1998-06-01 Water & Sewer
NEW HANOVER COUNTY WATER AND SEWER DISTRICTBOOK II
REGULAR MEETING, JUNE 1, 1998PAGE 435
ASSEMBLY
The District Board of Commissioners of the New Hanover County Water and Sewer District
met in Regular Session on Monday, June 1, 1998, at 9:02 p.m. in the Assembly Room of the New
Hanover County Courthouse, 24 North Third Street, Wilmington, North Carolina.
Members present were: District Commissioners Buzz Birzenieks; Ted Davis, Jr.; Charles R.
Howell; Vice-Chairman Robert G. Greer; Chairman William A. Caster; County Manager Allen
O’Neal; Assistant County Attorney, Kemp Burpeau; and Clerk to the Board, Lucie F. Harrell.
Chairman Greer called the meeting to order.
NON-AGENDA ITEMS
Chairman Greer announced that time had been reserved for anyone from the public to present
an item that was not listed on the regular agenda. He requested all persons to limit their remarks to
three minutes.
No items were presented.
APPROVAL OF MINUTES
Chairman Greer requested the Clerk to the District Board to correct the figure on Page 4, the
third paragraph from the bottom, from $500 to $650.
Motion:
District Commissioner Birzenieks MOVED, SECONDED by District Commissioner Caster
to approve the minutes of the Regular Meeting of May 18, 1998 with a correction to the rental figure
from $500 to $650. Upon vote, the MOTION CARRIED UNANIMOUSLY.
PRESENTATION OF PROPOSED CONVEYANCE OF CAPE FEAR UTILITIES TO THE
NEW HANOVER COUNTY WATER AND SEWER DISTRICT
Mr. Kenneth Shanklin, the attorney representing Cape Fear Utilities, reported three years of
work has been involved with conveying Cape Fear Utilities to the New Hanover County. The owners
of Cape Fear Utilities, Bob and Bill Dobo, want to give the entire water system, valued over $22
million, to a charitable trust. The beneficiaries will be the University of North Carolina at
Wilmington, North Carolina Zoo, North Carolina Aquarium, Salvation Army, University of North
Carolina Memorial Hospital, and the entity that acquires the system as a charitable entity.
Internal Revenue Service (IRS) concerns have been resolved to allow the money to remain
in New Hanover County. This was accomplished by obtaining a private letter of ruling that will
permit the trust to be created, transfer the stock of the corporation into the trust, and allow the Dobos
to receive income from the trust. The remaining corpus will be divided among the charities. The
proposed offer is a large gift to New Hanover County and the State of North Carolina.
In closing, Mr. Shanklin advised that Cape Fear Utilities was ready to move forward to
receive any proposals made by the Board of County Commissioners on behalf of New Hanover
County to acquire the water systems.
NEW HANOVER COUNTY WATER AND SEWER DISTRICTBOOK II
REGULAR MEETING, JUNE 1, 1998PAGE 436
District Commissioner Davis spoke on needing to understand the offer and he requested an
explanation as to how the money will be disseminated once the systems are purchased by the
governmental entity?
Attorney Shanklin advised if the County makes an offer to purchase the water systems, the
financing would probably be through Certificates of Participation (COPS). The income from the
COPS would be placed into the trust. The trust would distribute the income to the Dobos and their
spouses for the remainder of their lives. Once these designated persons die, the corpus at that time
would be distributed to the charitable entities.
Commissioner Birzenieks asked if the charities involved were aware of the trust?
Attorney Shanklin responded the charities were aware of the trust and participated in
obtaining the private letter of ruling request. During the struggle with the IRS, Chairman Greer and
Chancellor James R. Leutze wrote letters of support. The concept is novel; however, the situation
has been resolved.
Vice-Chairman Greer asked how much of the $22 million would come back to the State of
North Carolina?
Attorney Shanklin responded the entire $22 million would be returned to the citizens of the
State of North Carolina, New Hanover County, and the charitable entities. He advised the trust was
created to avoid income tax at the federal level.
Vice-Chairman Greer asked if the shares of one entity in the trust would decrease more than
another share?
Attorney Shanklin responded once the trusts are established, the income will be distributed
to the income beneficiaries (the Dobos). The corpus can increase or decrease depending on the stock
market. The monies will be invested in sound investments. The percentages will be determined at
the time of closing by the governmental entity, at which time the component shares of the entities will
be established.
Vice-Chairman Greer asked what the percentage would be for the entity who purchased the
water systems?
Attorney Shanklin responded that once the trusts are established after the approval of the
Utilities Commission, an independent trustee will be appointed, who will probably be Attorney Gary
Trawick, a former Superior Court Judge in Burgaw, N. C. Attorney Trawick will be the person to
decide on the terms and conditions. At this time, the percentage to be returned to the purchaser is
estimated at $10,000 million.
Assistant County Attorney Burpeau explained that when the offer of purchase is prepared,
the County can set forth the proposed term of the percentage in the resolution. The percentage can
NEW HANOVER COUNTY WATER AND SEWER DISTRICTBOOK II
REGULAR MEETING, JUNE 1, 1998PAGE 437
be 50%, 75% or 80%. The trustee will decide whether to accept the percentage offered by the
County.
