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Pete Kaliner

The water deals Asheville rejected

 
The water deals Asheville rejected
Posted May 8th, 2013 @ 11:26am

Our friend Jake Frankel at the Mountain Xpress has a great piece today about the numerous offers made to the City of Asheville by Buncombe County Commissioners during negotiations over the water system a few years ago.

From July 2004 through Aug. 2006, county officials made 11 specific offers. Some would've resulted in MSD taking control of the water system as it seems poised to now. However, unlike the current directive from the General Assembly, the city would've received substantial benefits from the county deals.

I've posted the documents from the County in their entirety below, so you can see for yourself.

Remember, these offers were being made at the time the City was ending its Water Agreement (emphasis added):

Under the 1981 Water Agreement, the city agreed not to challenge the Sullivan Act by charging rate differentials and the county transferred its water lines to the city and undertook the expense of maintaining various city-owned facilities that serve county residents. In May 2004 the City Council voted unanimously to pull out of the Water Agreement in order to have the ability to charge differential rates and be able to use water to control their growth. After a year of negotiations between various configurations of the two boards and staff, the two sides  agreed to try mediation.

That mediation failed.  If you'd like to see why, take a look at this helpful post mortem.  Among the conclusions:

The most difficult external barrier to a negotiated outcome came from the local legislative delegation. The existence of the proposed bills, Sullivan II and III, during the mediation profoundly changed the dynamics of the negotiations. Had there been no legislative intervention whatsoever, the issues that were so important to the city likely would have been perceived as negotiable items by the county negotiators. This could have allowed the parties to explore options around these issues that could have yielded satisfactory results. Taken altogether, the cumulative impact of external influences and the change in negotiation dynamics due to the existence of the proposed bills created a situation in which there was virtually no viable bargaining range between the two parties.

What were those "issues that were so important to the city?"

Without a differential rate, Asheville had little incentive to extend water lines beyond its borders.  Limiting water line extensions had the effect of constraining growth outside of Asheville. As development pressures began to increase in the late 1970s and early 1980s, county leaders wanted a stronger voice in the development of the water system. The city, meanwhile, wanted to address what it saw as tax inequities  between what city and county residents paid for the same services.

Also:

[There was a] split between city and county leaders in 2003 over a fee increase to pay for badly needed water system repairs. Asheville was pushing strongly for the increase but Buncombe County would not go along with the fee.


And this:

In addition to gaining full control of the water system, the city wanted to charge differential rates to county users.


But in the end the mediation failed because the two sides could not agree on some basic goals:

While some compromises were offered, each side had its sticking points. The city  wanted the ability to set differential rates and guide growth on its perimeter. The county wanted a true, independent water authority that controlled the water system, would charge all residential customers the same, and put all water revenue back into the system.

What were "some compromises" that were offered?

Well, that brings us back to Jake Frankel's article at Mountain Xpress.

I paid particular attention to the last offer from the Buncombe County Commissioners:

Option #A- Transfer all depreciable water assets to MSD and lease the water related land to them for an annual payment of $4.5 million for the next 30 years OR

Option #B- In exchange for a municipal system that has title and responsibility for all water facilities, there will be no differential rates or diversion of funds nor will water be used as a tool to force annexation.  The County will have both title and responsibility for McCormick Field, Nature Center, Golf Course, Recreation Park, and the Civic Center.  The County will complete the much needed and long-deferred improvement of Civic Center.  With an expected renovation of cost of $50 million, this offer provides an annual benefit of $5.6 million to the City of Asheville.

So, the first option the City Council had was to accept $135 million for the system, in exchange for a merger into MSD. Nothing else would change.

But the second option was the real winner for the City of Asheville - it could keep the system AND manage it while giving up ownership of some of the recreational facilities. In doing so, the County would spend millions to improve the Civic Center (which is still using tourism-related sales tax dollars from the TDA and preventing other projects from getting funded).

Both offers were rejected - like every other offer made by the County. 

Why?

Differential water rates and control of growth.  Even thought the Sullivan Acts prevent differential rates, a future General Assembly could repeal the law. This was actually "the top legislative priority" advocated by City Councilman Gordon Smith when he was running for his first term.

The clarity is pretty bad there. Let me transcribe it: 

"Keeping our water resources clean and abundant is a top priority. The unfair Sullivan Acts restrict our city's ability to create a sustainable water plan. Therefore, our top legislative priority must be to repeal the Sullivan Acts."

It's about the rates... but not really

The differential rates are a means to an end - and that end is controlling growth.  By charging people outside City limits more for their water, they could be coaxed into becoming a part of the City through annexation.  Asheville's historic reluctance to run water lines into the County is an example of its desire to control growth outside its boundaries.

It seems City Council - both past and present - have a desire to dictate growth both inside and outside its jurisdiction. Water is a way to do it.  That's why this matters so much.

See you in court

Yesterday, the City Council decided to sue the State over the forced merger. City elected officials say there is no reason to force a merger, because the system is being run so well.  Any reference to the (recent) past disagreements is dismissed as irrelevant.  They also say the City doesn't take money out of the system to support non-water-related projects.

