AshevilleWaterSystem

LegalBackground
Ashevillehasbeentheobjectoflegislationandcourtrulingsgoingbackto1933.Thecityacquiredwater
assetsbywayofinvoluntaryannexation,eminentdomain,deedtransfer,contractualobligation,exaction,
consolidation,andcreativefinancing.

SullivanActs

HouseBill931/Chapter399ofthe1933PublicLocalLaws
:SullivanActI.(pages422423,
documentpages376377)
HouseBill1065/S.L.2005140
:SullivanActII.Sponsors:Sherrill(D),Fisher(D),Goforth(D).
HouseBill1064/S.L.2005139
:SullivanActIIIAshevillePublicEnterprises.Sponsors:Sherrill
(D),Fisher(D),Goforth(D).

LawAffectingSullivan

HouseBill702/S.L.2009114
:AmendmentstotheSullivanAct.Sponsors:Goforth(D),Whilden
(D),Fisher(D).Companion:SenateBill552:Sponsors:MartinNesbitt(D).
HouseBill252/S.L.201365
:AshevilleTransfers.(repeals
SullivanActIII
).Sponsors:Moffitt
(R),Ramsey(R),McGrady(R).
HouseBill1113/S.L.201451
:BentCreekPropertySullivanActExemption.Sponsors:McGrady
(R),Fisher(D),Moffitt(R),Ramsey(R).

Unratified

HouseDRH50265LB103C(2/21)
:SullivanActII(Draft)2005.Sponsors:Sherrill(D),Fisher
(D),Goforth(D).

Lawsuits

ThisistheTHIRDtimetheCityofAshevillehaslostincourtoverthewatersystem.

1. Candlerv.Asheville(1958).Status:Lost.
http://bit.ly/1NnG8lp
2. Ashevillev.State(2008).Status:Lost.
http://bit.ly/1Ll0Ifv
3. Ashevillev.State(2013).Status:Lost.
http://bit.ly/1Q5E1jK

Ownership
TheCityofAshevillecannotproperlyclaimownershipofthewatersystemitischargedtooperate.

AshevilleCityCouncilResolutionNo.1236
(February14,2012)acknowledges,"Thewatersystemisa
publicassetheldbytheCityofAshevilleforthebenefitofitscitizensandregionalcustomers."

TheCityhaspresentedtothecourttheprocessoftheacquiring
acatalogofwatersystemassets
in
differentwaysatdifferenttimes.Atonepoint,thewatersystemassetswere
conveyedp
iecemealtothe
City.Atanother,theCitystaxpayers
investedi
ntheassetsfromthebeginning.

ThecourtistoldthatthewatersystemassetsareconveyedtoAshevilleafteralongsequenceof
incrementalplanning,developmentandinvestmentbyvariousentities.Then,thecourtisgiventhe
impressionthatwatersystemassetsaroseandwereamassedfromthebeginningatthedirectionofa
singleagency(theCity)andacquiredthroughthepurchaseofitstaxpayers.

1. OriginalComplainttotheSuperiorCourt
(5):Theacquisition,construction,expansion,upgrade,
andreplacementofthecapitalassetsoftheAshevilleWaterSystemhavebeenfinancedfroma
combinationoftheoperatingrevenuesofthesystem,fromgrantsandloansmadetoAshevilleby
federalandstategovernments,fromgeneraltaxrevenuesoftheCity,andfromtheproceedsof
generalobligationandrevenuebondsissuedbyandinthenameofAsheville.Additionally,some
distributionlinesandotherfacilities(including21identifiedpumpstationsandrelatedstorage
tankfacilities)havebeenconstructedbyothergovernmentalentities,suchasBuncombeCounty,
andbyprivateentitiesandthereafter
conveyed
toAsheville.
2. AppellateBrieftoCourtofAppeals
(3):"TheWaterSystemhasbeenbuiltandmaintainedover
thepastcenturyusinga
combination
oftaxes,servicefees,connectioncharges,bondeddebt,
variousfederalandstategrants,contributionsfromBuncombeCounty,andconveyanceby
dedicationordeedfrompropertyownersanddevelopers."
3. NewBriefthetheSupremeCourt
(7):ThetaxpayersoftheCityhave
invested

inthewater
system'sproprietaryassetsovera130yearperiod.Theseassetsinclude:a17,000acrewatershed
ofprotectedforestlands,threewatertreatmentplantsthatcansupplyoverfortymilliongallons
ofwaterperday,twolargeimpoundmentreservoirs,twentyninereservoirsfortreatedwater,
fortypumpingstations,otherequipmentandfacilities,and1660milesofdistributionlines.

