B-164772, AUG. 16, 1968

TO MR. SECRETARY:

REFERENCE IS MADE TO LETTER OF JULY 25, 1968, FROM THE VICE COMMANDER OF THE NAVAL FACILITIES ENGINEERING COMMAND IN RESPONSE TO OUR LETTER OF JULY 17 TO YOU CONCERNING AN OPINION REQUESTED OF US RELATIVE TO A PROPOSED SEWAGE SERVICE CONTRACT FOR THE MARINE CORPS AIR STATION AT YUMA, ARIZONA.

THE PERTINENT FACTS IN THE MATTER MAY BE SUMMARIZED AS FOLLOWS:

THE MARINE CORPS AIR STATION FACILITIES FOR HANDLING SEWAGE FLOW ARE INADEQUATE TO HANDLE THE LOADS RANGING FROM 0.6 MILLION GALLONS PER DAY DURING FISCAL YEAR 1967 TO A PROJECTED LOAD OF 1.15 MILLION GALLONS PER DAY FOR FISCAL YEAR 1971. DUE TO CERTAIN PHYSICAL CONSTRAINTS, APPROPRIATE MODIFICATION OF THE EXISTING FACILITIES IS NOT POSSIBLE.

THE COMMAND HAS BEEN STUDYING TWO PRACTICAL APPROACHES TOWARD MEETING THE AIR STATION'S REQUIREMENTS.

ONE APPROACH WOULD BE TO BUILD A NEW NAVY TREATMENT PLANT AT AN ESTIMATED INITIAL COST OF $1,200,000. IN ADDITION TO THE HIGH CAPITAL COST, THIS APPROACH HAS RAISED TECHNICAL OBJECTIONS FROM THE BUREAU OF RECLAMATION CONCERNING AN ADVERSE IMPACT ON GROUND WATER CONDITIONS THAT THE EFFLUENT FROM SUCH A PLANT WOULD GENERATE.

THE DESIRED SOLUTION TO THE PROBLEM IS TO ENTER INTO A CONTRACTUAL RELATIONSHIP WITH THE CITY OF YUMA TO HAVE THE CITY PROVIDE THE REQUIRED STATION SEWER SERVICES. THE CITY HAS DRAWN UP A PROPOSAL WITH WHICH YOUR DEPARTMENT IS ESSENTIALLY IN ACCORD. HOWEVER PRIOR TO CONCLUDING THE CONTRACTUAL ARRANGEMENTS, THE CITY, THROUGH ITS BOND COUNSEL, DEEMS IT NECESSARY TO HAVE ASSURANCES FROM THIS OFFICE THAT THE NAVY IS FULLY AUTHORIZED TO MEET THE OBLIGATIONS THE PROPOSED CONTRACT IMPOSES.

THE MARINE CORPS AIR STATION IS LOCATED NEAR THE CITY BUT OUTSIDE ITS BOUNDARIES, AND THE CITY IS UNDER NO LEGAL OBLIGATION TO PROVIDE THE STATION WITH SEWER SERVICES. FINAL CONTRACTUAL TERMS HAVE NOT BEEN NEGOTIATED BUT THE PERTINENT ASPECTS OF THE TRANSACTION AS DESCRIBED IN REFERENCE LETTER AND THE CITY'S PROPOSAL ARE SUFFICIENTLY DETAILED TO ALLOW CONSIDERATION OF THE SPECIFIC QUESTIONS RAISED ON BEHALF OF THE CITY.

THE CITY OF YUMA IS CURRENTLY ARRANGING TO FLOAT REVENUE BONDS TO CONSTRUCT NEW TREATMENT FACILITIES. THE CITY IS WILLING TO BUILD THESE FACILITIES ONE-THIRD LARGER THAN IS REQUIRED FOR ITS OWN NEEDS AND SERVE THE AIR STATION WITH SUCH ADDITIONAL CAPACITY.

THE PROPOSED ARRANGEMENT WITH THE CITY PROVIDES FOR A CONTRACT FOR AN INITIAL PERIOD OF ONE YEAR RENEWABLE THEREAFTER ANNUALLY AT THE OPTION OF THE GOVERNMENT. THE CONTRACT WOULD CONTEMPLATE AN ANNUAL PAYMENT FOR TWENTY YEARS (CHARGED TO APPROPRIATIONS CURRENT AT THE TIME OF PAYMENT) CONSISTING OF A CAPITAL CHARGE OF ONE-TWENTIETH OF THE ADDED CAPITAL COST TO THE CITY AND ADDED INTEREST ON ITS REVENUE BONDS IN ADDITION TO AN AMOUNT TO COVER OPERATING AND MAINTENANCE COSTS FOR AS LONG AS SERVICE IS PROVIDED. SHOULD THE GOVERNMENT FAIL TO RENEW AT ANY TIME DURING THE FIRST TWENTY YEARS, AN AMOUNT REPRESENTING THE UNAMORTIZED PORTION OF CAPITAL AND INTEREST COSTS TO THE CITY WOULD BE PAYABLE.

