1 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF OHIO WESTERN DIVISION (CINCINNATI) UNITED STATES OF AMERICA, et al., : : : Plaintiff, : Case No. 1:02CV107 : v. : Judge Michael R. Barrett : Magistrate Karen L. Litkovitz : BOARD OF COUNTY COMMISSIONERS OF HAMILTON COUNTY, OHIO, et al. : : : : Defendants. : THE BOARD OF COUNTY COMMISSIONERS OF HAMILTON COUNTY, OHIO’S MOTION FOR ENFORCEMENT OF THE COURT’S JUNE 26, 2014 ORDER AND MOTION FOR COURT-ORDERED MEDIATION SUMMARY OF ARGUMENT PURSUANT TO LOCAL RULE 7.2(a)(3) Pursuant to Rule 7.2(a)(3) of the Local Rules of the United States District Court for the Southern District of Ohio, the Board of County Commissioners of Hamilton County, Ohio (“County”) submits this introductory summary to its motion for enforcement of the Court’s June 26, 2014 Order and its motion for Court-ordered mediation. I. PRELIMINARY STATEMENT …………………………………………………………1 II. PROCEDURAL AND FACTUAL BACKGROUND ……...……………………………2 A. The Court’s June 26 , 2014 Order …………………………………………………2 B. Recent City Admissions Regarding $680 Million in Failed City Oversight ……..4 C. The City Unilaterally Terminated a Ratepayer Protective Contract Authorized by the County and Wasted Hundreds of Thousands of Dollars ……………………..5 Case: 1:02-cv-00107-MRB-KLL Doc #: 795 Filed: 02/22/16 Page: 1 of 35 PAGEID #: 13570
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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION (CINCINNATI)
UNITED STATES OF AMERICA, et al., : :
: Plaintiff, : Case No. 1:02CV107 : v. : Judge Michael R. Barrett : Magistrate Karen L. Litkovitz : BOARD OF COUNTY COMMISSIONERS OF HAMILTON COUNTY, OHIO, et al.
: : : :
Defendants. :
THE BOARD OF COUNTY COMMISSIONERS OF HAMILTON COUNT Y, OHIO’S MOTION FOR ENFORCEMENT OF THE COURT’S JUNE 26, 2014 ORDER AND
MOTION FOR COURT-ORDERED MEDIATION
SUMMARY OF ARGUMENT PURSUANT TO LOCAL RULE 7.2(a)(3)
Pursuant to Rule 7.2(a)(3) of the Local Rules of the United States District Court for the
Southern District of Ohio, the Board of County Commissioners of Hamilton County, Ohio
(“County”) submits this introductory summary to its motion for enforcement of the Court’s June
26, 2014 Order and its motion for Court-ordered mediation.
I. PRELIMINARY STATEMENT …………………………………………………………1 II. PROCEDURAL AND FACTUAL BACKGROUND ……...……………………………2 A. The Court’s June 26, 2014 Order …………………………………………………2 B. Recent City Admissions Regarding $680 Million in Failed City Oversight ……..4
C. The City Unilaterally Terminated a Ratepayer Protective Contract Authorized by
the County and Wasted Hundreds of Thousands of Dollars ……………………..5
D. The City is Adverse to the County in MSD-related Litigation …………………7
1. Permit Related Documents Require County Review and Approval ……7
2. Consent Decree Permits Issued Without County Input or Approval ……7
3. The City Opposed the County, its Principal, in the Permit Appeals ……8 E. The Agent is Dictating Policy and Spending Instructions to the Principal …….10 F. The City’s Independent Actions with the Regulators ……………………….…12 G. Memoranda of Understanding and Funding Agreements ………………………13 H. The City’s Refusal to Provide “Joint Utility” Cost Information Before Decoupling MSD and GCWW ………………………………………………………………17
I. The City Charges MSD Double the Rate it Charges Others for Work Performed
by GCWW ………………………………………………………………………20 J. The County Has Been Forced to Seek Information Through Public Records Requests, which Have Gone Unanswered for Nearly a Year …………………...21 K. The City’s Settling of Claims on Behalf of MSD Without Notice to, or Approval of, the County ……………………………………………………………………22
III. ARGUMENT ……………………………………………………………………………23
IV. THE COURT SHOULD ORDER THE PARTIES TO MEDIATION REGARDING THE IMPENDING TERMINATION OF THE 1968 OPERATING AGREEMENT ………..29 V. CONCLUSION …………………………………………………………………………30
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION (CINCINNATI)
UNITED STATES OF AMERICA, et al., : :
: Plaintiff, : Case No. 1:02CV107 : v. : Judge Michael R. Barrett : Magistrate Karen L. Litkovitz : BOARD OF COUNTY COMMISSIONERS OF HAMILTON COUNTY, OHIO, et al.