TheoriginalbriefclearlydescribesthevariouswaysinwhichassetswereconveyedtotheCityovertime,
whereasthenewbrieffindsthetextalteredinapeculiarway,seemingtosuggestthatcitytaxpayers
intentionallyinvestedinthewatersystemsassetsfrom1886uptothepresenttime.

ItwouldbepresumptuousoftheStatetoinferthatthealteredtextfromanearlierpresentationtothe
courttotheonecontainedinthecurrentpresentationisdesignedtocreateadifferentpictureofthe
processinthemindofthecourtintheCityspursuitofafavorableruling.Butthechangeofframefrom
oneversiontothenextpresentsacuriosityandtheStatefailsinitsdutytoassumethisshiftinemphasis
hasescapedthecourtsnotice.

ConveyanceorCapture
Initsoriginalbrief,theCitytellsthecourtthattheproprietaryassetsofthewatersystemitclaimstoown
werelargely
acquired
throughthelegalmeansofannexation,eminentdomain,deedtransfer,tax
revenues,bondissuanceandoutsidegrants.

Whileitiscertainlytruthfultousethevalueneutraltermconveyancetocharacterizethesetypesof
acquisitions,thetermthatseemstoexpresstheirmoresalientaspectwouldbecapture.

InvoluntaryAnnexation
WatersystemassetshavebeencapturedbytheCitythroughthe
thenlegalmechanismofinvoluntary
annexation
.

Theappealscourtrulingin
Ashevillev.State(2008)
states,in1960,Ashevilleannexedportionsofthe
territoryoftheoriginalwaterdistrictsandtherebyassumed$396,000.00inbondedindebtednessasa
proratashareoftheexistingprincipalbalancefromthewaterdistrictsforareasannexedintoAsheville
thatyear.AccordingtoJackson,[w]henAshevilleandBuncombeCountydefaultedontheirbonded
indebtednessduringtheGreatDepression,thewaterdistrictindebtednesswaspartoftheconsolidated
indebtednessthatwasrefinancedthroughrefundingbonds
Th[is]debtwasfinallypaidoffin1976.

EminentDomain
WatersystemassetshavebeencapturedbytheCitythroughtheprocessofcondemnation,eminent
domainanddiscountedpurchase.

TheWaterAgreementof1995
,SectionIII,Chapter3,makesreferencetolandacquiredinHenderson
CountybytheCitythrougheminentdomainfortheplacementofwaterintakes,waterstorage,a
treatmentplantandotherwatertreatmentfacilities.Chapter3.1furtherstatesthattheseWaterPlant
Sitesandimprovementstheretoalongwithwaterlinesordistributionlines,pumpstationsandother
relatedequipmentorfacilities...shallbe...consideredpartofthewatersystemoftheCityofAsheville

ThestoryoftheeminentdomainacquisitionoftheNorthForkValleywatershedpropertyandthe
displacementofthesettlershomesteadingthereischronicledin
Now&ThenMagazine,Vol.30,No.1,
"ThisWasOurValley:TakingAsheville'sWatershed"
page68.

"But,still,in1926,W.H.andElsieBurnettandtheirneighborsreceivedanoticefromAsheville'sChiefof
Policethatsixjurorshadbeenselectedtodetermineafairpurchasepricefortheirland.Soonafter,the
Burnettswerewarnedthattheir183acreshadbeencondemned.ThoughthecitygaveNorthFork's
familiesafairpricefortheirland,mostlostthemoneywhentheDepressionhitafewyearslater."

DeedTransfers
WatersystemassetshavebeencapturedbytheCitythroughthedeedtransfersoflocalgovernments.


