” figure long cited by the city.

Despite the ballooning costs, on November 3, 2014, the city council granted the mayor unlimited spending authority (and no longer based on contingency of winning) to pursue condemnation. By the time the first, necessity portion of the condemnation trial began in March 2015, the tally was at $1.9 million — just for the city’s side of costs.

The latest publicly available figures show that the city’s legal costs have reached $5.2 millionThat’s 13 times the mayor’s original estimate. And it doesn’t even include the expenses incurred by Mountain Water and Carlyle — which the city is now trying to get out of paying, despite knowing from the outset that that’s a reasonable part of the law when a government entity tries to take private property.

Despite the huge overrun, the city still implies that those fees are just drops in the bucket compared to what it claims are the long-term benefits of city ownership of the water system. But those “benefits” are equally off-base, as we’ve pointed out throughout our answers to Frequently Asked Questions.

It’s looking like Missoula may need a much bigger bucket by the time this case is over.

Where will it end? The necessity trial is now in the appeal stage and the valuation phase has yet to have a final district court decision. The valuation decision can be appealed, making what is already a multiyear legal process even longer. By the end, the city’s legal fees will be significantly more than they are today.

The mayor and city council have put our community in a precarious financial position that can only get worse. They have borrowed cash from other restricted city funds in order to finance this misguided case. Win or lose, that money is now gone. Getting out now and paying just the legal costs is a smaller mistake than continuing down the path they are heading.

As council member Harlan Wells explained to KECI news, there comes a time when you should stop walking down the wrong path, even if you’re already far along. “Number 1 rule in business is never make decisions based off of sunk costs,” Wells told KECI. “If you are continuing because you’ve already spent that much money, a lot of businesses have gone down that way.”

You can help your elected leaders choose the right path. Please make your voice heard. Find out how at this link.