: : : :
Defendants. :
THE BOARD OF COUNTY COMMISSIONERS OF HAMILTON COUNT Y, OHIO’S MOTION FOR ENFORCEMENT OF THE COURT’S JUNE 26, 2014 ORDER AND
MOTION FOR COURT-ORDERED MEDIATION
I. The Board of County Commissioners of Hamilton County, Ohio (“County”) respectfully
requests that the Court clarify the extent, impact, and effect of the Court’s June 26, 2014 Order
(“Order”) directing the City of Cincinnati (“City) to follow County instructions and enjoining the
City from violating the Consent Decree. The Court held that the City is the County’s agent for
the operation and maintenance of the sewer system subject to the County’s “control and direction
. . . in all matters related to those functions.” The City continues to manage and operate the
County sewer district, known as the Metropolitan Sewer District of Greater Cincinnati (“MSD”)
as if that Order did not exist. Quite simply, the City is a “rogue agent”, opposing County
oversight and directives and MSD Rules. Ratepayer costs are soaring. The City’s actions cannot
continue unabated without increasing those costs and threatening timely and successful
II. In addition, the County moves the Court to order the County and City to mediation to
address the impending termination of the agreement by which the City serves as the operator for
the County Sewer District. A memorandum in support is attached.
Respectfully submitted, s/ Joseph T. Deters Joseph T. Deters, Esq. (0012084) James W. Harper. Esq. (0009872) Charles W. Anness, Esq. (0082194) Michael J. Friedmann, Esq. (0090999) Hamilton County Prosecuting Attorney 230 E. Ninth Street, Suite 4000 Cincinnati, OH 45202 Phone: (513) 946-3006 Fax: (513) 946-3018 Mark A. Vander Laan, Esq. (0013297) Andrew B. Barras, Esq. (0088600) DINSMORE & SHOHL LLP First Financial Center, Suite 1900 255 East Fifth Street Cincinnati, OH 45202 Phone: (513) 977-8200 Fax: (513) 977-8141
Mark A. Norman, Esq. (0012033) Anthony L. Osterlund, Esq. (0071086) Vorys, Sater, Seymour and Pease LLP Suite 2000, Atrium Two 221 East Fourth Street Cincinnati, Ohio 45202 Phone: (513) 723-4000 Fax: (513) 723-4056 Attorneys for Board of County Commissioners of Hamilton County, Ohio
As the steward of the County sewer district, the County is forced to file this motion to
preserve ratepayer funds and to ensure compliance with this Court’s prior Order (Doc. 725)1 and
with the Consent Decree.2 Despite the Court’s detailed factual findings and holdings regarding
the consolidation of the City’s sewer district into MSD, the operating agreement by which the
City manages MSD on behalf of the County, the effect of and obligations under that operating
agreement, and the County’s rights as owner of MSD—which were not appealed by the City—
the City continues to disregard the Court’s Order and treats the County as a nuisance that must
be endured or ignored, not as its principal whose directives are to be followed.
The City has now publicly admitted that its oversight of MSD management was lacking
for nearly a decade. Hundreds of millions of dollars were improperly spent during this time
without oversight or appropriate checks or balances to protect ratepayers and Consent Decree
compliance. The County had hoped this type of behavior would cease once the Court clarified
the parties’ roles and obligations as principal and agent in its June 26, 2014 Order. Indeed, the
clarification of the parties’ respective roles seemed so evident that the City did not even seek
further review of the Order. But, as demonstrated herein, instead of adhering to the directives of
the Court, the City has routinely and intentionally ignored its fiduciary role.
1 When the Court previously addressed the County’s Petition to Enjoin Violation of the Consent Decree by the City
of Cincinnati, the Court handled the matter under the dispute resolution provisions of the Consent Decree. (Doc. 725, pp. 4-6). This is a continuation of the same dispute and should be treated in the same manner.
2 On June 9, 2004, the County and City entered into a Consent Decree with Plaintiffs United States of America, the State of Ohio, and the Ohio River Valley Water Sanitation Commission (collectively, the “Regulators”) entitled “Consent Decree on Combined Sewer Overflows, Wastewater Treatment Plants and Implementation of Capacity Assurance Program Plan for Sanitary Sewer Overflows” (“Global Decree”) (Doc. 131) and a Consent Decree entitled “Interim Partial Consent Decree on Sanitary Sewer Overflows” (“Interim Decree”) (Doc. 130) (collectively, “Consent Decree”).
For the Court’s ease, the County will address only a limited number of post-Order
examples that highlight the City’s actions as an unfaithful, rogue agent that must be reined in to
protect ratepayers and to protect the County’s ability to achieve expeditious implementation of
all Consent Decree requirements.
Immediate relief is necessary to limit the wasting of ratepayer monies, to ensure checks
and balances are properly in place, and to ensure that Consent Decree projects are timely
completed in an efficient, business-like manner. The County requests that the Court instruct the
City that its Order applies to all MSD-related County Resolutions and directives and all MSD
Rules, not just to limited procurement issues, and instruct the City to comply with the County’s
directives, rules, and regulations pertaining to the City’s operation and maintenance of MSD.
While the Court examines the issues presented herein, the County also requests that the
Court also order the County and City to mediation to address the impending termination of the
operating agreement under which the City manages MSD on behalf of the County.
