The Public Utility Water System, currently managed by the City of Asheville Water Resources Department, continues to be a topic of substantial concern within the unincorporated (non-City of Asheville) community. It is important to note that this discussion involves the ratepayers (customers of the water system) of the Public Utility Water System managed by the City of Asheville Water Resources Department, not ad-valorem (property) taxpayers per se.
The concern regards ongoing public commentary regarding differential water rate limitations and tax inequities emanating from City of Asheville leaders and officials. This discourse contributes to continued distrust, unease and water insecurity with current and future ratepayers (water customers) in unincorporated (non-City of Asheville) Buncombe and Henderson Counties.
Moreover, the City of Asheville’s primary method of growth, involuntary annexation, has been compromised by recent legislation and, therefore, creates increased concern for non- City of Asheville residents of Buncombe County when water system management issues are involved.
As noted by City Attorney Bob Oast, on March 23, 2011, “[b]ecause of legal and financial limitations related to water service, Asheville does not engage in voluntary annexations to the same extent that other cities are able to.”
Broad statewide annexation reform, allowing persons facing involuntary annexation an opportunity to deny or approve annexation, will ultimately cause cities, such as the City of Asheville, to pursue other avenues of growth. These new limitations on all North Carolina municipalities exacerbates the fact that the City of Asheville does not possess the ability to utilize differential water pricing to compel voluntary annexation.
This prohibition, as a result of Sullivan Acts I, II and III, is unique to Asheville and is rooted in a long, complex, history dating back to the Great Depression. Because of these circumstances, consideration must be given to the enactment of a proactive solution to avoid what will invariably lead, again and again, to conflict between the City of Asheville, on the one hand, and Buncombe County, Henderson County, the region’s other communities and the State of North Carolina, on the other hand.
To fully understand the dynamics involved, a thorough understanding of the history must first be attained. This Committee has spent the past several months heavily investigating and researching the historical perspectives, community opinions, settled law, laws, and legal cases pertaining to the matter. The following are excerpts and summaries of that history. To facilitate a full understanding, source documents are available online and in the Legislative Library for review and consideration.
Admittedly, at the beginning of the 19th Century, and progressing over many years thereafter, the City of Asheville established a waterworks system to provide the citizens of the City of Asheville with an adequate water supply.
Even today, the sources for that water supply remain located outside the contiguous boundaries of the City of Asheville. “Between 1923 and 1927, pursuant to various Acts of the Legislature, there were formed in Buncombe County six water and sewer districts. These districts were duly incorporated by the Legislature as municipal corporations for the purpose of furnishing to the residents of the respective districts water and sewer service. By the provisions of the various Acts of the Legislature, the districts were given geographical boundaries and were authorized to acquire rights of way for water and sewer lines, to construct such lines, and to hold elections authorizing the issuance of bonds in payment therefore.” (Candler v. City of Asheville, 247 N.C. 398, 101 S.E. 2d 470 (1958))
During the Great Depression, all of the aforementioned water districts went bankrupt [including Asheville —Ed. note]. Therefore, beginning in 1928, the City of Asheville began selling water directly to individual customers (ratepayers), instead of the respective water districts. With the sale of water to individuals, the City adopted an ordinance that lowered the rates for all consumers. However, the rate for customers outside of the corporate limits was still double the rates paid by customers inside of the corporate limits. Due to default by the respective water districts on their bonds, Buncombe County assumed their liabilities and obligations [including Asheville’s —Ed. note], and acquired their corresponding rights and assets. Thus, Buncombe County became responsible for water line maintenance. In exchange for Buncombe County’s assumption of those liabilities and obligations, differential water rates were no longer considered appropriate.
Therefore, in 1933, the General Assembly, through the efforts of Buncombe County Legislator William (Billy) Sullivan, enacted Chapter 399 of the 1933 Public-Local Laws. Commonly known as Sullivan I, this Act prohibited the City of Asheville from charging higher rates for water to residents of Buncombe County that were in a water district that incurred the aforementioned debt for the water system infrastructure. However, Sullivan I did allow the City of Asheville to terminate service for nonpayment of water by ratepayers. Sullivan I also provided that individuals outside of the City of Asheville were only entitled to the use of surplus water and, since Buncombe County owned the water lines, the Buncombe County Commissioners or trustees of the water districts were required to maintain the water lines (source: the Sullivan Acts).