TheBuncombeCountyBoardofCommissionerspassed
Resolution120506
(May15,2012)grantingthe
ChairmanoftheBoardofCommissionersauthoritytodeed...allcountyownedwaterassetstotheCityof
AshevillewhichauthorizedtheChairmantoexecuteanonwarrantydeedtotheCityofAshevilleto
transferallCountyownedwaterlines,hydrants,valves,metersandmaintenanceeasementstotheCity
ofAsheville.ThedeedtransferwasexecutedbyaninstrumentoftransferonJune5,2012.

Contract
WatersystemassetshavebeencapturedbytheCitythroughcontractnegotiations.

Inthepreambletothe
WaterAgreementof1995
,itstatesthattheAuthorityasajointagencymaynot
ownrealpropertyandtitletorealpropertyacquiredbytheAuthorityhasbeenvestedinAsheville.And
inSectionVIII,paragraph8,itstatesthatallRegionWaterLinesinstalledattheAuthorityand/or
AshevillestotalorpartialexpenseshallbetitledinandremainthepropertyofAsheville.

Exaction
WatersystemassetshavebeencapturedbytheCitythroughexaction.

TheCityhaspurchasedorimprovedwatersystempropertiesthroughthedebtinstrumentsobligating
ratepayers.Theissuanceofrevenuebondsispredicatedontheirrepaymentthroughfutureservice
chargestowatercustomers.TheentityofAshevilleiscreatedasamunicipalcorporationinorderto,
amongotherthings,legallyholdtitletoproperties.Watersysteminfrastructureexpendituresand
improvementsaremadeontheconditionthattitletothosepropertiesareconveyedtotheCity.

Therefore,ownershipofassetsisderivedfromtheconditionalexpenditureoffuturesystemrevenues.In
otherwords,watercustomersarepayingforthepublicutilitythatservestheminexchangeforlaying
transferofsystemassetstoanagencythatisinturnwhollycreatedbytheState.Theagencyinthiscaseis
theCityofAshevillewhoassertsownershipofassetsbyvirtueofitstangentialinvestmentinthesystem.
Thisownershipcapacityisrequiredby"
TheStateandLocalGovernmentRevenueBondAct
."
G.S.15981
states,"Arevenuebondprojectshallbeownedorleasedaslesseebytheissuingunit"

Asifthematterwerenotconvolutedenough,insomecasescertainRefundingBondswereissuedforthe
expresspurposeofpayingoffdebtincurredfromearlierbondissuances.

IntheJune30,2013
CityofAshevilleComprehensiveAnnualFinancialReport(CAFR)
itisreported,"In
2005,theCityadvancerefunded$42,960,000inWaterRevenueBonds,Series1996and2001,byplacing
theproceedsoftherefundingbondsinanirrevocabletrusttoprovideforallfuturedebtservicepayments
ontheoldbonds."

CityofAshevilleOrdinanceNo.237,asdocumentedin
20120123B.LongBuncombeCo.Water
Presentation
beforethelegislaturesMetropolitanSewerage/WaterSystemCommittee(17)state,"The
WaterRefundingBondsshallbeissuedforthepurposeofrefundingalikeprincipalamountof
outstandingwaterdebt."

Consolidation
WatersystemassetshavebeencapturedbytheCitythroughconsolidationofexistingwaterdistrictsin
BuncombeCounty.

OriginalComplainttotheSuperiorCourt
(5)statesthatsomedistributionlinesandotherfacilities
(including21identifiedpumpstationsandrelatedstoragetankfacilities)havebeenconstructedbyother
governmentalentities,suchasBuncombeCounty,andbyprivateentitiesandthereafter
conveyed
to
Asheville.

Investment
Investmentsinwatersysteminfrastructurehavehistoricallybeensecuredthroughtheinstrumentof
revenuebondswhichmeansthewatersystemcustomers(ratepayers)aretheobligorsandnottheCity
taxpayer.Atnotimehavethetaxpayerssufferedindebtednessorbeenplacedatriskofobligationto
repay.

