Nuts and Bolts of Intergovernmental Associations

This Advisor column was originally published in February 2011.

The recession and voter-imposed restrictions on increases in taxation are forcing local governments to achieve greater efficiency in the delivery of services. At the same time, the urbanization of formerly rural areas is forcing local governments to re-examine whether services are most efficiently provided by multiple special purpose districts and general purpose governments. Both factors are leading local governments to pool resources in various forms of intergovernmental associations.

Many interlocal associations have been in effect for years, such as joint police and fire agency dispatch operations. Others have been in the news more recently, from cities in south King County working together to construct a new jail to the City of Walla Walla and Walla Walla County merging their land use permit operations.

All local governments in Washington have broad authority to enter into associations with each other under the Interlocal Cooperation Act (chapter 39.34 RCW), and may also enter into associations with any agency of the State of Washington, any agency of the United States, any federally recognized Indian tribe and any political subdivision of another state.

When forming an intergovernmental association, local government members must choose whether or not to form a separate independent entity. A separate independent entity can be specifically authorized under State law; or, formed under the Interlocal Cooperation Act. One of the principal limitations of the Interlocal Cooperation Act is that local government members may exercise jointly only those powers that may be exercised by each local government member; that is, unless each and every member is authorized to exercise a power (such as borrowing, condemnation and taxing powers), the members cannot jointly exercise that power. This may lead local governments to prefer forming a separate independent entity that is specifically authorized under State law to exercise the desired powers. The many entities specifically authorized under State law include the following:

• A regional fire protection service authority, an independent entity authorized under chapter 52.26 RCW that may be formed by cities, fire districts, port districts and Indian tribes.
• A metropolitan park district, an independent entity authorized under chapter 35.61 RCW that may be formed by cities and counties.
• A joint housing authority may be formed under RCW 35.82.300 by combining housing authorities.

In addition, the State Legislature is expected to take up legislation this session (2011) that would authorize the formation by local governments of joint municipal utility services authorities to provide water, wastewater, and storm water and drainage utility services; and, legislation for regional police agencies similar to the state authorization for regional fire authorities.

The formation of certain other entities are specifically authorized under State law, but the membership criteria are so narrowly drawn that they realistically apply only to a single entity. Examples include the following:

• Energy Northwest, a joint operating agency authorized under chapter 43.52 RCW that was formed by member cities and public utility districts.
• Sound Transit, a regional transit authority authorized under chapter 81.112 RCW that was formed by transit agencies.

The Interlocal Cooperation Act authorizes the joint exercise of powers by local governments either with or without the formation of an independent entity such as a nonprofit corporation, a partnership or a limited liability company. Local governments contemplating the formation of an intergovernmental association should carefully consider whether or not to form an independent entity. Some of the factors to consider include the following:

Independence. An independent entity, by its nature, is independent from its members. This may be desirable when the activity to be conducted differs from the principal activities conducted by its members, or if one or more members is concerned about another member dominating the association. And, liability may be isolated to the independent agency, thereby protecting the individual members. The creation of an independent entity may, however, require separate resources in governance and administration.

Mission. An independent entity may be more intently focused on its mission, which can be an advantage for achieving specific goals but a disadvantage if those goals conflict with other operations of its members.

Taxation and Regulation. An independent entity may not necessarily benefit from the express exemptions given to local governments from taxation (such as property taxes) and regulation (such as the ratemaking procedures of the State Utilities and Transportation Commission).

The formation of any intergovernmental association requires significant cooperation and diplomacy from its members. Regardless of whether or not local governments decide to form an independent entity, they must consider the following factors before entering into any interlocal association:

Governing Board. Who will manage the association? If elected officials, do they have the time and resources required to govern the association, and if not, can they be represented by alternates? Should the association have the authority to request or require that the representative of a member be replaced? Should the governing board have an executive committee that is authorized to conduct certain business?

Membership. Who is eligible for membership? Will there be more than one class of membership (for example, certain members with assets invested in the association and others with no investment but a preferential right to service)? Can additional members be admitted? Can individual members voluntarily withdraw from the association? Can membership be involuntarily terminated? What are the circumstances under which each of the foregoing actions may be taken? How will the rights and obligations of new members, withdrawing members and terminated members be determined?

Term. Will the association have a specific term, or will it be subject to perpetual existence or renewal? Under what circumstances may the association be dissolved? Upon dissolution, who will be responsible for the assets and liabilities of the association?

Powers. What powers should the association have? Are these sufficient for the association to accomplish its goals? Are these so broad that the association may experience "mission creep?" Under what circumstances may the formation documents be amended?

Decision Making. How will decisions be made by the governing board? Will certain decisions require ratification by the legislative authority of each of the members? Will each member of the governing board have an equal vote, or will voting be weighted on the basis of each member's population, contribution to the association or other factor? Will certain decisions require a supermajority vote of the governing board?

Existing Assets and Liabilities. Do the members have existing assets and liabilities to be assumed by the association? If so, how will these be accounted for?

Exclusivity. Will the association perform operations on an exclusive basis for each member, or will members retain the authority to perform certain similar operations independently, and if so, under what circumstances?

Financing Operations. How will operations be paid for? Does the association benefit from a source of revenue that is collected or imposed by fewer than all of the members (for example, a tax imposed by a county)? If so, is a separate agreement with the collecting member required? Is there a formula for apportioning costs among members? If so, can it be determined on an objective basis, or does it require periodic review by the governing board? What factors might serve as an objective basis (population, service area, units of service)? If a member defaults under its payment obligation, will other members have the right or duty to assume the obligation?

Financing Capital Improvements. How will capital improvements be paid for? Will the association have the authority and right to incur indebtedness? If so, will each member be responsible for a pro rata share? If the association is not authorized to incur indebtedness, will one of the members be authorized to incur indebtedness on behalf of the association? If so, under what circumstances? How will the ownership of capital assets be accounted for?

Treasury. Will the association serve as its own treasurer; use one of the members; or, use a county treasurer? Will the association retain reserves and if so, how will these be determined?

Eminent Domain. Is the association authorized to exercise the power of eminent domain? If so, under what circumstances? If the association is not authorized to exercise the power of eminent domain, will one of the members be authorized to do so on behalf of the association? If so, under what circumstances? See Schreiner v. City of Spokane, 74 Wn. App. 617 (1994) (authorizing city to condemn property for an independent public facility district).

Employment. Will the association have employees? If so, will they be transferred from member agencies or new hires? Will the employees be eligible for collective bargaining and/or enrollment in state or local retirement programs? Who will serve as the chief executive officer of the association, and how will that officer be selected and overseen? How will the association obtain professional services?

Dispute Resolution. How will disputes among members be resolved? Are there likely conflicts of interest among members that should be addressed in the formation documents?

Tax Status. If a nonprofit corporation is formed, it may be advantageous to establish its federal tax-exempt status under either Section 115 or Section 501(c)(3) of the Internal Revenue Code.

Sunshine Laws. Members should expect the interlocal association to be subject to the Open Public Meetings Act (chapter 42.30 RCW) and the Public Records Act (chapter 42.56 RCW), as well as the code of ethics for municipal officers (chapter 42.23 RCW), and that the finances of the association will be subject to audit by the State Auditor.

In sum, the formation of an interlocal association requires careful analysis of the goals and means of achieving the efficiency of joint operations. Local governments should thoughtfully consider the many factors involved and develop a roadmap for addressing the issues that can arise.