II. PROCEDURAL AND FACTUAL BACKGROUND
A. The Court’s June 26, 2014 Order. On May 5, 2014, the County filed a Petition to Enjoin Violation of the Consent Decree
(“Petition”) by the City (Doc. 708).3 The focus of the Petition was the City’s operation and
maintenance of MSD on behalf of the County, pursuant to the fifty year agreement the City and
County entered into on April 10, 1968 (the “1968 Operating Agreement”), which governs the
relationship between the County and the City with respect to the operation of MSD.4 The
3 The background for the Consent Decree, this Court’s continuing jurisdiction over this matter, MSD, the relevant
operating agreement (the “1968 Operating Agreement”), and the principal-agency relationship recognized by this Court and in the Complaint and Amended Complaint in this matter, the Consent Decree, and the 1968 Operating Agreement were previously set forth in the County’s Petition (Doc. 708, pp. 1-5) and the Court’s Order (Doc. 725, pp. 1-9) and are incorporated herein by reference.
County requested that its Petition be granted, as the City’s practices in operating and maintaining
MSD were contrary to County policy and directives, resulting in delays in the implementation
and completion of Consent Decree projects.5 Such delays increased the cost of Consent Decree
projects and endangered the completion of those projects, resulting in possible violation of the
Consent Decree. The County’s Petition identified three City procurement-related ordinances that
the County believed violated State law and which the City continuously attempted to use despite
repeated County direction that it not do so. Despite the Petition’s focus on the procurement-
related ordinances, the overarching issue of concern clearly illustrated in the Petition was the
nature of the principal-agent relationship between the County and City.
On June 26, 2014, the Court issued its Order on the matter, enjoining the City from using
its ordinances in the procurement of contracts for Consent Decree sewer projects. (Doc. 708, at
28). The Court also ordered the City to follow MSD Rules and Regulations and County
Resolutions and directions. See id. at 29. In so doing, the Court noted that the terms of the 1968
Operating Agreement “[c]reated a contractual agency relationship pursuant to which the parties
agreed that the City would function as the County’s agent in the operation and maintenance of
MSD.” Id. at 17. Indeed, “the 1968 Agreement creates a principal-agency relationship pursuant
to which the City’s authority as agent is specifically limited and is subject to the direction and
control of the County as principal.” Id. at 19. Finally, the Court held that “[i]n accordance with
the plain terms of the 1968 Agreement, the City is the agent of the County for the operation
and maintenance of the sewer system and is subject to the control and direction of the
County in all matters related to those functions.” Id. at 18 (emphasis added).
5 By way of example, the Consent Decree projects at Eastern and Delta Avenue were delayed for 16 months by the
City’s illegal procurement practices, which were ultimately overturned by Court Order. The City continues to blame the County for this delay. See Declaration of Dave Meyer (“Meyer Declaration”), ¶ 2 (attached at Exhibit 1).
B. Recent City Admissions Regarding $680 Million in Failed City Oversight.
As the Court may be aware, the Cincinnati Enquirer has recently run a series of stories
regarding the County’s requests for the City to follow County directions, over or underbuilt
(until corrected) Consent Decree projects, blown budgets, a reported FBI investigation of MSD,
an Auditor of State investigation of MSD, and the fact that the City allowed MSD to spend as
much as $680 Million in public money with little or no oversight. The recent news coverage
regarding the City’s mismanagement of MSD is illustrative of the issues and difficulties the
County has had with the City and its failure to properly operate and maintain MSD over a
number of years.
This lack of City oversight allowing MSD unfettered authority to enter contracts and
spend money appears to have begun in 2007, when the City Manager delegated authority to the
MSD Executive Director to “sign on behalf of the City of Cincinnati any documents, including
contracts, that pertain to the City’s operation of MSD. . . .”6 Per its own admission, the City
disbanded its oversight committee that is supposed to monitor government spending in 2008.7
While this lack of City oversight was ongoing, MSD personnel questioned contracts entered by
MSD, noting that the “scope of work and how it benefit(s) MSD” was not clear and that work
orders did “not provide any specifics or deliverables.”8 City Manager Harry Black has publicly
stated that the arrangement suffered from insufficient “command and control” and that the
6 Interdepartmental Correspondence Sheet from City Manager to MSD Executive Director, dated 11/15/07 (attached
at Exhibit 2).
7 See City Council Member Kevin Flynn, Chairman, Rules and Audit Committee letter to Ohio Auditor of State, dated 2/8/16 (attached at Exhibit 3); see also Cincinnati Enquirer, As MSD spent millions, audit committee vanished, dated 2/8/16 (attached at Exhibit 4).
8 Cincinnati Enquirer, SPECIAL REPORT: The $680M memo, dated 2/3/16, at p. 7, quoting MSD Deputy Director Ihab Tadros and MSD Enterprise Manager Leisha Pica (attached at Exhibit 5).
The City presented the Board with draft legislation to approve the use of a CMAR
procurement process for the VCS to secure “best value” construction and a guaranteed maximum
price on August 18, 2014.15 The Board passed a Resolution to utilize CMAR two days later.16
The City then issued a RFQ for the CMAR procurement.17
In September 2014, MSD management advised that the VCS would be at 100% design by
July 2015 and construction would start in the fourth quarter 2015.18 In October 2014, MSD
selected the best qualified CMAR.19 A CMAR contract was awarded and signed in
November. MSD advised the public of the selection and contract award on December 2, 2014.20
Three days later—after work began and without notice to or the consent of the County—
the City unilaterally terminated the CMAR procurement process.21 As City Manager Harry
Black informed City Council shortly afterward, “MSD has a long history of making procurement
decisions on sewer projects without County involvement. This project is no different.”22 In
making this decision, the City eliminated the procurement process recommended by MSD that
provided a guaranteed maximum price to ratepayers. And, per MSD, it wasted more than
15 See Exhibit 1, Meyer Declaration, ¶ 6, and its Ex. A.
16 See id. at ¶ 6, and its Ex. B.
17 See id.
18 See id. at ¶ 7.
19 See id. at ¶ 8.
20 See id. at ¶ 9.
21 See id. at ¶ 9. See also email between Christian Sigman (County) and Harry Black (City), dated 12/9/14 and email between Ali Bahar (City) and members of the CMAR Evaluation Committee, dated 12/8/14 (noting “complete surprise” about termination of the CMAR procurement)(attached at Exhibit 7).