So, then why would the City want to keep the system?

If it doesn't spin off extra money for Asheville...

It was funded by ratepayers through revenue bonds (not taxpayer-backed General Obligation bonds)...

And the City cannot charge different rates for people outside City limits... 

What's the benefit to the City of Asheville?  Why spend untold thousands of dollars on a lawsuit?

It's not really about debt ratings, watershed protection, or best management. It's about who gets to control the growth in the region. Asheville doesn't trust anyone else to do it, and regional neighbors don't trust Asheville to do it.

All the other arguments are just muddying the water.

Here are the County offers (via Mountain Xpress):

Summary of Previous Offers - County to City

 

Guiding Principles in all offers:

v      Creation of an Independent Water Authority

v      No differential rates between city versus county residents

v      No forced annexation to received water services

 

Summary of Offers:

 

July 2004:  (Written Offer) #1

 

Regional Water System and Recreation Authority:

 

Transfer assets and water employees to MSD and form a regional water/sewer authority.

 

Create a Recreation Authority (with taxing power); and combine City and County recreation facilities, festival activities and the Civic Center to form the Recreation Authority.  Transfer all related assets to the Authority and remove reversion clauses from the deeds.

 

The current revenues received by the city will be provided to offset losses in the citys general fund.  These include the value of the 5% contribution from the Water Authority ($1,100,000); and patrol and investigation payments (est. $1,800,000).  We assume the indirect costs paid by the Water Authority are based on costs that can be avoided if services are not provided.

 

This can be offset by transferring $800,000 of subsidy for the civic center and the City General Fund subsidy for recreation to the to the Recreation Authority. 

 

 

 

 

February 2005: (Written Offer) #2

 

Establish a Recreation Authority that includes all City and County recreation services, Civic Center, Pack Place and Memorial Stadium.  This would have a net positive impact of over $2 million on the City General Fund (reduced expenses of $5.8 million net of losses from the water agreement of $3.7 million).

 

Have the General Assembly pass a local bill establishing an Independent Water/Sewer Authority and transfer all assets related to the current Regional Water Authority to the new Independent Authority. 

 

 

 

Have the General Assembly pass a local bill converting MSD to MSWD and transferring all district water lines (from 1981 maps), as improved, for which the County serves as trustee to MSWD.  Include in that transfer the Mills River Treatment Plant and related water revenue bond debt.  Basically, this is telling the County to donate their assets to the Independent Water/Sewer District, and the City to transfer the Mills River Plant, which they say they do not need, to the Independent Water/Sewer District. 

 

In exchange for agreeing to a regional water authority, Buncombe County will provide funding for an independent recreation authority that encompasses all city and county recreation, Pack Square, the Civic Center, and future recreation needs of the community.  A five-member board will govern this recreation authority, with 3 members appointed by City Council and 2 members appointed by Buncombe Commissioners.  The transfer of all recreation and Civic Center related expenses would relieve the City of $5 million in annual expenses.  When this is combined with the impact of canceling the water agreement, the City will net $2 million to devote to maintaining and/or expanding other city programs.

 

In addition to the $2 million the City will have to dedicate to other projects, water rates will remain the same for all regional authority customers, and all water revenues will remain available to repair, renovate and expand the water system. 

 

Mediation of April 27, 2005: (Verbal Offers)An attorney for the City stated that no amount of $, even $1 billion would persuade City to sell or lease water system

Independent Authority Offer #3

_        50 year term

_        Termination by mutual agreement only

_        No rate differentials

_        No forced annexation by water tap

_        Full accounting of all water assets, budgeting, funding7.5% of yearly gross revenues to City (~ $1.5 million) payable to City general fundNo % of yearly gross revenue to County

_        County to pay City general fund $2 million/yr with $60,000/yr  increase for term of agreement

_        County to pay $1 million/yr for capital improvements to either Water Authority or Civic Center at choice of City

_        Both parties to release any potential legal claims arising out of current agreement

_        Director hired by Board

_        No government staff on Board

_        City appoints a majority of Board (4-3)

_        County to maintain Nature Center, Recreation Park, McCormick Field, Golf Course and gets fee simple title

_        No withhold water for any annexation purposes

 

 

Independent Authority Offer # 4

 

 

_        Same except the following:

_        30 year term

_        Board to set rates up to 5%- Any increase over 5% must be also approved by City and County

_        5% of gross revenue to City general fund

_        2.5% of gross revenue stay in system for improvements rather than go to County general fund

_        City elects who owns Nature Center, Recreation Park, McCormick Field, Golf Course and the owner gets fee simple title

Independent Authority Offer # 5

_        Same except the following:

_        County to also maintain, operate, and renovate the Civic Center- Estimated at $1 million/yr operating and at least $3 million/yr to repair, renovate for a $4 million/yr, for a total commitment of $50 million

_        The County advanced several other versions of the above 3 proposals, the ones noted contained the best offer after rejections by the City (examples include (1)tax equity payment offer started at $1 million/yr and climbed to $2 million/yr (2) City share of gross revenue grew from 0% to 7.5%)

 

 

May 2005:

Consolidated Water and Sewer Authority: (Written Offer) #6

In this consolidation, the Commissioners include provisions to:

        Pay Asheville for the water assets

        Adopt differential tap fees to pay for Asheville to expand water and sewer lines for annexation

        Avoid millions of dollars of costs that should be paid by the Department of Transportation. 

