2001-08-30 Work Session
NEW HANOVER COUNTY BOARD OF COMMISSIONERSBOOK 28
WORK SESSION, AUGUST 30, 2001PAGE 755
ASSEMBLY
The New Hanover County Board of Commissioners held a Work Session on Thursday,
August 30, 2001, at 5:00 P.M. in the Assembly Room of the New Hanover County Courthouse, 24
North Third Street, Wilmington, North Carolina.
Members present were: Chairman Ted Davis, Jr.; Vice-Chairman Robert G. Greer;
Commissioner Julia Boseman; Commissioner William A. Caster; Commissioner Nancy H. Pritchett;
County Manager, Allen O’Neal; County Attorney Wanda M. Copley; and Clerk to the Board, Lucie
F. Harrell.
Chairman Davis called the meeting to order and reported that the purpose of the meeting was
to hear a financial analysis of combining City and County Water and Sewer utilities. He requested
Finance Director Bruce Shell to begin the presentation.
FINANCIAL ANALYSIS OF CITY-COUNTY WATER AND SEWER SYSTEMS
Finance Director Bruce Shell reported that in February the Wilmington City Council and the
New Hanover County Board of Commissioners adopted resolutions directing the City and County
Finance Directors to develop financial projections for separate and combined water and sewer utility
budgets. Since that time, estimates for a 10-year period have been developed. Capital project
expenditure projections include only those for new debt and debt service appropriations. Capital
project costs to be financed with existing capital reserve (available fund balance) are not reflected in
the projections. The percentage rate adjustments are not intended to represent a proposed fee
structure.
Finance Director Shell requested Deputy Finance Director Julie Griffin to present the financial
summary.
The following summary was presented:
County Customer Base:
There are 26,000 New Hanover County Water and Sewer District
customers representing17,700 sewer customers, 2,700 water customers, and 5,600 water and sewer
customers. During FY 2001, the District experienced a growth rate of 6%.
The City has approximately 37,000 customers, of which 12,500 customers are from the recently
purchased Dobo Systems.
Operations Summary:
Information was presented showing the revenues, including the ½ cent sales
tax revenue as well as operating expenses plus debt service. Since a majority of the ½ cent sales tax
has been transferred to the Environmental Management Department, only $1.1 million was budgeted
for FY 2001-2002, and the Water and Sewer District may have to rely on the fund balance if this
trend is not reversed.
Impact Fees:
Impact fees were implemented in the early 1980s when the District was established.
These fees were earmarked to fund construction of a Northside Wastewater Treatment Plant. In
December 19, 1995, the impact fee calculation was increased to collect more revenue to fund water
and sewer projects. The average revenue generated annually from collection of impact fees for the
past 15 years has been $1.9 million; however, this figure has decreased in the last two years, and it
is expected to continue to decline because of a slow down in development. Currently, the average
revenue received from the collection of impact fees is $1.1 million and the fund balance of the Water
and Sewer District as of June 30, 2001 is $17.6 million.
Economic Model:
This model was developed in 1995 by the Finance Staff and members of a Sewer
Task Force working together to formulate a priority list. Upon completion of the list, it was provided
to the Finance Department and it has been used since that time. When a project is approved, the
priority list is updated to show the projected cost of the project at the end of that fiscal year and for
the next 20 years. Current bond/installment debt service figures and debt service figures through FY
2011 were presented.
NEW HANOVER COUNTY BOARD OF COMMISSIONERSBOOK 28
WORK SESSION, AUGUST 30, 2001PAGE 756
A lengthy discussion followed on the loss of revenue from the transfer of the ½ sales tax to
the Environmental Management Department. Deputy Finance Director Griffin presented the history
of revenue generated from the transfer of the ½ sales tax and stressed the importance of this revenue
being transferred back to the Water and Sewer District to avoid the District running out of money
by 2012.
Finance Director Shell explained that the entire economic model is based on numerous
assumptions but the one variable that can be controlled is the revenue generated from the ½ cent sales
tax transfer. If the ½ cent sales tax is transferred back to the Water and Sewer District, the approved
priority list can be implemented. If the sales tax revenue is not returned to the District, projects will
have to be delayed.
Vice-Chairman Greer explained that a number of years ago when the first bond issue was
approved, it was believed that sufficient funding would be available to provide sewer to the
unincorporated county; however, this was not the case. In an effort to address these needs, a list of
priorities was developed, and it was felt that revenue generated from the ½ cent sales tax transfer and
collection of impact fees would allow the District to move forward with constructing water and sewer
projects as scheduled. With continued loss of revenue from operation of the solid waste disposal
program, revenue from the ½ sales tax had to be transferred to the Environmental Management
Department. If this revenue is not returned to the Water and Sewer District, it will not be possible
to complete the scheduled projects.
Deputy County Manager Atkinson advised that a large portion of the bond money was spent
on the northeast interceptor, which was a costly project. The consulting engineer at that time
prepared an economic model that projected sufficient funding for the sewer projects. Unfortunately,
these projections were wrong and there was not enough money to provide sewer to all areas in the
unincorporated county.
Discussion was held on the need to increase rates or find other sources of revenue. Deputy
Finance Director Griffin explained that the figures presented had included rate increases at 5% in FY
2003 and 3% each fiscal year thereafter.
In concluding the report, Finance Director Shell reported that the current financial situation
has been presented as well as the economic model. The intent was to make the Board aware of the
decisions that will have to be made regarding the financial condition of the Water and Sewer District.
The economic model is flexible and can be designed to fit the policies approved by the Board of
County Commissioners.
COMBINED FINANCIAL ANALYSIS OF CITY AND COUNTY WATER AND SEWER
UTILITIES
Finance Director Bruce Shell advised that the financial analysis being presented had already
been presented to the Wilmington City Council for discussion.