ALTHOUGH THE CAPITAL CHARGE WILL BE EXPRESSED AS AN ANNUAL LUMP SUM, IT COULD BE EXPRESSED AS A DEMAND CHARGE PER UNIT OF CAPACITY, SERVICING THE GOVERNMENT'S NEEDS OR AS A PART OF THE UNIT PRICE PER 1,000 GALLONS OF SEWAGE TREATMENT. OPERATING AND MAINTENANCE COSTS WILL BE DETERMINED ON A PRO RATA BASIS MEASURED BY ACTUAL METERED SERVICE. THE CITY'S PROPOSAL, BY ITS TERMS, IS:

"* * * CONTINGENT UPON THE UNITED STATES NAVY FURNISHING TO THE CITY OF YUMA A DECISION OF THE COMPTROLLER GENERAL OF THE UNITED STATES OF AMERICA TO THE EFFECT THAT THE UNITED STATES NAVY HAS AUTHORITY UNDER THE LAWS OF THE UNITED STATES TO BIND THE UNITED STATES OF AMERICA TO THE PAYMENT OF ALL MONIES REQUIRED BY THIS PROPOSAL.' THE FOLLOWING SPECIFIC QUESTIONS ARE PRESENTED:

"1. MAY THE NAVY ENTER INTO A CONTRACT INDEFINITE AS TO TERMINATION DATE FOR SEWAGE SERVICES FOR A PERIOD WHICH MAY RUN, AND ACTUALLY IS INTENDED TO RUN, IN EXCESS OF 10 YEARS?

"2. MAY THE NAVY BIND THE GOVERNMENT TO SCHEDULED PAYMENTS OF THE CAPITAL CHARGE FOR 20 YEARS?

"3. IF THE GOVERNMENT TERMINATES THE CONTRACT PRIOR TO COMPLETION OF THE 20 YEAR PAYMENT SCHEDULE MAY IT PAY THE REMAINING BALANCE DUE PLUS ADJUSTED INTEREST?

"4. WILL THE FUNDS FOR THE PAYMENT OF THE TERMINATION CHARGE BE PAID FROM THE NAVY'S CONTINGENCY FUND OR MUST THE NAVY BUDGET A SUFFICIENT AMOUNT EACH YEAR TO COVER THE PAYMENT?

"5. IF THE FUNDS ARE TO BE PAID FROM A CONTINGENCY FUND AND THAT FUND IS FULLY DEPLETED AT THE TIME OF TERMINATION IS THE NAVY BOUND TO APPROPRIATE FUNDS FROM ITS NEXT APPROPRIATION TO PAY THE REMAINING BALANCE OF THE CAPITAL CHARGE?

THE CONTEMPLATED CONTRACT IS, AS SUGGESTED IN REFERENCE LETTER, SIMILAR IN ALL ESSENTIAL ASPECTS TO THE CONTRACTUAL ARRANGEMENT CONSIDERED AND APPROVED BY THIS OFFICE IN THE DECISION REPORTED AT 8 COMP. GEN. 654, AND WE PERCEIVE NO LEGAL OBJECTION TO ITS CONSUMMATION. SEE ALSO 37 COMP. GEN. 155, 159, 160.

WITH RESPECT TO THE FIRST TWO QUESTIONS PRESENTED, THE TERMS OF THE PROPOSAL DO NOT PROVIDE FOR A CONTRACT INDEFINITE AS TO TERMINATION DATE FOR SEWAGE SERVICES, SINCE EACH SUCCESSIVE YEAR'S OBLIGATION FOR SERVICES IS DEPENDENT UPON EXERCISE OF AN OPTION TO RENEW. IT IS NOT ACCURATE TO CONSIDER A FAILURE TO EXERCISE THIS OPTION AS A "TERMINATION" OF THE CONTRACT; RATHER, SUCH FAILURE, AT ANY PARTICULAR TIME, WOULD SERVE SIMPLY TO MATURE THE NAVY'S LIABILITY AT THE FIXED AMOUNT APPLICABLE AT THAT TIME UNDER THE TERMS OF THE CONTRACT. THEREFORE, WHILE THE QUESTIONS POSED IN THE ABSTRACT WOULD ORDINARILY REQUIRE NEGATIVE ANSWERS SUCH NEGATIVE RESPONSES ARE NOT PERTINENT TO THE CIRCUMSTANCES ACTUALLY INVOLVED.

CONCERNING QUESTIONS NUMBERED THREE, FOUR, AND FIVE, THE NAVY WILL BE RESPONSIBLE FOR SEEING TO IT THAT THE APPROPRIATION FOR THE FIRST AND EACH SUCCESSIVE FISCAL YEAR FOR WHICH RENEWAL IS PROPOSED IS ADEQUATE TO ENABLE RESERVING THEREFROM THE AMOUNT THAT WOULD BE OBLIGATED TO BE PAID IN THE EVENT THE OPTION TO RENEW IS NOT TO BE EXERCISED FOR THE FOLLOWING FISCAL YEAR. SHOULD THE OPTION NOT BE RENEWED, PAYMENT OF THE UNAMORTIZED PORTION OF CAPITAL AND INTEREST COSTS COULD ONLY BE MADE FROM AVAILABLE FUNDS OF THE APPROPRIATION BEING CHARGED FOR SERVICES UNDER THE CONTRACT CURRENT AS OF THE TIME THE OPTION TO RENEW EXPIRES OR FROM ANY OTHER APPROPRIATION WHICH MIGHT BE MADE SPECIFICALLY FOR THAT PURPOSE.

ACCORDINGLY, YOU ARE ADVISED THAT THE UNITED STATES NAVY HAS AUTHORITY TO BIND THE UNITED STATES TO THE PAYMENT OF ALL MONIES REQUIRED BY THE PROPOSAL IN QUESTION.

A COPY OF THIS LETTER IS BEING FURNISHED TO BOND COUNSEL FOR THE CITY OF YUMA.