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2 mayors testify in Malvern's lawsuit against neighboring Perla over troubled water system

by Joseph Flaherty | December 2, 2021 at 6:59 a.m.
File Photo

The mayors of Malvern and Perla took the witness stand in circuit court Wednesday amid a dispute between the neighboring communities over Malvern's bid to have the troubled, financially insolvent Perla water system placed into receivership with the Little Rock-area Central Arkansas Water utility.

The Perla water system serves some 800 customers by purchasing its water wholesale from Malvern, the city directly to the west. Malvern has approximately 11,000 residents, compared with the couple hundred who live in Perla.

Malvern sued Perla as well as its municipal water utility, the Perla Water Association, in February 2018 over the smaller community's unpaid water bill. A little over a year later, an amended complaint filed by Malvern said Perla's bill had increased from around $56,000 to nearly $224,000.

On Sept. 13, Malvern filed a motion to have Central Arkansas Water appointed as receiver of Perla's water and wastewater systems.

In statements before the court Wednesday, an attorney for Perla suggested a sale of its water system was imminent, therefore making the request for a receiver irrelevant. However, according to testimony, two other water utilities had looked into acquiring the Perla system before the latest prospective buyer; in the end, those earlier sales apparently never came to fruition.

Judge Stephen Shirron of the 7th Judicial Circuit, which covers Grant and Hot Spring counties, on Wednesday heard first from Malvern Mayor Brenda Weldon, who recounted the 2018 lawsuit and the money that was owed. She testified that Perla's current unpaid balance is more than $355,000.

Attorney Cecilia Ashcraft, who represents Malvern, asked why the mayor has not cut off water to Perla. Weldon indicated that she was not inclined to do so for the sake of the community's residents, adding that they were all residents of Hot Spring County.

But Weldon suggested that if the court does not appoint a receiver, then the water will be turned off. She said it has come to a point where someone needs to take over the system. The sewer system is considered basically dysfunctional, she said.

On cross-examination, Perla attorney Jonathan Huber questioned Weldon about a discrepancy between the amount of water billed to Perla and the amount used. Asked if it was possible that Malvern was drastically overbilling Perla, Weldon said no.

Huber said that within the past week, Perla's water system had entered into a sale agreement with the Southwest Water Users Public Water Authority. (Individuals during the hearing referred to the utility as the Southwest Water Association, or just Southwest Water.) Asked about why she said the system needed a receiver if it is being sold, Weldon said nothing has been done at this point after three years.

At one point during her testimony, she said she did not know much about Southwest Water compared with her interactions thus far with Central Arkansas Water.

Huber at one point suggested that Malvern would have the ability to be paid within a week in light of the arrangement with Southwest Water.

Weldon acknowledged at one point that the assets of the Perla system would be taken over by Central Arkansas Water under a receivership agreement. But Weldon denied that Malvern wants to annex or take over any more land.

David Coston, general manager of Malvern Water Works, testified that Malvern provides water wholesale to Perla and takes back its sewage. He described the condition of the system as poor.

He said Perla's sewer bill has been paid and has not been late, testifying that that bill was about $400 per month, whereas the water bill was $30,000 per month for about 10 million gallons. Like Weldon, Coston testified that Perla was not being overbilled.

Ashcraft then called Stacy Gibson, a Perla water customer who testified that a couple of times a year, her home has been left without water for several hours at a time, which is followed by a boil order that goes on for several weeks. Gibson recalled that it was hard to get guidance or information on the duration of the boil order.

She testified that she works as an attorney and has raised the water problem with several parties, including the Arkansas Municipal League and the attorney general's office, to no avail.

Gibson told the court that she is not a resident of Perla and therefore cannot vote out the current administration that is responsible for the issues. She said she supported the request to have a receiver appointed. Asked if she had any faith in Perla water, Gibson said, "Absolutely not."

Central Arkansas Water Chief Executive Officer Tad Bohannon testified that his utility has served as receiver for the Brushy Island water system pursuant to a Pulaski County court order. He went on to name other instances in which Central Arkansas Water has operated or consolidated systems in different communities.

Bohannon testified that after a 2019 news story, he called the Perla water system and talked to its attorney. They had a discussion at that time about selling the system to Central Arkansas Water for $1 million, but Bohannon recalled saying that selling the system was not the answer because it was unfair to the ratepayers, who would be paying for the cost of the system a second time.

Later, after the two acquisition deals for Perla did not happen, Central Arkansas Water went to Malvern and discussed the receivership, Bohannon said.

Bohannon testified that Central Arkansas Water made contact with Perla's mayor, who expressed that the issue was being taken care of. Nevertheless, Bohannon said he instructed an official to see what was going on before the hearing Wednesday, and the official found there was still sewage on the ground in Perla.

"I don't know what's going on. It's horrible, your honor," Bohannon said.

He testified that an engineer's estimate found approximately $3.9 million in work. Central Arkansas Water crews were ready to go, Bohannon said.

On cross-examination, asked by Huber if the proposed agreement meant Central Arkansas Water would own the assets or serve in a fiduciary capacity, Bohannon confirmed that Central Arkansas Water would serve as fiduciary.

If the city of Perla chose to sell the system while Central Arkansas Water was the fiduciary, it could do that with the court's approval, Bohannon confirmed.

Huber indicated the Southwest Water contract has a closing date of no later than Dec. 31. Asked about the proposed order that says Perla would ultimately give its assets to Central Arkansas Water, Bohannon said he did not see a problem with Central Arkansas Water taking the assets.

Huber argued that the order meant Perla would in effect sell its water system, but Bohannon suggested that officials should give the system away right now. Bohannon argued that officials should not start selling off systems, which he described as taxing ratepayers without an election.

Doug Farler, operations manager for Central Arkansas Water, held up images of uncontrolled raw sewage photographed in Perla, and the photos were then introduced as evidence.

Ashcraft then called Perla Mayor Raymond Adams, who said he has served in office since 2007.

When asked about his opposition to the receivership request, Adams suggested that Perla should have some input. He said he did not know anything about Central Arkansas Water and that he would want Southwest Water to serve as receiver in order to pay off the debt and move on.

He testified that Perla's water system has three employees. Asked what caused Perla to fall behind in paying Malvern, Adams speculated on system leaks and referred to the way the bill just kept going up. He confirmed that Perla was unable to catch up on its bill in spite of the water system's bankruptcy case.

The mayor said Perla wants to get out of the water business. With regard to Perla's debts, Adams testified that he believed the $450,000 contract with Southwest Water would be enough to at least pay off Malvern.

Ashcraft questioned Adams about whether the contract might not be enough to pay off Perla's other creditors. And she questioned him about the apparent lack of notice to the public regarding a Perla meeting on the contract to sell its water system to Southwest Water.

At one point, Adams seemed to suggest that the coronavirus had affected how meetings were held; at a different juncture, he said that Perla was a small community and suggested it was difficult to notify people as a result.

After Adams' testimony, Huber made a motion for a directed verdict. He said that to appoint Central Arkansas Water as receiver for Perla would violate federal and state laws governing loans and grants.

Ashcraft responded by saying the court has discretion to appoint a receiver, but Huber argued that Malvern just needed to get paid.

The judge declined to issue a ruling on Huber's motion immediately and said the parties would reconvene this morning.

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