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Portland Commissioner Nick Fish said a judge's ruling that Portland overstepped on utility spending is "yesterday's news." The City Council has already taken steps to get out of the Portland Loo business and voters killed publicly funded campaigns. But the city hasn't yet taken steps to reimburse the water and sewer bureaus for about $1.2 million spent on voter-owned elections and the Loos.

(Randy Rasmussen/The Oregonian)

The court ruling carried a damaging reprimand for the city of Portland.

Multnomah County Judge Stephen K. Bushong found Monday that the City Council went outside its charter authority when it spent nearly $1.2 million from dedicated water and sewer funds to operate outdoor public restrooms and pay for candidates’ political campaigns.

But the City Council dodged a huge financial bullet when Bushong, ruling in a lawsuit brought by ratepayers, determined that spending $10.4 million on two other projects was permissible. The judge said buying parkland and relocating water pipes are “reasonably related” to providing water and sewer services.

The mixed-bag ruling concludes a critical phase of a lawsuit that's played out over the past three years.

It sets the stage for a broader examination of utility spending and provides the latest ammunition for critics who will ask voters in May to strip away the City Council’s oversight of Portland’s water and sewer bureaus.

It also means that, barring an appeal, Portland’s water and sewer bureaus will be reimbursed $1.2 million: less than one percent of the utility bureaus’ $160 million combined operating budgets.

The judge’s decision left both sides claiming victory Monday.

"We applaud the court's decision to curb City Hall's most egregious abuses of water and sewer funds," Kent Craford, one of the players behind the December 2011 lawsuit, said in a statement.

But Craford warned that Bushong’s ruling opens a Pandora’s box of improper spending in the future.

“I am pleased the court rejected this blatant attack on the city’s environmental stewardship,” Commission Nick Fish countered in a statement. “The two items, which the judge ruled were outside the bounds of the charter, are yesterday’s news and have already been fixed.”

Monday’s decision marked a key step in the lawsuit over questionable spending. While the lawsuit targeted three-dozen expenditures, the city and the plaintiffs asked Bushong to rule on four contested projects expected to help shape the rest of the case.

The heart of Bushong's 32-page ruling examined what standard should be used to evaluate water and sewer spending.

Lawyers for the city of Portland argued that the City Council had broad discretion that could be exceeded only through fraud or blatant abuse.

Attorney John DiLorenzo, who represents the plaintiffs, argued that city water and sewer expenditures should be primarily related to those services.

After reviewing Portland’s charter and various amendments to the governing document, Bushong ruled that a primary-purpose test might be most prudent but Oregon law does not establish that standard.

Given ambiguity in the charter, Bushong attempted to parse out voters’ intent.

His decision: Water and sewer expenditures need to be “reasonably related” to the water and sewer services provided by the city.

Using that standard, Bushong determined that the City Council had the authority to spend $6 million from sewer funds to buy 146 acres from the River View Cemetery Association for a park. That's because the City Council is authorized to pursue "all methods of storm drainage" under the charter, and officials talked up the stormwater benefits when purchasing the forested hillside in 2011.

Similarly, Bushong found that the City Council had the authority to spend $4.4 million in water funds to relocate water pipes along the light-rail transit mall downtown. Bushong determined that relocation was primarily intended to help the city meets its financial contribution to the light-rail project yet was “reasonably related” to the water system.

But Bushong determined that the City Council exceeded its authority by spending about $550,000 from the water and sewer funds to fund political campaigns under the city's now-defunct publicly financed campaign system.

Voters approved that program, meant to provide more opportunities to people interested in running for mayor, city commissioner or auditor. Bushong determined that voters never expected water or sewer money to be used that way.

Bushong also concluded that the Portland Loo outdoor public restroom program was essentially a $618,000 business venture gone bad. Before Bushong's decision, city officials had conceded that the Loos weren't a core utility service and have proposed paying for them with general fund money in the future.

“The voters did not intend to authorize expenditure of ratepayer money to fund a business venture unrelated to furnishing water to city users,” the judge wrote.

DiLorenzo said he expects the lawsuit to continue. He plans to use the new standards to determine whether ratepayers should cover $52 million toward the Portland Harbor superfund cleanup planning and aid trips to New Orleans in the aftermath of Hurricane Katrina, among other things.

“We at least have some sideboards now,” he said of City Council spending.

-- Brad Schmidt