Attorney Shanklin advised the owners will need to know the minimum proposal before the
trust is set up because the trust is irrevocable. The Board was requested to submit a proposal this
month so the trust can be established by July 1, 1998, with approval by the Utilities Commission.
District Commissioner Caster asked if the percentage established by the Board of County
Commissioners would determine the percentage to be received by the other entities?
Attorney Shanklin responded if the County establishes a 50% figure, the remaining entities
would receive certain component percentages. The trust will determine how the monies are to be
used locally. For example, the money received from the trust by the Salvation Army, N. C. Aquarium
and UNCW must be used locally.
District Commissioner Caster asked who would determine the percentages received by
UNCW and the other entities?
Attorney Shanklin responded that Bill and Bob Dobo would determine the percentages;
however, based on the information received, it will be the largest donation ever received by UNCW.
Further discussion was held on the money that will be received locally. Attorney Shanklin
explained the owners are giving the money back to the local community and retaining a portion of
the income to support themselves and their spouses for the remainder of their lives. The income
stream under IRS requirements must be defined in one of two prescribed ways, which means there
is no room to maneuver once the trust is set up. For example, if the trust is set up to have 6% of the
initial value of the trust paid to Bill and Bob Dobo as income for life, no additional money would be
paid to the owners. If the trust is set up to pay a percentage of the value of the trust as revalued
every year, then a fixed percentage would be established at the beginning of each year. The purpose
is to ensure that the principal amount is reserved for ultimate distribution to charities. In addition,
an agreement entered into with IRS will allow the money to be left in the local economy in lieu of
paying federal income tax, which would be approximately 40% of the trust. The agreement was
structured for the income paid out to be entirely funded by the operating revenues of Cape Fear
Utilities. This means the purchaser would not have to use taxpayers money to fund anything. The
money should be net gain to the County at no expense.
Chairman Greer asked if any of the purchase price could be financed?
Mr. Doug Duncan, an attorney representing Cape Fear Utilities, responded the County will
probably finance the entire purchase price through the use of COPS. The debt service would be
entirely funded by the operating revenue of Cape Fear Utilities.
Chairman Greer asked if the seller could finance a portion of the purchase price?
NEW HANOVER COUNTY WATER AND SEWER DISTRICTBOOK II
REGULAR MEETING, JUNE 1, 1998PAGE 438
Mr. Duncan explained the seller could finance a portion of the purchase price. He advised
that discussion has been held with the County’s bond counsel and staff about opportunities to
structure an agreement in multiple ways. For example, it might be attractive for the County to
propose that the portion of the purchase price will ultimately find its way back to the County as a
charitable beneficiary, which could be represented in whole and in part by COPS that would be held
by the trust and returned to the County at the end the trust term.
Chairman Greer stated he felt the arrangement presented by Mr. Duncan would be an
advantage to the County.
Consensus:
It was the consensus of the District Board to take action at the July 13, 1998, meeting.
APPROVAL OF CHANGE ORDER NUMBER 1 TO T. A. LOVING, INC. CONTRACT #97-
0362A FOR CONSTRUCTION OF BRANDYWINE SEWER SYSTEM
County Engineer, Wyatt Blanchard, reported on October 7, 1996, the District Board
instructed staff to prepare plans and obtain a permit for construction of the Brandywine sewer system.
With the permit in hand, we obtained quotes from two (2) contractors, presently under contract with
the District for construction of the system. Staff felt that time and money would be saved by
approving a change order to T. A. Loving, Inc. for construction of the system.
The following proposals were received:
T. A. Loving, Inc.$157,400
State Utilities$185,980
Motion:
District Commissioner Howell MOVED, SECONDED by District Commissioner Birzenieks
to approve a change order in the amount of $157,400 to the contract with T. A. Loving, Inc., the
lowest bidder. The Chairman was authorized to execute the necessary documents. Upon vote, the
MOTION CARRIED UNANIMOUSLY.
A copy of the change order is on file in the Legal Department.
AWARD OF LEASE AGREEMENT #98-0373 TO TELESPECTRUM, INC. FOR ANTENNA
SPACE ON THE NORTHCHASE WATER TANK
County Engineer, Wyatt Blanchard, reported no response was received from the individual
who spoke at the last meeting; therefore, he would recommend award of the lease agreement to
Telespectrum, Inc. for space on the NorthChase water tank for antennas. The term of this contract
is twenty (20) years with the right to renew for two additional five (5) year terms.
The proposed rent for the first 5-year term will be $650. The rent for the renewal period shall
be equal to the rent paid for the immediate previous term increased by no more than 15%.
NEW HANOVER COUNTY WATER AND SEWER DISTRICTBOOK II
REGULAR MEETING, JUNE 1, 1998PAGE 439
Motion:
District Commissioner Birzenieks MOVED, SECONDED by District Commissioner Howell
to approve the lease agreement with the terms and conditions as recommended in the agreement. The
Chairman was authorized to execute the necessary documents. Upon vote, the MOTION CARRIED
UNANIMOUSLY.
A copy of the lease agreement is on file in the Legal Department.
ADJOURNMENT
Motion:
District Commissioner Birzenieks MOVED, SECONDED by District Commissioner Howell
to adjourn. Upon vote, the MOTION CARRIED UNANIMOUSLY.
Chairman Greer adjourned the meeting at 10:05 p.m.
Respectfully submitted,
Lucie F. Harrell
Clerk to the District Board