The following report was presented:
Future Development:
The New Hanover County Water and Sewer District has a 20-year economic
model and the City has a 10-year economic model. To be consistent, the Water and Sewer District
model was cut back to 10 years for preparation of the financial analysis for a combined City and
County water and sewer service.
Future Development in 10 Years
County$132 million
City 55 million
*County projects consists of the following:
Brierwood/Weaver Acres $ 4,266,000 2002
Middle Sound 13,500,000 2002
NEW HANOVER COUNTY BOARD OF COMMISSIONERSBOOK 28
WORK SESSION, AUGUST 30, 2001PAGE 757
Wrightsboro Water System 3,000,000 2003
Water Treatment/Well Field 12,000,000 2003
Kings Grant 15,000,000 2003
Castle Hayne 7,400,000 2004
Northside Wastewater Treatment Plant 20,000,000 2004
Wrightsboro 10,600,000 2004
Southside Wastewater Treatment Plant 15,500,000 2005
Motts Creek 14,700,000 2007
Kings Grant 13,900,000 2010
Silva Terra 2,500,000 2011
Total $132,366,000
*City projects consists of the following:
Northside Wastewater Treatment Plant$ 22,000,000 2002
Annexation Distribution Lines 8,000,000 2002
Southside Wastewater Treatment Plant 15,000,000 2004
Sweeney Water Plant Expansion 10,000,000 2005
Total$ 55,000,000
Rate Impacts:
If City and County water and sewer services are combined with limited use of the
sales tax transfer, rates will have to be increased over a period of 10 years by 48% as shown on
Attachment F. If full use of the sales tax transfer is used, the rates will increase 24% over a period
of 10 years as shown on Attachment D.
Vice-Chairman Greer expressed concern for the 48% increase in rates being misleading and
stated that rates per year should not increase more than 3.5% to 4% compounded over a 10-year
period. He stressed the importance of the public understanding that combining the two systems will
not suddenly increase water and rates by 48%. He also noted that the public should understand that
if the two utilities are not combined, major projects already approved by the City and County will still
have to be paid by the City and County as separate entities.
Combined Utility:
A combined City and County Utilities System could be accomplished by an
interlocal agreement whereby the City and County would operate a new public entity that could be
a separate governing body. The use of language referring to a separate governing body means that
the governing body of the new public entity can be structured in a number of ways with the
appointment of members by the City Council and Board of County Commissioners.
Restructured Service Area:
Two service areas could be established, one for the City and one for
the unincorporated area of the County. Under the service area concept, the City would have
financial, operational, and regulatory responsibility for all water and sewer services in the City, and
the County would have the same responsibility for utilities in the unincorporated area of the County.
This would simplify billings to customers and reduce billing costs.
If the County moves forward with combining the utilities, the priority projects on the District’s list
will have to be addressed at some point. If the option is selected to place all the sales tax revenue into
water and sewer under a consolidated entity, this action will create a loss of flexibility in paying for
future County projects. Currently, $2 million of the ½ sales tax is going into the General Fund for
other purposes. If these funds are removed, this will impact the property tax rate.
In concluding the presentation, Finance Director Shell offered to answer questions, and he
requested the Board to review the information presented in the financial analysis.
After commenting on a sense of equity, Commissioner Caster said that he felt the two utilities
should be combined. He also requested an explanation of how the City would have financed the
Kings Grant area project if they had been approached to provide water and sewer services.
NEW HANOVER COUNTY BOARD OF COMMISSIONERSBOOK 28
WORK SESSION, AUGUST 30, 2001PAGE 758
Finance Director Shell responded that the City has the option to assess each property owner;
however, the City has accumulated a significant water and sewer enterprise fund balance over a
period of years that has been used for annexation purposes.
Commissioner Caster asked if the City would have required the residents of Kings Grant to
pay for construction of water and sewer lines.
County Engineer Blanchard responded that he was not sure how the City would have financed
the project for the Kings Grant area; however, the areas annexed since areas A and B in Pine Valley
have involved the Water and Sewer District. The City is now providing sewer to Masonboro Sound
Road and once this work is completed, it will be turned over to the District as required under the
interlocal agreement. The purpose of this requirement is to avoid having a street that receives water
and sewer services from the District and City with two separate billings.
Commissioner Caster noted that this was another reason why the two utilities should be
combined. He advised that good financial data has been prepared by the City and County Finance
Directors and stated that the next step will be up to the City Council and Board of County
Commissioners.
County Manager O’Neal advised that a great deal of time has been spent by Finance Director
Bruce Shell, City Finance Director Brent McAbee, and Deputy Finance Director Julie Griffin to
prepare the financial analysis. No direction is being requested from the Board. The data presented
demonstrates the need to restore the sales tax funding to the Water and Sewer District. The next two
budget years will be critical for the Water and Sewer District, and the Board will be faced with
difficult decisions, particularly when neighborhoods request services and funding is not available to
respond to these needs.
Commissioner Caster requested Staff to compare water and sewer rates with similar areas
throughout the State to determine what is a reasonable rate.
County Manager O’Neal responded that this would be good information; however, due to the
number of variables that have to be considered, such as the age of the system, water quality, distance
between homes, etc., it will be difficult to compare rates.
After further discussion, the Commissioners requested County Manager O’Neal to compare
rates with similar cities and counties and report back to the Board.
A copy of the financial forecast and attachments presented are hereby incorporated as part
of the minutes and are contained in Exhibit Book XXVII, Page 5.
ADJOURNMENT
Chairman Davis adjourned the meeting at 6:30 P.M.
Respectfully submitted,
Lucie F. Harrell
Clerk to the Board