Category Archives: Water Infrastructure

Legislative Wrap-Up IV: Water and Wastewater Infrastructure

August 10, 2013. Appropriations, reorganization of infrastructure funding agencies and a bit of micromanagement.


State Grants.  The General Assembly appropriated a small amount for grant programs that fund  water and wastewater projects. The figures in the chart below reflect the total appropriation for each agency  minus funds used for staff and operating costs.  Only the Department of Environment and Natural Resources (DENR) grant funds are restricted to water and wastewater projects; the Commerce and Clean Water Management Trust Fund (CWMTF) grant funds  can be  used for other purposes as well.  (More detail  on the scope of those grant programs below.)  The   N.C. Rural Economic Development Center, which has been the  largest source of water and wastewater infrastructure grants, received no new appropriations.

Grant Appropriations (in millions)
Agency 2013-2014 2014-2015
DENR $3.5  $5
Commerce $10.8 $12.3
 CWMTF $ 9.2 $12.4
Rural Center 0 0


The Rural Center.  During the legislative session, debate over the future of the N.C. Rural Economic Development Center  overshadowed discussion of  state infrastructure needs.  In 1987, the  N.C. General Assembly created the Rural Center as a nonprofit corporation to support economic development and infrastructure projects in rural areas.  The Rural Center’s economic development grant program sometimes funded water or sewer infrastructure to support a particular economic development project, but a separate program – the Clean Water Partners – existed specifically to help rural areas fund water and wastewater projects. For the last ten years, the Rural Center has been the largest  source of water and wastewater grants to local governments. (The drinking water and wastewater revolving loan funds managed by DENR continue to be the largest source of public funding  overall, but poorer rural communities cannot always afford to take on even low interest debt.)

The Governor’s budget proposed to significantly cut the Rural Center budget (from $16.5 million to $6 million) and the Senate’s proposed budget appropriated no funds to the Rural Center. The House continued to support funding the Rural Center until the State Auditor released an audit report critical of the salary and benefits package for  Rural Center director Billy Ray Hall and questioning the adequacy of grant oversight.  Coming at a key point in budget negotiations, the audit report appeared to tip the balance;  the final budget provided no appropriations to the Rural Center. The Rural Center continues to hold some funds from previous years as well as funds already committed to projects in progress.  Release of funds had been frozen following the release of the audit report,  but the McCrory administration has been reviewing Rural Center grant decisions and  last week Secretary of Commerce Sharon Decker announced that $17.5 million in new, previously approved Rural Center grants will be released to grant recipients.  Oversight of outstanding Rural Center grants will be transferred  to a new Rural Economic Development Division in the Department of Commerce.

New or Modified  Infrastructure Grant Programs. In place of funding for the Rural Center, the General Assembly created two new infrastructure grant programs — a DENR grant program for water and wastewater infrastructure and a rural economic development grant program in the Department of Commerce.  The General Assembly also created a  Water Infrastructure Authority in DENR and a Rural Infrastructure Authority in Commerce to make decisions about grant awards. The provisions creating the two new authorities and setting the criteria for grant awards can be found in the final budget bill, Senate Bill 402.

A few things to note about the appropriations shown in the chart above:

▪ The DENR grant program, which is the smallest of the three, can only be used for water and wastewater infrastructure grants.

▪ The Dept. of Commerce  rural economic development  funds can be used for a number of different types of economic development projects; there is no specific set-aside for water and wastewater infrastructure. The budget provision that goes along with the appropriation also refers to both loans and grants without specifying how the funds will be divided between loans and grants.

▪ The Clean Water Management Trust Fund  appropriation represents the total  amount  available for  CWMTF grant awards.  In the past, most CWMTF grants went to stream/wetland restoration, stormwater management and riparian buffer protection; a small percentage of grants went to wastewater projects needed to address a specific water quality problem.   The new state budget consolidates CWMTF and the Natural Heritage Trust Fund which means that an even larger variety of projects  (including acquisition of buffers around military bases) will be competing for the limited funds.