22 See Exhibit 1, Meyer Declaration, ¶ 10, and its Ex. C.
300,000 dollars that had already been spent as part of the CMAR process.23 Moreover, more
than a year later, the VCS is not yet at 100% design and construction has not begun.24
D. The City is Adverse to the County in MSD-related Litigation.
1. Permit Related Documents Require County Review and Approval.
Since at least January 2014, MSD is to obtain County approval for, among other things,
official documents due to regulator agencies. MSD Rule 2403-3, “Review Process for Consent
Decree Reports, Permit Applications and other official documents due to Government
Agencies,” provides in part that:
The County Administration must review and approve all Consent Decree and WWIP reports, WWIP project Permit to Install applications, and other official documents prepared by MSD which are due to government agencies, prior to submission of such reports, applications or documents to the relevant government agency.25
The City has consistently and repeatedly avoided obtaining such approval.
2. Consent Decree Permits Issued Without County Input or Approval.
On June 30, 2014, the Ohio Environmental Protection Agency (“Ohio EPA”) issued
NPDES Permit No. 1PM00001*MD, covering discharges from the Mill Creek Wastewater
Treatment Plant (the “WWTP Permit”), and NPDES Permit No. 1PX00022*CD (the “CSO
Permit”), covering discharges from combined sewer overflow outfalls. Both permits are
specifically identified in the Consent Decree. See Global Decree (Doc. 131), at 13.
The City provided comments to Ohio EPA by letters dated March 24, 2014, addressing
the CSO Permit, and June 20, 2014, addressing the WWTP Permit.26 Contrary to MSD Rule
23 See Exhibit 1, Meyer Declaration, ¶ 11, and its Ex. D.
24 See id. at ¶ 12.
25 MSD Rule, Section 2403-3 (attached at Exhibit 8).
City “[n]ot to intervene in, appeal, interfere with, or otherwise become involved in the County’s
recent appeals of two Ohio EPA permits, except as specifically requested by the County.” Id.
Despite the County’s clear instructions, in an astounding act of defiance, the City filed
motions to intervene in the ERAC appeals for the WWTP Permit and CSO Permit on August 26,
2014.32 In each motion, the City moved to intervene as an Appellee in the matter against the
County, with the City stating that its position substantially supported that of Ohio EPA, contrary
to the County’s position.33 Such an act is the equivalent of an attorney standing up in court and
taking a position contrary to his or her client, and then seeking the right to participate as an
independent party adverse to the client.
The County opposed the City’s motions to intervene, noting the City was attempting to
do what its principal, the County, directed it not to do.34 ERAC granted the City’s motions to
intervene on September 23, 2014.35 The County filed motions for reconsideration in each
matter.36 ERAC granted the County’s motions for reconsideration, but also affirmed its earlier
32 See Motion to Intervene, ERAC 14-316821 (attached at Exhibit10) and ERAC 14-316822 (Exhibit 11). Only the
substantive motions are attached. Their exhibits are available upon request. See also Exhibit 1, Meyer Declaration, ¶ 19. In its motions to intervene, the City incorrectly stated that pursuant to the 1968 Operating Agreement, it “[r]etained title to its existing sewer assets, while granting an exclusive license to the County for the use of those assets subject to City management throughout the period of the Agreement.” Exhibit 10, ERAC 14-316821 Motion to Intervene at 2; Exhibit 11, ERAC 14-316822 Motion to Intervene at 2. The 1968 Operating Agreement and related County Ordinance No. 144-1968 merely provide that the City “[g]ranted to the [C]ounty the sole and exclusive use of all sanitary sewers and sewer disposal facilities of the City as part of the [C]ounty sewer system,” with no discussion regarding the City “retaining” those assets. See 1968 Operating Agreement (attached at Exhibit 12); see also Ordinance No. 144-1968 (attached at Exhibit 13).
33 See Exhibit 10, ERAC 14-316821 Motion to Intervene at 1; Exhibit 11, ERAC 14-316822 Motion to Intervene at 1. See also Exhibit 1, Meyer Declaration, ¶ 19.
34 See Exhibit 1, Meyer Declaration, ¶ 20. See also Oppositions to Motions to Intervene, without attachments, at Exhibit 14 (ERAC 14-316821) and Exhibit 15 (14-316823). The attachments are available upon request.
granting of the City’s motions to intervene.37 Thus, the agent succeeded in flagrantly
disregarding its principal’s directives. City actions like this will inevitably lead to increased
expenses, confusion, and time delays in the implementation of the Consent Decree.