In 1955, in direct violation of Sullivan I, the Asheville City Council began charging water rates that were substantially higher for ratepayers outside of the corporate limits of the City of Asheville than the rates for individuals within the corporate limits. Therefore, a law suit ensued regarding the constitutionality of Sullivan I. In Candler v. City of Asheville, 247 N.C. 398, 101 S.E. 2d 470 (1958), the Supreme Court of North Carolina specifically found that Sullivan I was constitutional and binding upon the City of Asheville. Thus, the City of Asheville was again prohibited from charging differential water rates to non-City of Asheville ratepayers.
By 1976, the indebtedness of all of the respective water districts was retired. In 1980, the Asheville City Council passed a resolution to challenge the validity of Sullivan I. However, before the lawsuit was filed, an interlocal agreement was entered into between the City of Asheville and Buncombe County regarding the water system. The agreement established the Asheville/Buncombe County Water Authority. The Water Agreement included provisions for the water system, as well as provisions relating to parks, recreation and law enforcement. In the Water Agreement, the City of Asheville specifically agreed not to challenge the validity of Sullivan I. The City of Asheville was also required, by the Agreement, to charge the same water rates for ratepayers inside and outside the corporate limits of the City of Asheville.
On November 11, 1995, leaders of the City of Asheville, Buncombe County and Henderson County came together and, by agreement, formed the Regional Water Authority which replaced the Asheville/Buncombe Water Authority. Its formation was in furtherance of an agreement between the City of Asheville and Henderson County, as a pre-condition, to allow Mills River, in Henderson County, to become an additional source of water for the Region. This regional agreement was driven by electoral consensus as well as the realization that our respective communities and economies are linked together. The agreement contained the following forward-looking language which demonstrated the intent of all of the parties involved:
It is the intention of the parties to this Agreement to establish herein the basis for the formation of a Regional Water and/or Sewer Authority, which would, at a minimum, include as members Henderson and Buncombe Counties, the Authority and Asheville. Pursuant to that intent, the parties herein shall in good faith work towards the creation of a regional authority and the promotion of said authority to other units of local government in the western part of North Carolina. At the time that the Regional Authority is created, all assets and improvements accumulated pursuant to this Agreement shall be transferred to such Regional Authority upon such terms and conditions as are then mutually acceptable. — Regional Water Supply and Water Service Agreement
The agreement was a significant accomplishment. For the first time since the construct of the public water system, water security was enjoyed by the ratepayers in both the incorporated and the unincorporated areas. The de-politicizing of the public water system provided hope that a new era of regional cooperation and economic development synergy would spur smart industrial growth and opportunity for the region. The agreement also recognized that the public water system itself was truly a Public Utility Water System and acknowledged the contribution of non-City of Asheville ratepayers to its history.
Despite that history, in May, 2004, the Asheville City Council voted unanimously to unilaterally terminate the Regional Water Agreement to once again attempt to charge differential water rates, to compel voluntary annexation and to control growth outside of its corporate boundaries. (The City Council at this time consisted of: Mayor, Charles Worley; Vice-Mayor, Dr. Carl Mumpower; Councilman, Jan Davis; Councilman Dr. Joe Dunn; Councilwoman, Holly Jones; Councilwoman, Terry Bellamy and Councilman Brownie Newman)
The City of Asheville gave Buncombe County a one year notice that they were unilaterally terminating the agreement (Asheville City Council Minutes May 25, 2004, page 27). Additionally, the leadership of the City of Asheville has long claimed that the Public Utility Water System had fallen into disrepair (which was true). Therefore, since the members of the Regional Authority could not agree upon a Capital Improvement Plan (CIP) to fund maintenance and repairs, the City of Asheville felt it appropriate to unilaterally take over the Public Utility Water System.
