The city of Portland has reached a settlement with attorney John DiLorenzo and three plaintiffs in a long-running lawsuit alleging misspending of ratepayer dollars by the city’s Water Bureau and Bureau of Environmental Services.

Under the terms of the $10 million settlement, the city will transfer $7 million from its general fund to the utility funds — essentially reimbursing two agencies that rely on ratepayers to pay the bills — and will pay $3 million to the plaintiffs for legal bills. 

The settlement will be formally considered by the City Council on Wednesday, Dec. 20.

According to the terms of the agreement, Davis Wright Tremaine will receive its $3 million payment no later than Dec. 29 this year. 

The city has until Sept. 30, 2019, to transfer the money to the utilities, giving the Portland City Council time to blunt the impact on other discretionary spending, staff say.  

The reimbursement to the utility bureaus is a symbolic victory for the plaintiffs, but one that will likely have little immediate impact on water and sewer rates. The $7 million the utilities will receive represents less than 1 percent of their combined annual budget, which was approximately $960 million in 2017. 

Earlier in the course of the lawsuit, city leaders agreed to reimburse the utility accounts for $2.6 million in spending they did not wish to defend in court. 

“We hope this serves as a prophylactic against future abuse of Portland’s restricted water and sewer funds,” said Kent Craford. His group, Citizens for Water Accountability, provided seed funding in the early days of the lawsuit, and his sister, Paige Craford, was one of the plaintiffs.

“Money collected from water and sewer bills should go to water and sewer uses,” he said.

The lawsuit challenged a wide range of expenditures by the Water Bureau and the Bureau of Environmental Services between 1998 and the early-2000s, arguing that the spending had little to do with the utilities’ missions and violated the city’s charter.

It alleged illegal spending on several projects pursed by former Portland Commissioner Randy Leonard, who oversaw the utility bureaus and challenged the city’s spending on top environmental priorities, including green infrastructure and pollution cleanup.

The disputed expenses ranged from $618,000 the Water Bureau spent at Leonard’s direction on the Portland Loo, an innovative public bathroom, to more than $50 million the Bureau of Environmental Services spent related to clean up of the Portland Harbor superfund site.

In a press release, Mayor Ted Wheeler welcomed the settlement.

“I am particularly glad that this settlement affirms the good work the City has done on the Portland Harbor Superfund site, and am optimistic that we can continue to move forward to clean up that portion of the Willamette River,” he said.

The EPA is in the process of putting together a plan for how it will assess pollution at the harbor superfund site and assign responsibility for who pays for the cleanup.

“I’m pleased that the Court upheld the vast majority of the City’s investments — including on the Portland Harbor Superfund site — and that this settlement brings an end to years of expensive litigation,” said Commissioner Nick Fish, who now oversees both the water and sewer bureaus. “My top priority continues to be providing basic services at a fair price, and investing ratepayer dollars wisely.”

The case has spanned six years and three mayors: Sam Adams, Charlie Hales and now Wheeler. The settlement closes a chapter in Portland utility politics that began with investigative reporting into questionable spending and included a brief effort, in 2014, to wrest control of the Bull Run Watershed from the city and create an independent board to manage the utilities.

For the city, the settlement deal has clear benefits: Earlier this year, Circuit Court Judge Stephen K. Bushong ruled that the city must reimburse the utility bureaus $17 million for inappropriate expenditures, according to the standard that utility bureaus can only spend money on projects that are reasonably related to water, sewer or stormwater services.

Those unreasonable expenditures included assistance to the City of New Orleans’ damaged water system after Hurricane Katrina under a mutual aid agreement, contributions to finance political campaigns, construction of the Portland Loos and several payments to the Parks Bureau.

The Portland Loo at Jamison Square.

The Portland Loo at Jamison Square.

Michael Clapp/OPB

The city disagreed with the legal standard Bushong applied and had planned to appeal the case.  

By avoiding a final judgement and settling, the city has limited the amount it has to transfer from the general fund to $10 million.

Attorneys on both sides of the case said that because it never reached a final judgement, the city has avoided being bound by an ironclad legal precedent that limits how the utility bureaus can spend ratepayer dollars. But the attorneys agreed that as a practical matter, Bushong’s opinion will likely inform future spending decisions by the bureaus.

“As long as this decision is within their historic memory, the city will be very circumspect about what they spend. If they disregard the decision, I’m sure other ratepayers will seek to do the same thing that we did,” said John DiLorenzo, the lead attorney for the plaintiffs.

Deputy city attorney Karen Moynahan agreed that the judge’s ruling remains relevant, if not binding.

“If somebody else brought a similar lawsuit, Judge Bushong is a very well respected jurist. Another judge would look to his opinion,” she said.

For the plaintiffs, settling meant avoiding a lengthy appeal of Bushong’s opinion.

“It would likely have taken years,” DiLorenzo said.

The case also means a hefty payout from the city’s taxpayer-supported general fund to the firm that represented the plaintiffs, Davis Wright Tremaine.

Moynahan characterized the payment, which amounts to 30 percent of the award, as a typical attorney’s fee.

“It’s the common fund doctrine. When you bring a suit that will benefit others, it’s similar to a class action, where the attorney gets paid through the award itself,” she said.   

DiLorenzo said the $3 million covers the cost of eight lawyers who worked on the case, off and on, for five years. Their hourly rates varied.

“Some of us are at $600 an hour, some of us are at $400, some are at $350 depending on what functions are taken on by lawyers,” he said.

DiLorenzo said the attorney’s fees are as necessary incentive to do work in the public interest.

“We had a lot of risk involved in taking on the case. Frankly, if you don’t compensate attorneys for taking on these kinds of cases when they win, when ratepayers have real concerns, no one will represent them,” he said.

DiLorezno credited reporters at The Oregonian/OregonLive and the Portland Tribune for making the lawsuit possible.

“Much of the early portion of this lawsuit was based directly on Brad Schmidt and Jim Redden’s reporting,” he said. “At least in some respects, what they uncovered was vindicated.”