ERAC noted that it was not the appropriate forum for the County and City to resolve
governing or policy issues regarding the nature of principal-agent relationship between the
parties. See Exhibit 16, at 5; Exhibit 17, at 5. The matter is thus ripe for this Court to issue a
clarifying direction to ERAC and all parties to the Consent Decree.
E. The Agent Is Dictating Policy and Spending Instructions to the Principal.
By law, the incinerator at the Little Miami Wastewater Treatment Plant (“WWTP”) must
cease operating by March 21, 2016.38 The County may be interested in extending its operation,
with EPA permission, while alternatives are explored. On January 15, 2016, the City went
public with its own proposal regarding incinerator issues at the Little Miami WWTP via a press
release.39 The City did this before providing the proposal or any financial, environmental or
policy analyses from MSD to the County.40 Indeed, the County learned of the proposal through
the media.41
On February 8, 2016, the County contacted MSD noting that it continued to review the
matter and that it was seeking an update.42 The County stated that it was “critical that the
37 See Exhibit 1, Meyer Declaration, ¶ 21. See also Ruling on Motion for Reconsideration of Ruling on Motion to
Intervene, Case No. ERAC 14-316821 (attached at Exhibit 16); Ruling on Motion for Reconsideration of Ruling on Motion to Intervene, Case No. ERAC 14-316822 (attached at Exhibit 17).
38 See Exhibit 1, Meyer Declaration, ¶ 22.
39 See id. at ¶ 23; see also Memo: Findings of Little Miami Treatment Plant Feasibility Study, dated 1/15/16 (attached at Exhibit 18).
County . . . be involved in all discussions with the [R]egulators, and receive copies of anything
sent to or received from the [R]egulators on this issue.”43 This is consistent with MSD Rule
2403-2(B), and because the County would need to approve any related consent decree or
administrative order on consent.
In response, MSD Director Gerald Checco stated that “the City is leading the discussion
with the Regulators, that [it is] responding to specific inquiries from EPA Region 5 about [its]
proposed plans, and that [it] is pressing for a draft administrative agreement or roadmap to an
agreement as soon as possible.”44 Mr. Checco further advised that MSD would “share” a
proposal for a compliance plan or a draft of a specific legal agreement after it receives one from
the Regulators.45 Id. Per the City, Mr. Checco is improperly communicating by phone and email
with the Regulators. He is not including the County in these communications. Finally, Mr.
Checco outrageously advised the County who it could, or at least who it could not, rely upon for
advice and how the County could spend MSD funds as to incinerator options and discussions
with the Regulators:
[T]here is no need for the County’s outside lawyers to weigh in at this time. If the County wishes to engage outside legal counsel on this matter, and expects reimbursement via MSD funds, the City will need a proposal for such services.46
In summary, the agent is ignoring the directives of the principal, is violating MSD Rule
2403-2(B), is telling the principal how it can and cannot be advised, and is putting conditions on
how the principal spends the principal’s funds. The City is, quite literally, in the process of
43 See Exhibit 1, Meyer Declaration, ¶ 24 and its Ex. F.
agreeing to projects, enforcement, and/or penalties that can only be approved, and financed, by
the County. The City appears to be in the process of reaching an agreement, and then trying to
force the County to pay for it after it is announced as what the Regulators want or will accept.
This is no way for an agent to act. It is not the first time the City has acted independently with
the Regulators, however.
F. The City’s Independent Actions with the Regulators. After this Court’s Order clarifying the principal-agent relationship, on July 25, 2014, as
lead defendant in the Consent Decree, and in order to expedite implementation of the Consent
Decree and address the risk of its agent further opposing the County, the County informed the
City that the County would be “taking the lead” on discussions with the Consent Decree
plaintiffs (the “Regulators”).47 The County stated specifically that it would be the single point of
contact with the Regulators on substantive policy and matters related to Consent Decree
negotiations, and that “MSD should provide any policy idea recommendations related to the
consent decree, negotiations, District finances, NPDES compliance, etc. directly to the County
for consideration and should not take any independent action with the Regulators on those ideas
prior to receiving direction or authorization from the County.” Id.
The County’s Resolution “Providing New or Repeated Instructions from the Principal to
the Agent Regarding the Metropolitan Sewer District of Greater Cincinnati Policy Issues”
affirmed the County’s instructions to the City that the County would act as the lead party with
the Regulators, along with the County’s earlier directives to the City on July 25, 2014.48 The
47 Christian Sigman, County Administrator email to Scott Stiles, Interim City Manager, dated 7/25/14 (attached at
Exhibit 19).
48 See Resolution Providing New or Repeated Instructions from the Principal to the Agent Regarding the Metropolitan Sewer District of Greater Cincinnati Policy Issues, dated 7/25/14 (attached at Exhibit 9).
County provided the Regulators with a copy of the aforementioned resolution. Despite the
County’s clear directives to the City, Interim City Manager Scot Stiles stated in a memorandum
to the City Mayor and Members of City Council, that the City would continue to collaborate and
communicate with the Regulators.49
The City’s defiant actions have placed the Regulators in the awkward and unfair position
of having to mediate the issues between the County and City, to the detriment of the Regulators’
valuable time and resources, as well as to the implementation of the Consent Decree. The City,
in disobeying the Court’s Order and the County’s instructions, is preventing the County from
acting as the principal and owner of the County Sewer District and as the lead defendant in this
litigation. As a result, a court order is necessary to clarify for all parties involved that the
defendants’ decisions made regarding the Consent Decree are that of the County, as the City is
merely operating and maintaining MSD as the County’s agent.