RevenueBonds
Ina
January23,2012presentationtocitycouncil
(52),theWaterResourcesDepartmentdocumentsthe
bondissuancesbyyearandamountfrom1890to2007.(Note:omittedareSeries2005RefundingBonds)

Notethatthebondsincludedinthelistabovearedescribedasvoterapproved.OnlyGeneralObligation
Bondsaresubjecttovoterapproval.See
NCConst.Art.5,Sect.4(2)
:TheGeneralAssemblyshallhaveno
powertoauthorizeanyunitoflocalgovernmenttocontractdebtssecuredbyapledgeofitsfaithand
creditunlessapprovedbyamajorityofthequalifiedvotersoftheunit...Thevoterreferendum
requirementonlyapplieswhenaunitpledgesitstaxingpowerassecurityforitsloan.

Thoughrevenuebondsarenotsubjecttovoterapproval,
theymustbeapprovedbytheNCLocal
GovernmentCommission
(LGC)beforealocalgovernmentresolutioncanbeadoptedthatauthorizes
issuingtheBondOrder.

G.S.15951
(ApplicationtoCommissionforapprovalofbondissue)statesthat"Nobondsmaybeissued
underthisArticleunlesstheissueisapprovedbytheLocalGovernmentCommission."


Establishedin1931under
G.S.1593
,the
LocalGovernmentCommission
hasasitsprimarymissionthree
areasofresponsibilityandauthority:First,aunitofgovernmentmustseekLGCapprovalbeforeitcan
borrowmoney.Inreviewingeachproposedborrowing,theLGCexamineswhethertheamountbeing
borrowedisadequateandreasonablefortheprojectsandisanamounttheunitcanreasonablyaffordto
repay.Second,onceaborrowingisapproved,theLGCisresponsibleforsellingthedebt(orbonds)onthe
unitsbehalf.Third,theLGCstaffregulatesannualfinancialreportingbyoversightoftheannual
independentauditingoflocalgovernments,bymonitoringthefiscalhealthoflocalgovernmentsandby
offeringbroadassistanceinfinancialadministrationtolocalgovernments.

ThevoterapprovalrequirementcanbeasignificanthurdletoissuingGObonds...Thus,althoughissuing
GObondsisthesimplestformofborrowing,andgenerallythecheapest,localunitsoftenlooktooneof
theotherauthorizedborrowingmechanismstoavoidthevoterapprovalrequirement.[KaraA.Millonzi.
"CountyandMunicipalGovernmentinNorthCarolina."UNCChapelHillSchoolofGovernment.Chapter
21:FinancingCapitalProjects,page364.]

SarahCurrynotes,NorthCarolinamunicipalitiesandcountiesissuedebtorbondstopayforspecific
projectssuchasschools,jails,countyormunicipalbuildings,libraries,watertreatmentplants,streets,
andsidewalks,amongotherthings.Historically,alldebtissuedbylocalgovernmentswasvotedonin
referendaandissuedasGeneralObligationbonds.Overtime,localgovernmentsthroughoutNorth
Carolinafoundwaystoincurmoredebtthrougheasierandfastermethodsthanthetraditionalbond
referendum.Manystartedbymovingawayfromthetraditionofvotingonbondsduringnormalelections
andtowardslesspopularelectiontimessuchasprimariesorspecialelections.Intheearly2000s,state
legislationwaspassedthatallowedlocalgovernmentstousemethodsofborrowingmoneywithoutasking
fortheapprovalofvotersandtaxpayers.Thatlegislationhascausedalackofaccountabilityand
transparencywhenitcomestolocalgovernmentdebt.Today,manyofthelargecitiesinNorthCarolina
haveahigherrelianceonnonvoterapproveddebtthanonvoterapproved.Asoftheendoffiscalyear
2012,thecitiesofRockyMount,Jacksonville,andConcordonlyhadnonvoterapproveddebtintheir
financialreports.ThecityofAshevillehasusedover
onehundredtimesmore
nonvoterapproveddebt
thanvoterapproved.[emphasisadded][Curry,Sarah."LocalGovernmentDebtIncreasing,and
SometimesWithoutVoterApproval."JohnLockeFoundation.January14,2014.
bit.ly/1RhbREd
]

Amunicipalityissuingrevenuebondstofundanexpansiontoitswatersystemisprohibitedfrom
repayingtheloanwithgeneralfundmonies.
G.S.15994
specifiesthatonlythepledgedrevenuesmaybe
usedtomeetaunitsdebtserviceobligationsonrevenuebonds.(Note,however,thattheCitymay
appropriategeneralfundmoniestocoverenterpriseoperatingexpenses,therebyfreeingupthepledged
enterpriserevenuetobeusedtomakethedebtpayments.)

