Following scandal, this Oregon sewer board will move its subsidiary from Hawaii to Arizona

It’s official: Washington County’s embattled sewer agency will trade Hawaiian beaches for Arizona desert by the end of 2026.

In a move that had been telegraphed for months, the Clean Water Services board of commissioners voted 4-0 Tuesday to relocate its controversy-producing insurance subsidiary from Hawaii to Arizona, citing financial savings. The vote comes eight months after the company’s location came under scrutiny in the wake of an Oregonian/OregonLive investigation that found that agency executives on the insurance company board stayed at a rotating cast of five-star resorts for annual board meetings and insurance conferences in Hawaii.

Seven trips cost at least $165,000, including $42,000 to send six officials to the Big Island in 2023 and at least $41,000 to send seven officials to Kauai last year, records show. The sewer agency did not send any employees to Hawaii last month for the annual insurance conference.

Following the newsroom’s investigation, the sewer board, made up of the members of the Washington County Board of Commissioners, implemented a slew of oversight measures and the agency’s executive director eventually resigned, privately citing a hostile work environment. The board’s review included requiring the agency to conduct a new domicile review for its wholly-owned captive insurance company, a form of self insurance that is rare among public agencies.

That review, conducted this summer by consultant Aon, identified Arizona, not Hawaii, as the best state for Clean Water Services to locate its insurance subsidiary. The agency endorsed that recommendation and asked the board to approve it, primarily based on Aon’s review, spokesperson Julie Cortez said.

The sewer board did not make public statements before voting Tuesday but asserted in previous meetings and in its official board resolution that the decision to relocate the insurance company from Hawaii to Arizona made financial sense and was not simply a response to public outcry. However, Clean Water Services declined to provide a complete picture of why the move made financial sense.

An August estimate by Aon found it would cost the agency about $203,000 annually to remain in Hawaii while it would cost nearly $192,000 to be in Arizona.

That analysis factored in board member travel. Aon estimated it would cost only $10,000 to continue traveling to Hawaii for annual board meetings and up to $16,500 for optional training and education. In comparison, it estimated it would cost $7,500 to go to Arizona annually for board meetings and up to $9,500 for optional training and education.

Those figures are well below the more $40,000 annually that the agency had been spending in recent years to send its entire board to Hawaii. Rick Shanley, the interim CEO/general manager for Clean Water Services, told the board in an Oct. 10 meeting that was because the agency would only send three board members to future conferences.

Aon’s analysis estimated there would also be an additional $45,000 in one-time costs to move the company to Arizona, including legal costs and the costs of a tax adviser and captive manager. But staying in Hawaii would cost about the same, Shanley told the board in the Oct. 10 meeting. That’s because the agency needed to update its operating agreement and make other legal and administrative changes to the insurance company.

Board member Jason Snider pledged his support for Arizona at the time, saying he was swayed by the fact that there would be similar one-time costs no matter what.

“For me, the decision becomes much easier when I realize we were likely going to have to redo a bunch of work in Hawaii anyway,” Snider said. “I think the right decision, given that, is to make the move to Arizona.”

However, Clean Water Services declined to provide a breakdown of the one-time costs of keeping the insurance company in Hawaii to back up its assertion. Clean Water Services sought a legal review of costs for staying in Hawaii, Cortez said, and she argued that makes the “legal advice related to potential additional costs” subject to attorney-client privilege.

Leaders from Clean Water Services began traveling to the Hawaii Captive Insurance Council forum in 2016, after the agency decided to form and incorporate its captive insurance company in Hawaii. States that offer the niche insurance programs often tout their locations and amenities, with Hawaii boasting about its “world class business meeting, hospitality, and recreational facilities fostering productive business meetings and corporate retreats.”

The sewer agency has defended its decision as financially beneficial to its ratepayers. Since 2016, the insurance company’s capital has grown to almost $5.55 million that could be applied to future catastrophic insurance events, exceeding expectations consultants set in 2015 when the agency was considering forming the company, records show.

But the case for basing the insurance company in Hawaii was always more opaque, consultants’ evaluations obtained by the newsroom through Oregon’s public records law show.

In fact, the records show that consultants in 2014 initially recommended that officials consider locating the business in Arizona or Utah before eventually recommending Hawaii, which they touted in part based on the faulty premise that travel costs wouldn’t be expensive. And a 2022 evaluation conducted by Aon shows that Hawaii continued to rank highest partly because of the insurance company’s history there, an advantage no other state could offer.

When Aon conducted its updated review this summer that found Arizona was the best location, it did so by using a slimmed-down matrix that no longer benefited Hawaii by including “substance and existing relationships” as a factor, among other key changes.

Following the board’s vote Tuesday, Clean Water Services will now begin to work through the legal, operational and administrative hurdles necessary to relocate the insurance subsidiary to Arizona. Director Jerry Willey was absent from the vote. The board has given the agency until the end of 2026 to complete that process, but Cortez said the timeline could be shorter.

“As to the timeframe,” Cortez said in an email, “we believe this to be a conservative estimate and will continue to adjust the details of the timeline now that the board has made the decision to re-domesticate in Arizona.”