 

Even though the customers and developers have already paid for existing infrastructure, we support the water and sewer authority purchasing the water assets from Asheville over several years for an annual payment of $2.5 million or some other negotiated amount.  The water and sewer authority would then assume full responsibility for $350 million repair and replacement of the water system.  

 

 

 

 

 

 

The Commissioners are proposing that transfer of the recreation assets proceed as specified under the water agreement, and that the County assume the full cost of the Criminal Justice Information System and City/County Identification Bureau, relieving Asheville of $1 million recurring annual costs.  When combined with the purchase of assets, Asheville would realize an immediate positive impact of $3.5 million  basically breaking even in the City general fund. 

 

This proposal provides:

 

     Tap fee differentials for both water and sewer will provide funding for future Asheville annexations. 

     A regional water resource. 

     Comprehensive planning reduced capital costs. 

     Payment to Asheville for the water system assets. 

     Regional responsibility for the repair and replacement of the system.

     Enhanced regional relationships to ensure that we are able to continue drawing jobs to our area and retaining the jobs we already enjoy in the community. 

 

June 2005: (Written Offer) # 7

 

In the spirit of compromise and cooperation, and to avoid years of litigation and hundreds of thousands of dollars in legal expense, we are willing to accept the following proposal.

       All residents will be charged the same rate for water - no differential water rates. 

       Water service will be provided to anyone who requests it and receipt of service will not be contingent on forcing the user to annex into Asheville.

       New developments within a half-mile can be annexed using the same criteria other North Carolina cities utilize.

       Future annexations with comply with the North Carolina annexation laws.

       Water will become a City Department.

       The City will build water lines in unincorporated areas where most growth is occurring. 

       All water revenues will remain with the water department and be used only for water services.

       The County would not make any payments to the City for tax equity or any other purpose.

       35 year agreement  all water assets restricted for water use

       Forego any legal actions on agreement of funding

       Support passage of Sullivan II

 

 

 

 

 

 

 

 

 

 

December 2005: (Written Offer) #8

Establish an independent water authority and combine with the existing Sewer Authority ( MWSD). (Under NCGS 162A)

P         City gets an additional appointment to the MWSD.

P         Non-betterment costs are eliminated based on NCGS.

P         Sullivan Acts  under this proposal, Sullivan is not violated.

P         Establish a differential tap fee schedule based on cost, not corporate limits.

P         Establish rates based on cost, not on corporate boundaries, no differential rates.

P         City and County will clarify specific ownership of water assets and propose an annual payment amount to compensate Asheville for their investment in water assets.  The County will contribute all water assets owned or previously donated to the MWSD.

With City and County Managers as point persons, develop a comprehensive plan and budget for development of Asheville and Buncombe County, including the Civic Center and other projects under consideration.  Both City and County will work with the Local Delegation to identify a funding source.  We cannot have a preconceived plan for the specific funding source  that will be a Local Delegation decision.

Under this plan, all lawsuits concerning water, the water agreement, and Sullivan will be dropped, and no new lawsuits will be filed on these topics.

 

April 2006 # 9

In exchange for an independent authority, the County will provide $1.7 million to the City General Fund.  Additionally, the County supports the Water Authority purchasing the water assets from the City with an annual payment of $1.0 - $1.5 million.

 

June 2006: (Written Offer) #10

$        Water will be a Municipal system.

$          The County and the water districts will transfer to the City both the title and responsibility for all water facilities.

$          There will be no differential rates.

$          There will no diversion of water revenues, and this will be verified annually through an independent review.

$          Water will not be used as a tool to force annexation.

 

$          The City will transfer to the County both title and responsibility for McCormick Field, Nature Center, Golf Course, Recreation Park, and the Civic Center.  (This relieves the City of a net operating loss that is currently $1.1 million annually and which will grow substantially in the future.  Additionally, the County could address the much-needed and long-deferred issue of improving or replacing the Civic Center.)

$          All lawsuits on water issues and any related claims will be dropped.

$          The County and the City will cooperate in seeking the appropriate legislation necessary to implement this agreement.

 

August 6, 2006 (Written offer) #11

G         Option #A- Transfer all depreciable water assets to MSD and lease the water related land to them for an annual payment of $4.5 million for the next 30 years OR

G         Option #B- In exchange for a municipal system that has title and responsibility for all water facilities, there will be no differential rates or diversion of funds nor will water be used as a tool to force annexation.  The County will have both title and responsibility for McCormick Field, Nature Center, Golf Course, Recreation Park, and the Civic Center.  The County will complete the much needed and long-deferred improvement of Civic Center.  With an expected renovation of cost of $50 million, this offer provides an annual benefit of $5.6 million to the City of Asheville.

 

 

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