Theprimarysecurityforarevenuebondistherevenuegeneratedbythefinancedassetorthesystemin
whichthefinancedassetbecomesapart.Bylawsuchapledgecreatesalienonthepledgedrevenuesin
favorofthebondholders.[Millonzi,Kara."SecurityforaLocalGovernmentLoan."Coates'Canons:NC
LocalGovernmentLaw.January27,2014.
http://canons.sog.unc.edu/?p=7492
]

G.S.15994
(LimitedLiability)states,"Every
revenuebond
shallreciteinsubstancethattheprincipalof
andinterestonthebondispayablesolelyfromtherevenuespledgedtoitspaymentandthattheStateor
themunicipality,asthecasemaybe,isnotobligatedtopaytheprincipalorinterestexceptfromsuch
revenues."

TheCitysoriginal
complaint
toSuperiorCourtmakesnumerousreferencestothewatersystemsreliance
onfinancingthroughrevenuebondsforitsexistenceandimprovement:

1. Paragraph5statesthatAshevilleissuedRevenueBondsforinvestmentinthewatersystem.
2. Paragraph24statesthatthedebtincurredfromtheissuanceoftheRevenueBondswasintended
tofinancecapitalexpendituresforthewatersystem.Paragraph24citestheauthorityforissuing
thebondsas
Article5ofChapter159
,RevenueBonds.Paragraph24statesthatAshevilleisthe
obligoroftheRevenueBonds.
3. Paragraph30statesthatabonddefaultwouldobligatetheCitytopaydebtincurredbyissuing
theRevenueBondsinfull,presumablyoutoftheCitysGeneralFundasopposedtofuture
systemgeneraterevenue,and,therefore,damagetheCityscreditrating.Thusacknowledging
thattheCitynotinvestedinthesystemwithCityfunds,butwithcustomerfunds.
4. Paragraph61statesthattheStatesactionputstheCityatriskofexposurebypotentially
impairingitsabilitytoperformagainstissuanceofRevenueBonds.
5. Paragraph62emphasizesthattheCityissubjecttotheprovisionofthestatestatutegoverning
RevenueBonds.
6. Paragraph63clearlystatesthatthebondsthatareatriskareRevenueBondsandthattheCityis
deservingofprotectionfromdefault.
7. Paragraph64indicateshowtheStatesactioncouldjeopardizetheCitysperformanceagainstthe
RevenueBonds.
8. Paragraph65contemplateshowtheCitytaxpayerscouldbeatriskintheeventofdefaultonthe
RevenueBondsandhowthismightpresumablyimpactboththeCityandthewatersystem.
9. Paragraph74,75,&76reiteratethatadefaultontheRevenueBonds,causedbytheStatesaction,
wouldexposetheCitytofinancialriskandtherebyimpairtheCityscreditworthiness.

Additionally,
AshevilleCityCouncilResolutionNo.1236
(February14,2012)states,"since1991,theCity
hasissuedover$100millioninrevenuebondsandotherfinancingfortherepair,maintenance,and
improvementofthewatersystem,including$39millionin2007."

In
Candlerv.CityofAsheville
(1958),thecourtrulingstated,Ashevillecontributednothingtothe
constructionofthesesystems,neitherdoesitcontributeanythingtothecostofrepairingandmaintaining
them.Ashevillerendersnoserviceexcepttopumpthewaterintothewatersystems,readthemeters,
whichitdidnotfurnishanddoesnotservice,andtobilltheconsumers.Andthesameholdstruetoday,
manymillionsofdollarslater.TheCitycontinuesputtingwatercustomersindebttofinancewatersystem
improvementswhilepubliclytakingcreditandclaimingownership.

However,theCityhascontinuallyreferredtotheRevenueBondsinpublicdocumentsandstatements
simplyasthebonds,orfundingthecityhasinvestedinthesystem,withoutexplicitlydisclosingtheir
truenature.Thiscouldhavethemistakeneffectofleadingreaderstoassumethatborrowingagainstthe
bondsorinvestmentsmadeinthesystemderivefromtheCitysgeneralfundandthatthetaxpayersare
therebyindebted.

