The town needs to consider both the constitutional prohibition against gifts of public funds and the requirement that utility funds only be used for utility purposes. As we note on our Gift of Public Funds page and related blog posts, there are two tests for determining whether an expenditure is an unconstitutional gift of public funds. First, is the expenditure for a fundamental purpose of government? If not, the court looks to see whether the government entity had a “donative intent,” and whether it received an adequate return for the transfer.
The first test is whether the use of town resources is for a fundamental purpose of government. Regardless of the nature of the entity that owns the pool (school district, YMCA, or other non-profit, park district), providing water for a pool that is not owned by the town may not be a fundamental purpose of the town’s government. Looking at the second test, the town would have to show that it did not intend to make a “gift,” and that it considered some kind of agreement to be “adequate return” for the cost of providing water for this purpose. If the town has a contract with the owner of the pool where the pool is providing a service that the town could provide but chooses not to, such as recreation or water safety, the town could provide water in lieu of other payment for those services. An additional consideration is the requirement in RCW 43.09.210(3) that:
All service rendered by, or property transferred from, one department, public improvement, undertaking, institution, or public service industry to another, shall be paid for at its true and full value by the department, public improvement, undertaking, institution, or public service industry receiving the same, and no department, public improvement, undertaking, institution, or public service industry shall benefit in any financial manner whatever by an appropriation or fund made for the support of another.
Washington case law has interpreted this statute to mean that a city or town cannot use utility funds (which are provided by the ratepayers) to benefit a general fund (tax-supported) function. To avoid violating this requirement the town, in addition to determining that it was not a gift of public funds, would separately have to determine that the expenditure directly benefited the water utility, and not just the public as a whole. So, even if the town does have a contract with the pool for services, the town’s general fund would probably be required to pay the water utility for the water. Providing a more specific opinion about this particular request is outside the scope of the general consulting services MRSC provides. We defer to your town attorney to advise you regarding this request.