18 Apr 2012
Cohasset’s May 12th, Annual Town Meeting will be asked to vote on a water concession contract. We asked our Water RFP Expert to discussion the legal ramifications of the same.
Tinytown Unleashed: Here’s a question for you, Water Expert.
Legally, what rights does a concessionaire have that the town doesn’t’ know about.
The RFP looks pretty safe, but Corporate Accountability says the concessionaire calls the shots, that the state will treat our water contract as a private (not municipal) contract, and that investors have rights.
Re water system governance and
private contract status of concession contract(s):
Tinytown Gazette Water Expert: The proposals will tell more than the RFP, but the language of the RFP certainly invites a backdoor takeover, either though explicit contract terms or through after-the-fact interpretation of contract terms by reference to recitals in the RFP.
Basically, if you want to confuse the public in setting the terms of a utility contract or other contract with a municipality, use several mirrors, not just one. For instance, the interest rate swaps that got so many states and municipalities into deep financial hot water a few years ago and led to congressional hearings, law suits and criminal complaints against some of our country’s largest banks were, in reality, piles of interlocking contracts, agreements, memoranda and exhibits that Sherlock Holmes would have been challenged to diagram, with the help of his magnifying glass.
Even with a computer and many hours to read and take notes, we (Water Expert’s company) were hard pressed to provide a defrauded municipality that contacted us on one such deal with a truly definitive summary of the rights and obligations of the parties. Municipal utility privatizations/PPPs/concessions usually involve fewer documents, but the ping-pong reference games that can be built into these deals are capable of being just as complex.
Of particular concern: inclusion of poorly-understood law by reference can make for essential deal points that can only be brought into clear definition through litigation. Not a great way to start a 10-year arrangement for services.
So public scrutiny and legal/financial due diligence will be a critical to understanding what is being proposed and what is being entered into where the proposed concession arrangement is concerned. On a related point, with qualified management contract provisions of the Internal Revenue Code in mind on this special day (April 17) we hope that the Town’s bond counsel will look beyond “97-13″ requirements, which seem to have been taken into account in drafting the RFP, and further into any proposed provisions, whose interpretation by a manager in an operating environment could, depending on the action(s) taken, trigger taxability for a substantial amount of the Town’s outstanding tax-exempt debt. That would not be pretty.
Implications for the setting of water rates would, of course, be of the greatest concern for Town residents. Unfortunately, there is no substitute for doing one’s homework.
Tinytown Unleashed: I think you’re saying we should not get ourselves into a concession contract. That there are no safeguards.