CITIES AND TOWNS ‑- FIRST CLASS CITY ‑- FUNDS OF WATER DEPARTMENT ‑- TRANSFER TO GENERAL FUND ‑- REPEAL OF ORDINANCE AFFECTING RATES
1. Surplus funds of city-owned water system may be transferred to general fund.
2. First class city may repeal ordinance reducing rates of city-owned water system, but may not realize excessive profits thereby.
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December 1, 1954
Honorable Cliff Yelle
Olympia, Washington Cite as: AGO 53-55 No. 349
Attention: !ttMr. A. E. Hankins, Chief Examiner
Division of Municipal Corporations
Your letter of November 1, 1954, previously acknowledged, requested our opinion on the following questions:
1. May a charter city of the first class, which owns and operates a water system, transfer to the general fund a portion of the surplus in the water fund when the funds involved constitute surplus profits derived from the operation of the water department which has sufficient funds to provide for the maintenance and expenses of the system but no longer has a bonded indebtedness?
2. Is it legally objectionable for a charter city of the first class to repeal an ordinance which provides for a reduction of water rates when the bonded indebtedness of the city water department is reduced?
[[Orig. Op. Page 2]]
We answer question No. 1 in the affirmative and question No. 2 in the negative, conditioned upon the rates being commensurate with the costs of operation.
With reference to question No. 1, the case of Twitchell v. Spokane, 55 Wash. 86, 104 Pac. 150, states in part as follows:
"* * * When there is no requirement by statute or otherwise that money coming into the city treasury shall be kept in a special fund and applied to a particular purpose, it is proper, of course, to place it in the general fund, and to use it for general city purposes. * * *"
Although RCW 43.09.210 appears to prohibit transfers of funds, please note that it relates only to transfers of funds or property from one department, public improvement, undertaking, institution, or public service industry to another. It has no application to transfer of funds from a public service industry to a general fund, as the latter is not a fund of any of the specified groups. Finding no statutory provision controlling the disposition of surplus funds of a water department of a city of the first class, the rule enunciated in theTwitchell case is controlling in the instant situation. Therefore, we must conclude that there is no legal objection to the city's transfer of such funds.
With reference to question No. 2, the mere repeal of an ordinance which provides for a reduction of the water rates when the bonded indebtedness of the water department is reduced is notipso facto objectionable. Nevertheless, we do not wish to imply that such action is valid under any circumstances. Although RCW 80.40.010 provides that a city may own and operate a waterworks with full power to regulate and control the price of the water, this statute does not give a city the right to make a money-making venture out of the operation of its waterworks. The case ofUhler v. Olympia, 87 Wash. 1, 151 Pac. 117, states that the object of municipal ownership of a water system is to give the citizen the best possible service at the lowest possible [[Orig. Op. Page 3]] cost. In volume I, Farnham, Water and Water Rights, at page 855, section 162, it is said:
"When a municipal corporation owns its own plant for the supply of water to its inhabitants, the property is held for the common benefit, and every inhabitant has the right to the benefit of it on reasonable terms. Therefore, although the municipality has a right to fix the terms by which the water will be supplied, and to establish the rates which shall be paid for it, the right must be exercised in a reasonable manner, so that the rates shall be reasonably proportionate to the service rendered. The municipality, however, is not required to limit the rate to the actual expenses of furnishing the water, but may fix a rate which will result in some profit to it, which it may use to meet its other public needs."
Although there is no legal objection to a city repealing an ordinance of this type, such is not the end of the matter. The rates charged must be commensurate with the various costs of operation of the water system. Since exactitude with reference to income versus outgo is next to impossible, there is no legal objection to making a small profit so long as the rates are not disproportionate to the operational costs. In the event such disproportion arises, the validity of the rates may be challenged.
We hope the foregoing analysis has been of assistance to you.
Very truly yours,
RICHARD L. NORMAN
Assistant Attorney General