Forexample,ina
lettertoGovernorPatMcCrory
(January11,2013),MayorTerryBellamysays,
wehave
invested
morethan$70millionincapitalinfrastructuresinceFY200506(aftertheWaterAgreement
wasdissolved),twoandahalftimesmorethantheprevioussixyears.Weproject$125.9millioninsystem
improvementsoverthenexttenyears.

Revenuebondsdonotencumbercitytaxpayersandtoimplyotherwise,orleavetheimpressionthatcity
investmentshavebeenmade(wehaveinvested),islessthanentirelyforthcoming.


GeneralObligationBonds,incontrast,arebackedbackedbythefullfaith,creditandtaxingpowerofthe
City,ensuringtherewouldbenodefaultondebtservice.Fullfaithandcreditisaphraseusedto
describetheunconditionalguaranteeorcommitmentbyoneentitytobacktheinterestandprincipalof
anotherentitysdebt.Itexpressesthecommitmentoftheissuer(theCity)torepaythebondsfromall
legallyavailablefunds,includingagoodfaithcommitmenttouseitslegalpowerstoraiserevenuestopay
thebonds.Pledgingaunitofgovernmentsfaithandcreditisdefinedaspledgingitstaxingpower.Voter
approvalisnotrequiredforallotherauthorizedborrowingmethodsbecausetheydonotinvolveapledge
ofaunitstaxingpower.

TheCityhaspledgedfuturewatercustomerrevenues,netofspecifiedoperatingexpenses,torepaythe
$41,800,000inSeries2005RevenueBonds.Thebondsarepayablesolelyfromwatercustomernew
revenueandarepayablethrough2026.

TheCityhaspledgedfuturewatercustomerrevenues,netofspecifiedoperatingexpenses,torepay
$39,025,000inWaterSystemRevenueBondsissuedinDecember2007.Proceedsfromthebonds
providedfinancingforthereplacementofanantiquatedpipesystem.Thebondsarepayablesolelyfrom
watercustomernewrevenueandarepayablethrough2032.["CityofAshevilleComprehensiveAnnual
FinancialReport(CAFR)."June30,2013.
bit.ly/1VAkWLp
]

CreditRating
TheCityhaspointedtoitssuperiorcreditratingasapositiveindicationofitsfinancialmanagement
capabilitiesandasasufficientjustificationformaintainingitscustodyandcontrolofthewatersystem.

ItstruethatAshevillehasreceivedatopratingfromallthreecreditratingagencies.TheCitystatesinit
originalbrieftotheSuperiorCourt(24)thatithadaAa2ratingfromMoody'sInvestorsServiceandAAA
fromStandard&Poors.ButMetropolitanSewerDistricts(MSD)alsohasmaintainedatopcreditrating
andiswellpositionedtoassumeindentureintheeventofamerger.

RevenueBondRating(June2011)
Asheville

MSD

Moody's
Standard&Poor's
Moody's
Standard&Poor's
Fitch*

Aa2
AA
Aa2
AA
AA+

*NOTE:TheratingcouldbeimpactedbyamergingofthedistrictandtheCityofAsheville'swater
system,althoughifsuchaneventweretooccuroverthenextfewyearsitisexpectedtobeacredit
neutral.

Infact,ina
recentpressrelease
(December7,2016),Moody'sannouncedthatithasupgradedtherevenue
bondcreditratingforMSDsfromAa2toAa1.

Moodysratingrationale:TheAa1ratingreflectsMSDssoundfinancialperformancecharacterizedby
ampleliquidity,healthydebtservicecoverage,andcomprehensivefiscalplanning.Theratingalso
incorporatestheMSDsregionalcustomerbase,adequatesystemcapacity,manageabledebtlevels,and
satisfactoryprotectionsforbondholders.

MoodysreportalsostatedthatMSDhascompletedanimpactstudyindicatingthatsavingscouldbe
realizedfromthemergerandtheagencywillcontinuetomonitorthepotentialcreditimpactofamerger.

