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Costs and Broken Promises Continue to Mount Following Government Takeover in Missoula

In a guest column for the Missoulian, Quentin Rhoades, a local attorney, speaks out against the disastrous government takeover of Missoula, Montana’s privately-owned, professionally-managed water system. In the column, Rhoades chastises the Missoula Mayor for pitching the takeover as a successful David v. Goliath story to the city of Monterey, California, which is currently considering a similar takeover.

Prior to the deal, condemnation advocates in Missoula argued that government ownership would improve accountability, allow for local control, and provide savings to the city and residents. However, Rhoades points out that the deal, which was originally estimated to cost less than $55 million, has now cost Montana residents more than $140 million. And since the city was unable to secure a favorable loan and decided to borrow money to fund expensive capital improvements program to the water system, the debt associated with the takeover will likely continue to grow, costing taxpayers for many, many years to come.

Rhoades goes on to point out that constituents still pay the same price for water as they did under private ownership, but have lost the benefit of having a large taxpayer – the water utility –  supporting the town’s tax base. What’s more, he highlights how the city has “no realistic plans to lower water rates ever, and every reasonable expectation is they will rise as the city’s spending program continues.”

Read the full column below and find out more about the disastrous takeover here.

On Sept. 24, Mayor John Engen was in Monterey, California, to present “David v. Goliath: The heroic story of how Missoula took their water public.” Invited by a group dedicated to government takings of private property, he pitched the Monterrey peninsula on the bad idea he sold Missoulians: public taking of a privately owned water system that had served our city for 100 years was smart and they should do the same. As P.T. Barnum used to say, “There’s a sucker born every minute.”

 The City of Missoula’s condemnation of Mountain Water Company took far longer, and cost far more, than Engen ever told us. In the process we lost one of the largest property taxpayers in our little Montana town and borrowed $140 million in short-term bonds from a foreign bank to get something we already had: a clean, reliable water system.

The immense chasm between what Engen promised and what we live with today grows wider every day. Before condemning the water supply, at a public presentation not unlike what he staged in California, Engen assured us that condemnation could be accomplished in a fairly summary fashion. The water system assets would cost about $50 million, attorney fees about $400,000, and other transaction costs about $3.8 million. The whole thing could be accomplished for under $55 million.

But now, three years later, the dust has still not settled on the last of the litigation, and costs continue to rise. We paid about $88 million for the water system, $4 million for the other side’s attorney fees, millions of dollars for bond issuance and other expenses, and $9 million in our own attorney fees that are continuing to accumulate. All told, the city had to borrow $140 million to buy a water system Engen assured us was worth $50 million.

Worse, the city failed to secure stable, low-risk, long-term financing. Because no domestic lender would take the risk of long-term financing for such an overpriced transaction, we had to turn to a foreign bank who refused to offer anything but short-term, variable interest lending. While the rates on the short-term debt might have been pretty good at the time, that period will end shortly. And now financing rates have risen substantially since we “won” the condemnation action, which will make the final cost that much higher. Additionally, the city has decided to use borrowed money to fund a pricey capital improvements program for the water system. Not much of any of this is certain except one thing: the debt will continue to grow.

Meanwhile, water rates — one of the chief complaints the city used to justify the condemnation — remain as high as ever. We still pay the same price we paid for water under private ownership, but without the benefit of a large taxpayer and with a new burden of the $140 million debt. The city has no realistic plans to lower water rates ever, and every reasonable expectation is they will rise as the city’s spending program continues.

The condemnation of Mountain Water Company was a victory not for good government, efficient utilities or the rate-paying public. It was a victory for lawyers, “expert” witnesses and foreign bankers. Citizens got left holding the bag. Our water is the same and our rates are the same, but now we owe a mountain of debt and have to repay it without the help of what used to be one of our biggest taxpayers. I wonder if the folks in California will make the same mistake.

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