On July 25, 2011, the U.S. Court of Appeals for the Tenth Circuit issued its decision in the Guthrie appeal. This decision applied the Oklahoma Supreme Court's June 29, 2010 decision on certified questions. In doing so, the Tenth Circuit determined that the monopoly protection available under Section 1926(b) does not violate state law and is, therefore, constitutional under the federal Spending Clause. In its June 29, 2010 decision, the Oklahoma Supreme Court relied mostly on federal precedent in holding that Section 1926(b) protection is a qualified right, that it is provided by federal law rather than state law, and that Section 1926(b) preempts any state law restriction on the state rural water district's ability to obtain Section 1926(b) protection. These holdings are problematic for municipal water service providers because the scope, extent, and availability of Section 1926(b) protection would appear to be left entirely up to the federal government. This leaves a federal agency (the USDA and its rural development division) in charge of the otherwise local issue of water service boundaries. Under these decisions, even the state constitution, and its prohibition against the creation of monopolies, can be set aside by the federal government and its exercise of spending powers.
To make matters worse, both the Oklahoma Supreme Court and the Tenth Circuit turned back the slow momentum that had been building in recent decisions on the issue of fire protection. The Tenth Circuit has determined that water needs for fire protection are not relevant to the issue of "made service available" in Section 1926(b) cases. As a result, the federal courts can decide who provides water to residential subdivisions, commercial and industrial developments, and even healthcare facilities, based upon federal law, without regard to whether the water provider can meet the basic water needs associated with fire protection. Removing such an important public interest from the equation could have significant on-the-ground impacts.
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