Those most knowledgeable of the matter point out that “[f]rom 1957 through fiscal year 2005, the City of Asheville did not put any funds into the water system. In fact, in addition to the net operating revenue for that period of time of almost $114,000,000.00 (income less expenses), there were a number of payments made from the “water fund” as part of the “operating expenses.” (Asheville v. State, No. 05 CVS 10743 (Super. Ct. Wake Co Feb. 2, 2007: Memorandum of decision and order re: summary judgment, page 9)
Essentially, the City of Asheville had taken (diverted) so much revenue from the water system to subsidize the City of Asheville’s general fund, the City of Asheville itself was primarily (not solely) at fault for the system disrepair by not having dedicated the water funds for said maintenance and repair.
Thus, the City of Asheville created the basis for its own complaint. Also, with the termination of the Regional Water Agreement, the City of Asheville made a determination that it would be able to successfully challenge the Sullivan Acts in Court and have them overturned. “When the dust settles, and when the City of Asheville has established its legal right to operate its water system like every other city in North Carolina – and despite what has been said, Asheville and Buncombe County are not that different from the rest of the State – you will have to explain publicly why you have passed up the opportunity to reach an agreement that was fair to everyone.” (Quoting Mayor Worley from letter dated June 24, 2005 to Chairman Ramsey, Buncombe County Commissioners, page 2)
With the Sullivan Acts out of the way, the City of Asheville could then pursue their long held desire to charge differential water rates to ratepayers in unincorporated areas, increase the price for its wholesale customers, control growth on its perimeter and coerce new non-City of Asheville ratepayers to agree to voluntary annexation in exchange for water connection, and consumption.
Differential water rates serve primarily two purposes for the City of Asheville. First, the City of Asheville has determined that with a differential water rate structure, an additional six million dollars (approximately) would flow unrestricted into the City of Asheville’s general fund. “Regarding rate differentials, Mayor Bellamy said that when you look at differentials across the State of North Carolina, the average differential is 85% (they use that to offset costs). City Council is willing to give up our rate differential ability (which is about 85%) and for that 85%, it would cost us over $6 million. Today we would like to see a tax equity payment of $6 million for us to give up rate differential ability.” (Asheville City Council Minutes, Monday, June 12, 2006. Note: This is a reference to an annual payment to the City of Asheville coming from Buncombe County taxpayers. Agreement to those terms would more than likely raise ad-valorem taxes on all County residents regardless of whether they were or were not ratepayers to the water system).
Furthermore, comparison to other Cities in North Carolina unnecessarily confuses the issue. The other cities completely own their distribution systems. However, the City of Asheville does not.
Second, the City of Asheville has long used the lack of a differential rate structure as justification for its involuntary annexations. Utilizing an escalating water rate structure for non-City of Asheville ratepayers, the City of Asheville would have the ability to coerce non-City of Asheville ratepayers to agree to voluntary annexation to obtain economic relief. In essence, in exchange for lower water rates by agreeing to annexation by the City of Asheville, a non-City of Asheville ratepayers property tax would almost double. Also, as noted in the aforementioned Minutes, the City of Asheville would force annexation in exchange for connection to the water system. Such actions by the City of Asheville obviously contradict and betray the history of the Public Utility Water System.
(Please review the Factual Background part of the Wake County Superior Court decision attached herein as it provides an excellent summary of the history — Asheville v. State, No. 05 CVS 10743 (Super. Ct. Wake Co Feb. 2, 2007: Memorandum of decision and order re: summary judgment, page 2)
In response to the City of Asheville’s more recent actions to challenge Sullivan Act I, the North Carolina Legislature enacted, on June 29, 2005, Sullivan II (S.L. 2005-140) and Sullivan III (S.L. 2005-139).
Sullivan II expressly prohibits the City of Asheville from charging differential water rates to Buncombe County residents outside the corporate limits of the City of Asheville that are connected to the waterlines maintained by the Asheville/Buncombe Water Authority. This Act continued to allow the City of Asheville to terminate service for nonpayment and required the Buncombe County Commissioners or trustees of the water districts to maintain the water lines owned by Buncombe County.