G. Memoranda of Understanding and Funding Agreements.
Under MSD Rule 2405-9, before entering into a memorandum of understanding
(“MOU”) on behalf of MSD for operating or capital needs, the City is to notify the County in
advance and obtain County’s approval on the MOU. Indeed, MSD Rule 2405-9, titled
“Memoranda of Understanding (MOU)/Grants; Transfers, Payments, Disbursements to City of
Cincinnati,” specifically provides that:
If MSD intends or is required to execute an MOU or grant application/agreement with an entity (including but not limited to departments of the City, other government entities, and utilities, or private organization) for either operating or capital needs, MSD shall present the terms of the MOU/Grant to the County for review and approval prior to executing any MOU/Grant. MSD will provide the County with a
49 See See Exhibit 1, Meyer Declaration, ¶ 10 and its Ex. C.
On July 21, 2014, the City, on behalf of MSD, entered into a “Funding Agreement” with
the Cincinnati City School District (“CPS”). (attached at Exhibit 21). The Funding Agreement
called for MSD to pay CPS $141,275 for a “[f]ull-scale retrofit to the existing stormwater
detention basin located on the Roberts Academy campus.” Id. at Section 1, 3A. The City did not
provide the Funding Agreement to the County for review and approval before it was entered.
Upon learning of the Funding Agreement, James W. Harper (“Mr. Harper”), Chief Assistant with
the Hamilton County Prosecutor’s Office, sent a letter to Terrance Nestor (“Mr. Nestor), Acting
Cincinnati City Solicitor stating, among other things, that if MSD ratepayer funds were to be
used for the Funding Agreement, it must be terminated immediately.51 Mr. Nestor did not
respond, and the County does not know if the Funding Agreement was terminated.
On November 12, 2014, County employee Karen Ball (“Ms. Ball”) sought documents
from City employee Vanessa Smedley (“Ms. Smedley”) pertaining to MOUs the City entered
between MSD and other entities. (attached at Exhibit 23). Ms. Smedley would not provide the
MOUs, stating that they were “attorney client privileged.” Id. Mr. Harper again expressed
concern regarding the City’s actions to Mr. Nestor.52 Mr. Harper noted that the City had entered
into at least one MOU without County’s review and approval, and that the City appeared to be
entering additional MOUs and withholding the information from the County. See id. Mr. Harper
noted that it was unclear how the MOUs could be privileged, as they were entered on behalf of
50 MSD Rule 2405-9(A) (effective January 14, 2014 (Rule 2405-9(A)), amended August 6, 2014) (attached at
Exhibit 20).
51 See James Harper (County Prosecutor’s Office) letter to Terry Nestor (City Solicitor’s Office), dated 11/14/14 (attached at Exhibit 22).
52 See James Harper (County Prosecutor’s Office) letter to Terry Nestor (City Solicitor’s Office), dated 11/14/14, with Ball-Smedley correspondence attached thereto (attached at Exhibit 24).
the County. See id. Mr. Harper also reminded Mr. Nestor that any such MOUs agreed upon by
the City outside the parameters of MSD Rule 2405-9 were improper and must be terminated.
See id. The City still has not responded.
On January 13, 2015, Gina Marsh (“Ms. Marsh”), General Counsel for Municipal
Utilities, emailed Charles Anness (“Mr. Anness”), Assistant County Prosecutor, for County
approval of a City MOU:
As discussed, the City has agreed to forward for your review MOUs between City departments that involve the expenditure of MSD funds on consent decree projects. . . . Please let me know of any concerns [about the attached MOU] you have no later than this Friday, January 16. If I do not hear from you by that date, the City will complete its execution of the MOU.53
While sent under the guise of Rule compliance, Ms. Marsh’s email provided the County only
three days to review the MOU and stated that MSD would execute the MOU if the County did
not complete its review in that time. See id. The County did not approve the MOU, but Mr.
Anness did direct the City to MSD Rule 2405-9(A) (requiring at least 15 days for County review
and approval before MOU execution). See id. Since then, Ms. Marsh has provided 15 days for
review of multiple MOUs submitted at the same time, but still threatens to enter those MOUs if
the County does not respond.54 This, of course, is contrary to MSD Rule 2405-9(A), which
requires County approval before an MOU is entered.
On April 15, 2015, County Administrator Christian Sigman (“Mr. Sigman”) contacted
City Manager Harry Black (“Mr. Black”) regarding MOUs after the Ohio Auditor of State noted
that MSD’s “failure to implement controls over the interdepartmental billings increases the risk
53 Email string between Gina Marsh (General Counsel for Municipal Utilities) and Charles Anness (County
Prosecutor’s Office), dated 1/13/15 and 1/15/15 (attached at Exhibit 25).
