The city of Gardner owes Johnson County Rural Water District No. 7 (RWD No. 7) nearly half a million dollars, according to an agreement the entities inked in 2008 and amended in 2011. But city council members first learned of the $475,000 debt during a March 17 work session.
Under the terms of the agreement, the city would become the water service provider for areas that had been annexed into the city since the 1970s, and the city would reimburse the rural water provider for an existing transmission line and related facilities within the transferred area.
Bill Gay, who sits on the Johnson County Rural Water District No. 7, said city officials and the water board drafted the agreement to settle service boundary disputes. The agreement also includes an equation to determine the monetary value of customers. Using the agreement’s model, the average customer is valued at approximately $5,000.
City council members approved a supplement to the 2008 contract. Under the terms of the supplement, the city transferred two of its water customers to RWD No. 7 and paid the water district $10,394 for the Kill Creek Wastewater Plant.
The city paid the $10,394, but has yet to transfer customers identified in the 2008 agreement or pay for the customers. The customers are valued at approximately $431,000.
Brian Faust, public works director, said the city has two choices to make good on the contract. Council members could agree to pay $431,000 to RWD No. 7 and transfer customers identified in the 2008 agreement; or the city could transfer the customers identified in the 2008 agreement and in lieu of paying RWD No. 7, the city could transfer additional existing customers to RWD No. 7. Faust proposed transferring customers in two areas to the water district.
The areas include 17 city water users near 159th and Waverly Road and 16 customers near 199th Street and Gardner Road, including Nike Elementary School and Olathe RV.
The council did not budget for the expenditure this year.
City finance director Laura Gourley said the city legally cannot finance the purchase of utility customers through the issuance of bonds. She said she doesn’t think the city would have to dip into reserves to come up with all of the funds, however.
Council member Larry Fotovich questioned whether the contract was a binding agreement.
“I’d go back and have the document looked at to see if we really are obligated,” Fotovich said.
City attorney Ryan Denk didn’t provide a definitive answer, but said there is some question as to whether a previous governing body could bind a future governing body as the contract does.
Council member Kristi Harrison said she would like to see a recommendation from staff about how to handle the financial obligation.
The recommendation could include cash from reserves or the transfer of customers or some combination of both.
“From my perspective, we owe $475,000,” she said.
Faust said the city transfer of customers could affect the city’s ability to service potential future customers.
For example, if the city transferred customers and infrastructure on the western edge of town, the city could annex more property beyond those customers.
“We can annex anywhere we want. It’s just who provides water service,” Faust explained.
However, the city would not have water lines to service those further western customers.
He said the water department would like to keep its existing customers if possible.