Note: By comparison to the small amount of funding provided in the current budget , the N.C. Rural Economic Development Center and the Clean Water Management Trust Fund combined to issue  approximately $160 million in grants to rural and economically distressed communities for water and sewer infrastructure in 2008.   Because of the recession and state budget shortfalls, the amount of funding dropped in recent years; In 2011-2012, budget cuts had reduced the amount of water and wastewater grants awarded by the two programs to just over $20 million total.  Since appropriations to CWMTF and to the new Rural Economic Development Division in Commerce do not  set aside a specific amount for water and wastewater infrastructure, it is difficult to know how much will be available in the 2013-2015 budget cycle. Only the very small amount appropriated to the new DENR grant program ($3.5 million in 2013-14 and $5 million in 2014-15) is assured of going to water and wastewater infrastructure grants.


Asheville:  The General Assembly approved  House Bill 488, which   transfers the City of Asheville  water system to the Metropolitan Sewerage District of Buncombe County (MSD).   The City of Asheville immediately  got a temporary restraining order to stop the transfer while  it challenges the legislation in court.

The Asheville water system conflict raises a number of interesting legal issues.  Article II, Section 24 of the  N.C. Constitution prohibits the General Assembly from adopting  legislation relating to “health, sanitation or the abatement of nuisances”  that applies to only one  local jurisdiction. Since water system operation probably fall into  all three categories, the Constitution seems on its face  to prohibit  the  General Assembly from reaching down to make decisions related to an individual water system. Legislators frequently try to draft around the  restrictions on “local” legislation by using language that appears to be  general, but in fact only describes a single city or county.  You will not find any mention of the City of Asheville or the  Metropolitan Sewerage District of Buncombe County  in House Bill 488  – the bill avoids naming the parties by using a   description of the areas affected that happens to only apply to one city and one sewerage district in the state.  The City of Asheville lawsuit argues that the description is so specific to Asheville that the bill violates the N.C. Constitution.

The other interesting question is whether the constitution limits the General Assembly’s power to transfer ownership of city-owned property.  A 1913 N.C. Supreme Court decision, Asbury v. Town of Albemarle, suggests that operation of a water system is a proprietary rather than a governmental function.   A proprietary function is something  that can  be done by a private entity and doesn’t require the exercise of powers unique to government.  Operating a water system   would be considered a propriety function because water systems can be operated by private entities, including investor-owned water utilities.  The Asbury decision says that legislation affecting a town’s proprietary functions falls under the same constitutional limitations that apply to legislation affecting the operations of a private corporation.   Although the General Assembly has broad power to control a city or county’s governmental  functions, the court concluded that it cannot  “at its will, take away the private property of a [municipal] corporation or change the uses of its private funds acquired under the public faith.”

The question is how North Carolina courts will apply the Asbury case today and to a somewhat different fact situation. The case is still cited as good law, but a lot has happened since 1913.

Durham:  Senate Bill 315 requires the City of Durham to annex and extend water service to the site of a  proposed development in southern Durham County  that is now beyond the city limits. Efforts to legislatively force extension of water lines to the proposed 751 South development began in 2012 (see  Senate Bill 382). Durham had refused the developer’s  request for water service in part because of   the high cost of extending a water line to the project and providing other municipal services.  Senate Bill 382 popped up in the last few days of the 2012 legislative session and failed to make it through. This session,  Senate Bill 315 made a few additional concessions to the City of Durham by allowing the City to delay providing other municipal services (such as police and fire protection) to the area for ten years following the annexation.

Note: The original post has been updated to make it clear that the Department of Commerce appropriation for rural infrastructure may be awarded as either loans or grants.

May Day at the General Assembly: Environmental Bills

May Day: An ancient celebration of spring.  “Mayday” : an international distress call. 

There will be lots of activity on significant environmental legislation today at the N.C. General Assembly:

Renewable Energy.  Rep. Mike Hager will attempt to revive House Bill 298 repealing the state’s renewable energy portfolio standard (REPS). Earlier posts on the REPS bill can be found here and here. The bill will be back in the House Public Utilities and Energy Committee at noon. A  motion to approve the bill failed in the same committee last week by a 5-vote margin, but the committee never voted to disapprove the bill.  A  story by John Murawski in today’s Raleigh  News and Observer suggests little change in the lineup for and against the bill. Conservative political organizations (including Americans for Prosperity) and anti-tax crusader Grover Norquist continue to push for repeal of the renewable energy standard as part of a national political strategy that has little to do with the costs and benefits of  repeal  in  North Carolina. Some key House lawmakers  still  oppose the bill because the renewable energy standard has brought new private investment and jobs to the state. A Senate version of the  REPS repeal bill  (Senate Bill 365) will get a first hearing in the Senate Finance Committee today. Rarely does an issue so clearly require a legislator to choose between the state’s interest and a position being promoted  by national political organizations.