54 See, e.g., Gina Marsh (General Counsel for Municipal Utilities) email to Charles Anness (County Prosecutor’s Office), dated 9/18/15 (without attachments) (attached at Exhibit 26).
that inaccurate billings, errors, theft, or fraud could occur and not be detected in a timely
manner.”55 Mr. Sigman noted:
. . . I spent two hours at MSD yesterday reviewing the systems and documents the monitor relies on to fulfill their role. . . . a cursory review of the information revealed numerous questions regarding the base data, methodologies and individual transactions. . . . For example, why was 7% of the Park Board Director’s 2014 salary paid from MSD ratepayer revenues? . . . . The City Solicitor’s Office response to my records request is just one more example of the type of rope-a-dope which the Monitor is experiencing on a daily basis. That response can only be viewed as…‘you have unfettered access to the hay field, but we will not tell you which haystack to look at or how many needles you will find in each.’ . . . Our collective interest in the MOUs and the business relationships between City departments is a direct result of Auditor of State comments and recommendations resulting from the 2013 annual audit. . . .
On April 22, 2015, Mr. Sigman again wrote Mr. Black regarding MOUs, noting that:
Since MSD or City will not respond to the County’s records request, the County Monitor will be focusing its near-term inquiries on the MOUs between MSD and the Park Board and Cincinnati Recreation Commission. . . . We will be seeking clarification and understanding as to the scope of services for these particular MOUs, the City management’s review and approval of these MOUs and the accuracy of the billings. Two immediate concerns, that we hope are unfounded, are that the MOUs seem to pertain to capital construction work that should have gone before the County Commission for approval and that the City is balancing its general fund budget with MSD ratepayer revenue. . . . The monitoring team will also be inquiring about the business relationship between MSD and the City Solicitor’s Office [and] . . . seeking to understand the reasoning and magnitude of inter-fund transfers for the expenses of the City Solicitor’s Office above and beyond the cost allocation plan. Again, is the City allocating general fund expenses onto MSD ratepayers? . . . . (Id.)
55 Email string between Christian Sigman (County Administrator) and Harry Black (City Manager), dated 4/15/15
The Auditor of State has recently announced that a full investigation into MSD’s budget and
spending is commencing. (attached at Exhibit 6).
On September 18, 2015, Ms. Marsh made a request for County approval of 4 MOU’s to
Mr. Anness. (attached at Exhibit 26). Included in Ms. Marsh’s requests for the City was a
proposal for the County to transfer property to the City Parks Department. In light of this
request, Mr. Anness could only respond:
“For the Parks [consent decree] property issue (as no draft MOU exists), a meeting between the County and City will be necessary. I believe that the proposal to grant approximately $2.8 million in property to the City Parks Department for $1 requires more discussion than email can allow.”56
There is an inherent conflict when the City negotiates with itself. Only one side can get
the best deal, and here, neither side represents the ratepayers. Moreover, the failure of the City to
properly negotiate for property it owns that is required for the VCS project may lead to potential
Consent Decree delays. In short, there is a valid reason for County oversight and approval of
City to City MOUs.
H. The City’s Refusal to Provide “Joint Utility” C ost Information Before Decoupling MSD and GCWW.
In 2011, the City took steps to create a joint utility between MSD and GCWW. See
Exhibit 1 , Meyer Declaration, ¶ 27. An August 29, 2011 Feasibility Study noted that joint
management of the entities would result in saving between $68M - $105M over ten years. See
id. Upon approval by the City, MSD Director Tony Parrot was named as the Director, Joint
Utility. See id. In September 2013, Director Parrott reported that shared services had been
implemented, that cost savings were being achieved as predicted, that $5.6M had already been
56 See Correspondence between Mr. Anness and Ms. Marsh dated 10/9/15 (attached at Exhibit 28).
The County continued to seek financial information in an effort to protect the ratepayers
and ensure compliance with the Consent Decree. After reviewing MSD’s 2015 budget proposal,
the County, in September 2014, asked: “What were the 35 positions eliminated at MSD through
the Joint Utility effort that resulted in the $2.7M annual savings (pg 5)?” and “Why does the
County have to wait until 2016-2017 for formal policies and procedures related to reporting of
shared service tracking of expenses and reporting (pg 6)?”63 On November 4, 2014, the County
sought a “complete accounting of joint utility for 2014 and planned 2015.”64 Neither the City
nor MSD responded to either of these requests.65 On November 18, 2014, the Joint Utility
Director reported that $5.1M had been saved from staffing efficiencies and that cost savings
were being achieved as predicted.66
Just months later, the City Manager announced the decoupling of MSD and GCWW,
noting that while it “has likely resulted in some savings . . . there were no mechanisms in place to
capture the savings in a quantifiable manner.”67 The County does not know whether monies
were actually saved or lost, where and how MSD funds were being used, or if there has been a
proper accounting of all MSD funds. These are important public financial accountability issues,
particularly given that the recurring annual charge to MSD has averaged approximately $5
million per year over the last five years.
63 County Request for Supporting Information for MSD Proposed 2015 Budget, dated 9/2/14, p. 1, ¶¶ 3, 4.a
(attached at Exhibit 33).
64 Teresa Caprio (County Monitor) email to Beverly Engram (MSD) dated 11/4/14 following up on the County’s 8/15/14 and 9/2/14 requests (attached at Exhibit 34).