Sullivan III amends the City of Asheville’s public enterprise authority for the provision of water and sewer service to provide that rules adopted for the service must not provide for differential treatment for individuals outside of the corporate limits. This Act also, required petitions for voluntary annexations to include a statement that the petition is not based on representations regarding the availability of public enterprise services.
In October 2005, the City of Asheville filed a declaratory judgment action challenging the constitutionality of the respective Sullivan Acts. The constitutionality of the Acts was upheld by the North Carolina Court of Appeals. The North Carolina Supreme Court approved that decision by denying the City of Asheville’s request for review (City of Asheville v. State, 192 N.C. App 1, 665 S.E.2d 103 (2008), appeal dismissed, disc. rev. denied, 672 S.E.2d 685 (2009)
On May 16, 2006, City of Asheville Mayor, Terry Bellamy, sent a letter to the Buncombe County Legislative Delegation about the ongoing “water dispute.” The Mayor stated, “At this point, we are prepared to continue our legal challenges against the Sullivan Acts; however we prefer a locally determined solution.” Attached with this letter was a summary of the terms presented in offers and counter offers between the City of Asheville and Buncombe County.
On June 22, 2006, the Chair of the Buncombe County Commissioners, Nathan Ramsey, sent a letter to the Mayor and members of the Asheville City Council, outlining a set of terms acceptable to the Buncombe County Commission relative to the “water dispute.” The proposal represented significant concessions by Buncombe County to the City of Asheville on a number of issues. However, the ability to implement differential water rates was not one of those concessions. Therefore, the City of Asheville rejected the proposal and continued their legal challenges against the Sullivan Acts.
As a result of the foregoing, the City of Asheville has considered, from time to time, a Legislative Agenda seeking legislation to be introduced by the local delegation to repeal the Sullivan Acts.
The “water dispute” has also been reviewed by other local non-governmental organizations. On April 28, 2005, the Board of Directors for the Asheville Chamber of Commerce accepted the findings of and adopted the recommendations set forth by the “Water Agreement Task Force.”
After considerable discussion, many meetings, and review of the background material, the committee recommends that the city pursue a sale of the Water Authority to the Metropolitan Sanitary District (MSD) for the following reasons:
- The Metropolitan Sanitary District has a strong track record and culture of good service and efficiency.
- It would create a one-stop shop (plan review, permitting, inspection and acceptance) for the two major utilities.
- It would be a regional approach to utility extension and service.
- There would be reduced administrative costs. (Attachment 1)
- There would be reduced costs from highway relocation.(Attachment 2)
In early Spring of 2005, a League of Women Voters board member, Mr. Andrew Reed, submitted a guest editorial regarding the results of their study. Although the League does not take an official position, the League board concurs with the opinions expressed:
“A truly independent Regional Water Authority is best route out of this mess”
“Clean, affordable water is integral to our region’s physical and economic health, and the Water Authority exists for the sole purpose of providing it. The League of Women Voters of Asheville and Buncombe County proposes a simple, straightforward and nonpartisan approach to fulfill that purpose”
“The Water Authority is, simply, a public infrastructure that exists to serve its users. It collects rainfall and runoff from far outside the city limits. It operates treatment plants in Buncombe and Henderson Counties, and it serves both Asheville residents and tens of thousands who live outside the city. Our water system is already a regional operation, and to carry out its mission it must be truly independent.”