NotonlydoesMSDholdarevenuebondcreditratingcomparabletoAshevilles,MSDsrating,atleastas
farasMoodysisconcerned,nowsurpassesthatofAshevilles.AshevillereceivedaAa2creditratingfrom
Moody'sin2015.TheAa2appliesto$62.7millionofwaterrevenuedebt.(
Moody'sassignsAa2to
Asheville,NC'sWaterSystemRevenueRefundingBonds,Series2015
)

DillonRules
Speakingofthe
appealscourtruling
in
Ashevillev.State(
2015),
FraydaS.Bluestein
,UNCSchoolof
GovernmentProfessorofPublicLawandGovernmentwrites,

Relyingonprecedentdatingbackto1903,thecourtofappealsheldthatthecityisnotentitled
compensation,andupheldtheentirelawasavalidexerciseoftheGeneralAssemblysalmostunlimited
authoritytodefinethepowersoflocalgovernments.Thelessonis,asIsometimesdescribeit:Whatthe
legislaturegiveth,thelegislaturecantakethaway.Indeed,theopinionreadslikeaprimeronNorth
Carolinalocalgovernmentlawandthepowerofthelegislature.

[Bluestein,Frayda."LegislativeTransferofAshevilleWaterSystemIsConstitutionalCoates'Canons."
October15,2015.AccessedMarch15,2016.
http://canons.sog.unc.edu/?p=8258
]

Merger
FunctionsandProcesses
Theconsolidationofwaterandsewerageoperationalandadministrativefunctionshasbeenextensively
plannedfor,hasprecedentsand,insomecases,alreadyexists.

TheStatelegislaturehascompiledextensivedocumentationfrommeetings,hearingsandpresentationat
the
MetropolitanSewerage/WaterSystemCommitteewebsite
.

TheCityhasanextensive,ifincomplete,
libraryofdocuments
ontheirgovernmentWebsiterelatedtothe
eventualmerger,including
Analysis
,
Correspondence
,
CouncilUpdates
,
GeneralWaterSystemInfo
,
Legal
Documents
,
LegislativeDocuments
,
MSDDocuments
.

TheMetropolitanSewerageDistrict(MSD)hasitsownanalysisoftheeventualmergerandhaspublished
documentsontheirwebsite,includingthe
FinalReport:ImpactStudyofProposedConsolidation/Merger
,
a
PresentationofMergerReportMarch20,2013
.

Theconsolidatedfunctionsofthemergerhasprecedent.In1981,BuncombeCounty,thecityofAsheville
andindividualwaterdistrictsinthecountycametogetherandcreatedtheAsheville/BuncombeWater
Authority.In1995,HendersonCountyjoinedin,creatinga
historicregionalgroup
.

A
Moodyscreditreport
putstheregionalaspectinconcreteterms:ThelandareaofAshevilleis44.2
squaremilesbutthewatersystemserviceareais298sq.miles.

RegionalWaterSupplyandWaterServiceAgreement
:SectionXXI:RegionalWaterand/orSewer
Authority,para21.0:ItistheintentionofthepartiestothisAgreementtoestablishhereinthebasisfor
theformationofaRegionalWaterand/orSewerAuthority,whichwould,ataminimum,includeas
membersHendersonandBuncombeCounties,theAuthorityandAsheville.Pursuanttothatintent,the
partieshereinshallingoodfaithworktowardsthecreationofaregionalauthorityandthepromotionof
saidauthoritytootherunitsoflocalgovernmentinthewesternpartofNorthCarolina.Atthetimethat
theRegionalAuthorityiscreated,allassetsandimprovementsaccumulatedpursuanttothisAgreement
shallbetransferredtosuchRegionalAuthorityuponsuchtermsandconditionsasarethenmutually
acceptable.

Someconsolidatedfunctionsofamergeralreadyexist.Initsrecordofan
AshevilleCityCouncil
Worksession
,July31,2012(page2,para3),UpdateontheMetropolitanSewerageDistrictWater/Sewer
ConsolidationImpactStudy,WaterResourcesDirectorSteveShoafinformscitycouncilthat,Customer
serviceisalreadymergedandproducesa
combinedservicesstatement

And
theAshevillegovernmentwebsitestates
,Cityresidentsarebilledforwaterandsewerageservices
togetherinonebill.