Regulatory Reform. Senate Bill 612 (Regulatory Reform Act of 2013) will be up for a floor vote in the Senate this afternoon.  See an earlier post on bill language essentially repealing Neuse and Tar Pamlico River buffer requirements and a  more recent  post about  a provision requiring  environmental agencies to repeal state rules that are more stringent than federal regulations on the same subject. (Putting those two proposals in the same bill is interesting all by itself since the Neuse and Tar Pamlico buffer rules are critical parts of  federally required and federally approved state plans to reduce nutrient pollution in the two river systems. It appears that even a federal requirement may not be enough to save environmental rules in some cases.)

The idea  that  state environmental rules  can simply track federal regulations  really misreads  federal environmental law. Senate Bill 612  assumes that federal agencies have adopted environmental regulations that can be simply picked up and applied by the state and that isn’t the case. Federal regulations alone would not, in most cases, be enough to make for a functioning   environmental permitting program  — or one that actually responds to the state’s needs.   All federal environmental laws  assume — and in many cases require —  that individual states will tailor the  federal  program to  address conditions in the state. (Since you won’t find estuaries in Arizona, that state’s Clean Water Act program does not look like  North Carolina’s program.)  This misunderstanding of the relationship between federal law and state environmental  rules means the most likely outcome of the Senate Bill 612 repeal requirement  will be conflict and confusion. It is unclear why the Senate chose to use a sledge-hammer rather than focus regulatory reform efforts on issues actually raised by citizens in comments to the Joint Committee on Regulatory Reform or through the rule review process  created  in G.S. 150B-19.2.

Water System Management.  House Bill 488 (transferring the Asheville water system to the Buncombe County Metropolitan Sewer District)  has come out of a conference committee to resolve differences between House and Senate versions of the bill. See an earlier post for background on the Asheville controversy.   The Senate has approved the conference report; the conference report does not appear on today’s House calendar yet, but could be added. Note: The Buncombe County MSD  had a major sewer spill yesterday;  the details (such as cause and the total amount of raw sewage spilled to the French Broad River)  are not yet clear. The spill caused me to look at House Bill 488 again and it turns out that the bill does not condition transfer of the Asheville water system on the MSD’s compliance with environmental standards or on actual transfer of the water system’s operating permit to the MSD.

The N.C. General Assembly, Water System Operator

The N.C. General Assembly seems to be increasingly tempted to intervene in the operation of local — and particularly municipal — water and sewer systems. Is  this a good idea?

Last year,   Senate Bill 382  tried to  require the City of Durham to extend water service to a  development project outside the city limits.    Senate Bill 382  started  legislative life as  a tax bill, but in  the last few days of the 2012  legislative session  it became the  vehicle for  a House proposal to  legislatively approve a water line extension for a specific development project. (Durham had  refused the developer’s  request for water service in part because of   the high cost of extending a water line to the project.) Senate Bill 382 ultimately failed, but local conflicts over water service  continue to tempt legislators to intervene.

This year, three western legislators have introduced  a bill that would force the City of Asheville to turn its  water system over to the Metropolitan Sewerage District of Buncombe County (MSD).  You will not find any mention of the City of Asheville or the  Metropolitan Sewerage District  by name –the bill avoids naming the parties by using a generic description that happens to only apply to them — but  House Bill 488 is the latest in a series of skirmishes over control of  the Asheville water system.  The history behind the Asheville water system conflict is  long and complicated, but — as in Durham — some amount of the friction has to do with the relationship between water service and development.

One long-standing issue  has to do with  water rates  for Asheville water system customers who live outside the city limits.  Asheville is the only city in the state prohibited by law from charging water customers outside the city a higher rate — a common practice of other municipalities.  (Higher rates may be used to recover higher costs of providing the service or to offset some of the additional taxes paid  by in-town customers.) Just as friction over a development decision  led to the Durham controversy, the history of the Asheville water system  includes a  thread of  concern about the city’s  ability to use water system decisions to influence  development outside the city. Until last year, extension of water and sewer service gave cities a strong basis for forced  annexation and fear of annexation seems to have created some of the tension  between Asheville and surrounding areas.  Although the annexation process has changed,  cities like Durham and Asheville can still find themselves in conflict with developers and county officials over  development conditions tied to extension of city services or (as in the Durham case)  denial of  service  to a new development outside the city limits.  In short, decisions about extension of water and sewer service  touch two hot buttons —   money  and regulation of new development.

These conflicts have a  very direct connection to environmental protection. Water and sewer  systems are creatures of environmental and public health regulation;  environmental protection programs fund water and sewer infrastructure in many North Carolina communities.   Like many other cities,  Asheville and Durham have the challenge of  expanding water service to accommodate new development  while also maintaining or replacing the aging  infrastructure  that serves existing residents.   The land use regulations sometimes attached to extension of water and sewer service can  provide a number of environmental protection benefits, but maintaining the  fiscal health of a water system has its own environmental  value. Decisions about when and how to extend water or sewer service can have significant  financial  implications; a financially strained system will have much more difficulty providing the maintenance needed to meet public health standards and avoid environmental damage.

To run  a water or sewer system responsibly, local officials   sometimes  have to make controversial decisions about service, rates and financing.  It becomes even harder to make  a tough decision knowing the General Assembly may step in and reverse it.    Forcing the transfer of infrastructure from a city without providing for compensation — as in the case of Asheville — particularly sends the wrong message to cities  that need to invest in water or wastewater infrastructure.  Legislation affecting the  capital assets of a water or sewer system also carries the additional risk of  undermining planning and financing for system improvements.

These bills  raise another question — is it in the General Assembly’s power to force an extension of water and sewer service or to divest a city of its water system.? The answer isn’t clear to me. Local governments are  subdivisions of the state — the General Assembly can change municipal boundaries and expand or contract the authority of cities. It is less clear that the General Assembly can directly intervene in decision-making about a water and sewer system without circumscribing local government authority. In 2012, Senate Bill 382 attempted to compel an expansion of the Durham water system without actually changing the law governing the City of Durham’s authority to operate a water system. House Bill 488 directs the City of Asheville  to transfer ownership of its  water infrastructure also without  changing state laws  authorizing cities to own and operate water and sewer utilities. (The sections of House Bill 488 that require the transfer of property from Asheville to the MSD  do not amend existing statutes governing local government water and sewer systems.   The sections of the bill that enact new  statutes to cover the operation of metropolitan water and sewer districts allow, but do not require,  transfers of property between cities or counties and a district.)

Article II, Section 24 of the  N.C. Constitution prohibits the General Assembly from adopting a piece of legislation relating to “health, sanitation or the abatement of nuisances”  that applies  to  only one local jurisdiction. Since water systems fall into  all three categories, the Constitution seems on its face  to prohibit  the  General Assembly from reaching down to make decisions related to an individual water system. Legislators frequently try to draft around the Constitutional restrictions on local acts by using language that appears to be generic, but in fact only describes a single city or county. At some point, the fiction simply becomes too strained.

For  constitutional law junkies: Since state law treats cities as “persons” for many purposes, can city property be taken (even by the State) without compensation? Would the U.S. Supreme Court consider a city to be a “person” under the Fifth Amendment’s just compensation clause? A research project for another day.

The Governor’s Budget: A Low Priority for Water and Wastewater Infrastructure?

The  infrastructure  needed to provide wastewater disposal and safe drinking water (treatment plants, pipelines, pump stations and intakes) may not be glamorous, but it is critical to public health, environmental protection and economic development. Since 2008-2009,  state grants  to help local governments  pay for  environmental infrastructure  have fallen  off a cliff.  In Governor McCrory’s proposed budget, infrastructure grant funding  hits  bottom.

In 2008, the N.C. Rural Economic Development Center and the Clean Water Management Trust Fund (CWMTF)  issued a total of approximately $160 million in grants to rural and economically distressed communities for water and sewer infrastructure.  In the 2011-2012 fiscal year  (July 1-2011-June 30 2012),  state budget cuts had reduced the amount granted by the two programs to just over $20 million. (Note: Most CWMTF grant awards go to stream/wetland restoration, stormwater management and riparian buffer protection.  The state law creating the CWMTF only allows  grants for wastewater infrastructure needed to address a specific water quality problem.)

It isn’t clear  that  the two programs will have any  water and wastewater infrastructure grants to give in FY 2013-2014.   Governor Pat McCrory’s proposed budget  makes significant cuts to both agencies — reducing total appropriations for the CWMTF to $6.75 million in the first year of the biennium ($0 in the second year) and cutting the total Rural Center Budget from $16.6 million to $6 million. Given the other demands on those agencies, the budgeted amounts  do not allow for much — if any — future infrastructure funding.

The state has not issued bonds for water and sewer infrastructure since an $800 million bond issue in 1999; all of those funds had been committed by 2004.  Once the bond funds had been exhausted, direct appropriations to CWMTF and the Rural Center became the  only  source of state grant funding for water and  wastewater system improvements. The other major sources of  infrastructure funding  have been the Drinking Water and  Clean Water  revolving loan funds  managed by the Department of Environment and Natural Resources (DENR).  A much  smaller  amount of federal funding for infrastructure  comes through community development programs in the  Department of Commerce.

Grants provided through the Rural Center and CWMTF have filled needs that cannot  be met by the  DENR  revolving loan funds alone. Congress created the  state revolving funds (SRFs)  to help local governments meet the cost of complying  with Clean Water Act and Safe Drinking Water Act requirements — not to meet  all local infrastructure  needs. Both  the Drinking Water SRF and the Clean Water SRF (which funds wastewater projects)  are largely  capitalized by federal grants to the state. ( Each  federal  grant  requires a 20% state match.)    There are at least two major gaps in SRF funding:

1.  Under federal rules, the  SRFs  must be used to meet drinking water and water quality standards; generally,  SRF loans cannot be used for projects (such as water and sewer line extensions)   to serve new development projects.

2. All of the SRF awards are made in the form of loans and some low income communities  have a very limited ability to  take on more debt. In the last few years (starting with federal stimulus funding for water and sewer projects in 2009), many  SRF loans have included some amount of principal forgiveness — but the local government still has to qualify for the loan.

Grant funds provided through the CWMTF and the Rural Center  fill those gaps. Rural and economically distressed communities  can  reduce their  debt burden by using a grant as  part of a larger  project  funding package that also includes loan funds.  There has been  debate in recent years about how much state infrastructure funding should be made available as grants versus loans,  but  the mix  needs to include some amount of grant funding  for economically distressed communities and emergency projects.

The CWMTF and Rural Center grant programs also make funds available for  infrastructure projects that  are not eligible for SRF loans.  The  Rural Center’s Economic Infrastructure Program funds infrastructure needed to serve  new economic development projects —  such as extension of  water and sewer lines  to an industrial park. Many of those projects would not qualify for an SRF loan. The Rural Center has also provided grants for extension of water lines to  homes with contaminated drinking water wells. Making those projects happen can be very difficult since a water line extension to serve a small number of homes far from an existing line can be  prohibitively  expensive to the local government. In several cases,  grant funds from the Rural Center helped make those projects possible.

The state’s population continues to grow.  Existing water and sewer infrastructure continues to age.  Water and sewer service continues to be a necessary condition for much economic development.   A 2004  report issued as part of the Rural Center’s  Water 2030 Initiative  estimated that North Carolina communities would need  $15 billion  to cover  water and wastewater infrastructure needs between 2005 and  2030.  The most recent  needs survey of North Carolina  water and wastewater systems (used by Congress to predict demand on the state revolving loan funds) reached a similar estimate  —  $16 billion over the next 20 years.  Although  70% of the water and sewer projects in the state are funded by private borrowing,  a significant number of communities  rely  on  a combination of low interest loans and state grants to upgrade aging infrastructure and plan for growth.

The Governor’s  budget provides state match money needed for the next  round of federal  SRF awards, but eliminating funding for  state water and sewer infrastructure grants should not be an unintended casualty  of the budget process.