Given all of the foregoing, this Committee makes the following conclusions:
- The City of Asheville does not own the entire Public Utility Water System;
- Buncombe County owns part of the Public Utility Water System;
- The Public Utility Water System is a “Public Enterprise” and, therefore, the City of Asheville cannot profit from its management;
- The City of Asheville is constrained and prohibited from charging non-City of Asheville ratepayers higher water rates by Sullivan I;
- The City of Asheville is constrained and prohibited from charging non-City of Asheville ratepayers higher water rates by Sullivan II;
- The City of Asheville is constrained and prohibited from adopting rules for the provision of water that provide for differential treatment for non-City of Asheville ratepayers by Sullivan III;
- The City of Asheville has attempted to charge non-City of Asheville ratepayers higher rates for water than City of Asheville ratepayers in direct violation of the Sullivan Acts;
- The City of Asheville has intentionally failed to fulfill contractual obligations to other governmental entities regarding the Public Utility Water System;
- The City of Asheville has refused to reach a reasonable agreement with Buncombe County regarding the Public Utility Water System;
- It is the intent of the City of Asheville to charge non-City of Asheville ratepayers substantially more for water than City of Asheville ratepayers;
- The City of Asheville desires to maintain control of the Public Utility Water System until persons sympathetic to the City of Asheville are elected into office and can repeal the respective Sullivan Acts;
- Buncombe County has substantially contributed to and invested in the Public Utility Water System;
- The City of Asheville refuses to acknowledge Buncombe County’s contribution and investment in the Public Utility Water System;
- The non-City of Asheville ratepayers should not continually face the threat of double, triple and possibly quadruple increases in their water rates; and
- The non-City of Asheville ratepayers are at risk of inequitable treatment by the City of Asheville (i.e. paying a disproportionately high portion of the water rates and “forced” voluntary annexation).
The Metropolitan Sewer District (MSD) serves Asheville, Biltmore Forest, Black Mountain, Montreat, Woodfin, Weaverville, and the unincorporated parts of Buncombe County. The MSD also has an agreement for the wastewater treatment services for part of Henderson County. The MSD service area is over 180 square miles and services 51,000 customer accounts. The MSD was formed in 1962 to collect and treat wastewater.
In 1990, area local governments gave their collection lines to MSD for ownership and maintenance in “Sewer Consolidation” agreements. The following fifteen separate sewer systems were consolidated: City of Asheville, Town of Biltmore Forest, Town of Black Mountain, Town of Montreat, Town of Weaverville, Beaverdam Water and Sewer District, Busbee Sanitary Sewer District, Caney Valley Sanitary Sewer District, Crescent Hill Sanitary Sewer District, Enka-Candler Water and Sewer District, Fairview Sanitary Sewer District, Venable Sanitary Sewer District, Skyland Sanitary Sewer District, Swannanoa Water and Sewer District, and the Woodfin Sanitary Water and Sewer District.
The MSD is governed by a 12 member Board of Directors appointed by the following entities:
- City of Asheville (3 members)
- Buncombe County (3 members)
- Biltmore Forest
- Black Mountain
- Woodfin Sanitary Water and Sewer District
- Town of Woodfin
Recommendation 1: The Committee recommends the Metropolitan Sewerage District Act be amended to:
- Reflect population shifts in single-county districts.
- Modify representation in multicounty districts.
- Allow metropolitan sewerage districts to exercise the same authority as metropolitan water districts.
Recommendation 2: After careful consideration of the information presented, the Committee recommends merging the Public Utility Water System with the Metropolitan Sewerage District of Buncombe County.
The benefits of combining the two utilities are undeniable. The benefits include, among numerous others, the following:
- Each utility essentially serves the same residential, commercial and industrial customers;
- Wastewater volumetric charges are directly linked to domestic water metered consumption;
- Treatment of raw potable water and wastewater requires similar expertise, and similar interaction with Federal and State Authorities;
- Economies of scale can be achieved in the areas of administration, planning and engineering; and
- Single location for water and wastewater availability and planning.
The Committee recommends that the 2013 Session of the North Carolina General Assembly consolidate the Public Utility Water System with the Metropolitan Sewerage District of Buncombe County. Should the interested governments craft their own solution for consolidation, which achieves all the objectives of the Committee, before the 2013 North Carolina General Assembly convenes, due consideration would be given to the local plan. Action will not be taken if the parties are engaged in good-faith negotiations on this matter.
Legislative Research Commission
Metropolitan Sewerage/Water System Committee
North Carolina General Assembly
April 19, 2012
The report was prepared by the Legislative Research Commission’s Committee on Metropolitan Sewerage/Water System, pursuant to G.S. 120-30.17 (1). To download a PDF of entirety of the Metropolitan Sewerage/Water System Committee’s Final Report (from which this post is taken), click here. To read the committee’s supporting documentation (including all the court decisions), click here.