65 See Exhibit 1, Meyer Declaration, at ¶ 29.
66 Tony Parrot Update to City Council on Joint Utility Management, dated 11/18/14 (excerpt attached at Exhibit 35).
67 City Manager Water and Sewer Improvement Memorandum, dated 5/12/15 (attached at Exhibit 36).
I. The City Charges MSD Double the Rate It Charges Others for Work Performed by GCWW.
GCWW charges and bills MSD monthly to read and service meters, print and mail bills,
process payments, respond to customer inquiries, and collect past due amounts and process
adjustments.68 As the Ohio Auditor of State has recognized, there is no written agreement
between the two City-staffed organizations.69 To the County’s knowledge, the City has not taken
steps to rectify this problem.
There is no U.S. study on a national average for the cost of water and wastewater
services. A 2013 Canadian benchmarking study, however, found the annual cost for such
services to be $12.18 per customer.70 After a freely and openly negotiated arms-length
transaction, GCWW charges the Lexington-Fayette Urban County Government (“Lexington”)
$13.44 per customer.71 At the same time, GCWW charges MSD approximately $24 per
customer.72 The County has requested, but not received, complete support from MSD for both
the allocation methodology used by, and customer service fees paid to, GCWW.73 As such, the
City has prevented the County from taking steps to ensure that the ratepayers are sufficiently
protected and ensure compliance with the Consent Decree.
68 GCWW Billing Services Review 2014, at p. 1 (attached at Exhibit 37).
69 Dave Yost, Auditor of State, Management Letter dated 8/14/14, at p. 3 (attached at Exhibit 32).
70 AECOM August 31, 2013 National Water & Wastewater Benchmarking Initiative, page 15, table 1 (excerpt attached at Exhibit 38). Adjusted for inflation, the $11.50 identified in the table for 2011 is $12.18 today.
71 Lexington RFP, dated 12/8/11, at p. 2 (excerpt attached at Exhibit 39) ($1.12 per bill x 12 bills per year).
72 Calculated as follows: $5.4M charge ÷ 226,000 customers = $23.89 per customer.
73 See MaryLynn Lodor (MSD) email to Dave Meyer (County) dated 9/20/13, attaching MSD comments to County allocation inquiries (attached at Exhibit 40); Dave Meyer email to MaryLynn Lodor dated 1/2/15 (attached at Exhibit 41); and Dave Meyer email to Ihab Tadros (MSD) dated 7/1/15 (noting that MSD had failed to produce the 2011-2014 reconciliation reports)(attached at Exhibit 42).
J. The County Has Been Forced to Seek Information through Public Records Requests, which Have Gone Unanswered for Nearly a Year.
As evidenced above, there are numerous examples of the City, as agent, not providing
information—including vital financial information—requested by its principal, the County. The
lack of cooperation by the City has resulted in the County having to make public records requests
to the City to try and get the necessary information, generating unnecessary delay and expense,
jeopardizing the County’s ability to protect the ratepayers and ensure compliance with the
Consent Decree. For example, County Administrator Christian Sigman sent City Manager Harry
Black three requests pursuant to the Ohio Public Records Act in an effort to receive:
Documents prepared by the Metropolitan Sewer Department (or its agents) or any other City department related to the cost of utility relocation for sanitary, combined or stormwater sewer infrastructure associated with the second phase / extension of the City street car project . . . .74
. . . the amounts of all transfers of funds from MSD accounts to any non-MSD accounts within City government. Non-MSD accounts would include, but are not limited to, the general fund and internal service funds; and . . . items documenting /justifying the amount of the transfer and approved agreements / MOUs establishing the business relationship between MSD and any City department or agency.75
Documents related to expert services engaged by the Metropolitan Sewer District (MSD) during 2015 [including] . . . . purchase orders and statements of work for expert services with an annual spend in excess of $50,000.76
74 Letter from County Administrator Christian Sigman to City Manager Harry Black, dated 3/30/15 (attached at
Exhibit 43).
75 Letter from County Administrator Christian Sigman to City Manager Harry Black, dated 4/1/15 (attached at Exhibit 44).
76 Letter from County Administrator Christian Sigman to City Manager Harry Black, dated 4/3/15 (attached at Exhibit 45).
Respectfully submitted, s/ Joseph T. Deters Joseph T. Deters, Esq. (0012084) James W. Harper. Esq. (0009872) Charles W. Anness, Esq. (0082194) Michael J. Friedmann, Esq. (0090999) Hamilton County Prosecuting Attorney 230 E. Ninth Street, Suite 4000 Cincinnati, OH 45202 Phone: (513) 946-3006 Fax: (513) 946-3018 Mark A. Vander Laan, Esq. (0013297) Andrew B. Barras, Esq. (0088600) DINSMORE & SHOHL LLP First Financial Center, Suite 1900 255 East Fifth Street Cincinnati, OH 45202 Phone: (513) 977-8200 Fax: (513) 977-8141
Mark A. Norman, Esq. (0012033) Anthony L. Osterlund, Esq. (0071086) Vorys, Sater, Seymour and Pease LLP 301 East Fourth Street, Suite 3500 Cincinnati, Ohio 45202 Phone: (513) 723-4006 Fax: (513) 723-7881 Attorneys for Board of County Commissioners of Hamilton County, Ohio
CERTIFICATE OF SERVICE
I hereby certify that a copy of the foregoing has been duly served upon All Counsel of Record by the Court’s CM/ECF Electronic Filing System and by regular U.S. mail upon all others, as noted on the Electronic Filing Notice, this 22nd day of February, 2016.