(Editor’s note: relevant links are provided at the end of this article.)
The towns of Cave Creek and Carefree have finally reached a settlement agreement on water service to 500+ Carefree residents after a prolonged battle and, ultimately, at the determination of a panel of arbitration. Important to note: a total of 3 arbitrators were selected from a group of “35” candidates by both towns to comprise the AAA panel.
Cave Creek approved the settlement with a 6-1 vote — Mayor Bunch with an emphatic “no.”
Carefree unanimously approved the settlement, 6-0, with one absentee.
At the heart of the arbitration was a well-documented IGA (Inter-Governmental Agreement) that contained procedures for Carefree to exercise a right to claim water service rights to residents of Carefree currently serviced by Cave Creek. Early formalities included condemnation procedures and offers from Carefree that were rejected by Cave Creek, followed by the specified 120 day period elapsing, which brought the matter to arbitration.
The net result was not only in favor of Carefree, but also, the expectations based on an appraisal presented by the legal team hired by Cave Creek were dampened by some 16-17 million dollars. Cave Creek had issued a public notice containing, in part, “The expert reports determined the fair market value and damages resulting from physically separating the assets in Carefree from the core Cave Creek System totaled $17.1 million.” The actual settlement (complete financial awards, fees and expenses are included in the settlement document linked at the end of this article) — was a considerable departure from expectations. In addition, the town of Cave Creek was found to have breached the contract and good faith aspects implied within. In particular, the panel referred to Cave Creek’s attempts to sway public opinion through the use of videos and a poll.
Ultimately, both towns agreed to a reduced compensation owed to Cave Creek, shared expenses of AAA arbitration and Carefree would be responsible for the cost of building the assets required for the transition of water service. The disconnect and reconnect procedures are to be a coordinated effort with each town responsible for it’s own expenses, including Cave Creek providing 378 acre feet of CAP water during the transition, eventually transferring the CAP rights to Carefree at no cost.
While Cave Creek reacted to a potentially “devastating” loss of revenue, the panel of arbitrators pointed to the town’s growth rate and estimated that the loss of 500 customers could be recouped in 5-6 years. Another option, according to the panel, was a reduction of water through an existing IGA with the town of Phoenix.
Since the exchange of each party’s approval, both Cave Creek and Carefree have issued statements on the decision. While both expressed regret over the entire ordeal and a mutual goal of cooperation in the future, both towns are left to answer some tough questions.
Cave Creek issued a positive statement of revenue flow, capital improvements and financial security, but still faces questions of transparency, loss of revenue and a multi-million dollar discrepancy in valuation of assets by their legal experts.
Carefree, on the other hand, now faces a 2-year engineering and implementation project to bring the targeted customers under the “umbrella” of Carefree water service. Their statement maintains that “financing will be done through Water Revenue Bonds,” but no dollar amount has been provided at this time.
Links to complete, related documents:
Cave Creek statement: