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.
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.