TheAshevilleWaterDepartmentwebpagestates
,TheCityofAshevilleteamsupwiththeMetropolitan
SewerageDistrict(MSD)tosendoutbillstoitscustomers.Waterandsewerchargesarecombinedonone
billprovidingyouwiththeconvenienceofonebillinsteadoftwo.

TransferringthecontractsoftheWaterResourcesDepartment's148employeesisnotanissueasthere
arenocontractstotransfer.Waterdepartmentstaffarenotcontractors,theyareemployees.MSDhas
senta
formalletter
totheAshevilleWaterResourcesDepartmentemployeesasanunsolicitedactofgood
faithtoreassurethemthatthemergerwillnotnegativelyimpacttheiremploymentcontracts,salariesor
benefits,andthatMSDinplanningforasmoothoperationaltransitionwhenthemergertakeseffect.

FederalandStatehealthandsafetycertificationsforemployeesarenotinjeopardyasthosecertifications
areforpeople.Theyareretainedforthosepeopleandwouldnotbevoidedintheeventofatransferofthe
employee.

Transferringoffinancial,accountingandinformationtechnologysystemsisnotanissue.MSDisreadyto
assumeoperationoflegacysystemsimmediately.Informationsystemswouldbeoperatedinparallelwith

thecurrentsewerageoperationalsystemsanddatamigrationcanplaceoveraphaseinperiodunder
MSD'scontrolenvironment.

Trainingnewemployeesisnotanissue.Therewillbenoneedfornewemployeestotrain.CurrentWater
Departmentemployeeswillperformthesamejobinthesamecapacitybutundernewmanagement.Inthe
eventofattrition,expertiseisreadilyavailableonthemarket.

Indenture
Theissueofbonddefaultanddamagedcreditratingsintheeventofamergerisanonstarter.

Thetrialcourtraisedthematterofthe
issuanceofrevenuebonds
andstatesthatthebondsaresecured
bythenetrevenuesoftheWaterSystemandthatthereisnoprovisionmadeanywhereintheActfor
obtainingtheconsentofthebondholderforanytransfertoanunratedsuccessor.

TheStatehasanofficededicatedtoresolvingbondtransferissuesandthishasalreadybeenaddressed
wellinadvanceofthecomingtransfer.Infact,thebondsthemselvesanticipatethiseventualityand
providesforasmoothtransferencetoanotherpoliticalsubdivisionofthestate.

ThereisnoprovisionintheWaterActfortransferofdebtpreciselyduetotheexistenceofalongstanding
processforhandlingtheintergovernmentaltransferofdebtobligationsasestablishedbytheState
DepartmentofTreasurysDivisionofStateandLocalGovernment
.

StateTreasurerJanetCowellsaidina
October2015radiointerview
,weputinanoversightsystem,called
the
LocalGovernmentCommission
runthroughtheTreasurer'sOfficeandwelookatthefinancesfor
everysingleunitofgovernment.Wehelpthemissuedebtandjustmakesurethateverythingstand
betweentheguardrails.InthesituationwithAsheville,wearesortofthetechnicaladvisertothesituation
andallofthisgetscomplicatedbecause,actually,thebillisdraftedstrangely,soitwasnotclear:doesthis
needtogothroughtheLocalGovernmentCommission?Butwe'retrying...mygoalistomakesurethat
everythingissmoothfunctioning,thatthere'snodisruptiontothebondmarketinNorthCarolina,you
know,thattheoperationscontinueandtrytoworkwitheveryonetomakesurethatthatiswhathappens.

TheassumptionofdebtofonesubdivisionofthestatebyanotherisaphenomenonwithwhichtheCityis
veryfamiliar.ThatispreciselywhattheythemselvesdidwhentheyannexedseveralexistingBuncombe
Countywaterdistrictsasnotedintheappealscourtrulingin
Ashevillev.State(2008)
(citedabove).

Notes

NorthCarolinaLawReview
Volume45,Number2(1967)
JosephS.Ferrell,LocalLegislationintheNorthCarolinaGeneralAssembly,45N.C.L.
Rev.340(1967)