Analysis of Asheville Water System
Content
Asheville Water System
Legal Background
Asheville has been the object of legislation and court rulings going back to 1933. The city acquired water
assets by way of involuntary annexation, eminent domain, deed transfer, contractual obligation, exaction,
consolidation, and creative financing.
Sullivan Acts
● House Bill 931 / Chapter 399 of the 1933 PublicLocal Laws
: Sullivan Act I. (pages 422 423,
document pages 376 377)
● House Bill 1065 / S.L. 2005140
: Sullivan Act II. Sponsors: Sherrill (D), Fisher (D), Goforth (D).
● House Bill 1064 / S.L. 2005139
: Sullivan Act III—Asheville Public Enterprises. Sponsors: Sherrill
(D), Fisher (D), Goforth (D).
Law Affecting Sullivan
● House Bill 702 / S.L. 2009114
: Amendments to the Sullivan Act. Sponsors: Goforth (D), Whilden
(D), Fisher (D). Companion: Senate Bill 552: Sponsors: Martin Nesbitt (D).
● House Bill 252 / S.L. 201365
: Asheville Transfers. (repeals
Sullivan Act III
). Sponsors: Moffitt
(R), Ramsey (R), McGrady (R).
● House Bill 1113 / S.L. 201451
: Bent Creek Property Sullivan Act Exemption. Sponsors: McGrady
(R), Fisher (D), Moffitt (R), Ramsey (R).
Unratified
● House DRH50265LB103C (2/21)
: Sullivan Act II (Draft) 2005. Sponsors: Sherrill (D), Fisher
(D), Goforth (D).
Lawsuits
This is the THIRD time the City of Asheville has lost in court over the water system.
1. Candler v. Asheville (1958). Status: Lost.
http://bit.ly/1NnG8lp
2. Asheville v. State (2008). Status: Lost.
http://bit.ly/1Ll0Ifv
3. Asheville v. State (2013). Status: Lost.
http://bit.ly/1Q5E1jK
Ownership
The City of Asheville cannot properly claim ownership of the water system it is charged to operate.
Asheville City Council Resolution No. 1236
(February 14, 2012) acknowledges, "The water system is a
public asset held by the City of Asheville for the benefit of its citizens and regional customers."
The City has presented to the court the process of the acquiring
a catalog of water system assets
in
different ways at different times. At one point, the water system assets were
conveyed p
iecemeal to the
City. At another, the City’s taxpayers
invested i
n the assets from the beginning.
The court is told that the water system assets are conveyed to Asheville after a long sequence of
incremental planning, development and investment by various entities. Then, the court is given the
impression that water system assets arose and were amassed from the beginning at the direction of a
single agency (the City) and acquired through the purchase of its taxpayers.
1. Original Complaint to the Superior Court
(5): “The acquisition, construction, expansion, upgrade,
and replacement of the capital assets of the Asheville Water System have been financed from a
combination of the operating revenues of the system, from grants and loans made to Asheville by
federal and state governments, from general tax revenues of the City, and from the proceeds of
general obligation and revenue bonds issued by and in the name of Asheville. Additionally, some
distribution lines and other facilities (including 21 identified pump stations and related storage
tank facilities) have been constructed by other governmental entities, such as Buncombe County,
and by private entities and thereafter
conveyed
to Asheville.”
2. Appellate Brief to Court of Appeals
(3): "The Water System has been built and maintained over
the past century using a
combination
of taxes, service fees, connection charges, bonded debt,
various federal and state grants, contributions from Buncombe County, and conveyance by
dedication or deed from property owners and developers."
3. New Brief the the Supreme Court
(7): “The taxpayers of the City have
invested
in the water
system's proprietary assets over a 130year period. These assets include: a 17,000acre watershed
of protected forest lands, three water treatment plants that can supply over forty million gallons
of water per day, two large impoundment reservoirs, twentynine reservoirs for treated water,
forty pumping stations, other equipment and facilities, and 1660 miles of distribution lines.”
The original brief clearly describes the various ways in which assets were conveyed to the City over time,
whereas the new brief finds the text altered in a peculiar way, seeming to suggest that city taxpayers
intentionally invested in the water system’s assets from 1886 up to the present time.
It would be presumptuous of the State to infer that the altered text from an earlier presentation to the
court to the one contained in the current presentation is designed to create a different picture of the
process in the mind of the court in the City’s pursuit of a favorable ruling. But the change of frame from
one version to the next presents a curiosity and the State fails in its duty to assume this shift in emphasis
has escaped the court’s notice.
“Conveyance” or “Capture”
In its original brief, the City tells the court that the proprietary assets of the water system it claims to own
were largely
acquired
through the legal means of annexation, eminent domain, deed transfer, tax
revenues, bond issuance and outside grants.
While it is certainly truthful to use the valueneutral term “conveyance” to characterize these types of
acquisitions, the term that seems to express their more salient aspect would be “capture.”
Involuntary Annexation
Water system assets have been captured by the City through the
thenlegal mechanism of involuntary
annexation
.
The appeals court ruling in
Asheville v. State (2008)
states, “in 1960, Asheville annexed portions of the
territory of the original water districts and thereby assumed $396,000.00 in bonded indebtedness as a
prorata share of the existing principal balance from the water districts for areas annexed into Asheville
that year. According to Jackson, ‘[w]hen Asheville and Buncombe County defaulted on their bonded
indebtedness during the Great Depression, the water district indebtedness was part of the consolidated
indebtedness that was refinanced through refunding bonds․
Th[is] debt was finally paid off in 1976.’ ”
Eminent Domain
Water system assets have been captured by the City through the process of condemnation, eminent
domain and discounted purchase.
The Water Agreement of 1995
, Section III, Chapter 3, makes reference to land acquired in Henderson
County by the City through eminent domain for “the placement of water intakes, water storage, a
treatment plant and other water treatment facilities.” Chapter 3.1 further states that these “Water Plant
Sites and improvements thereto along with water lines or distribution lines, pump stations and other
related equipment or facilities...shall be...considered part of ‘the water system of the City of Asheville’”
The story of the eminent domain acquisition of the North Fork Valley watershed property and the
displacement of the settlers homesteading there is chronicled in
Now & Then Magazine, Vol. 30, No. 1,
"This Was Our Valley: Taking Asheville's Watershed"
page 68.
"But, still, in 1926, W.H. and Elsie Burnett and their neighbors received a notice from Asheville's Chief of
Police that six jurors had been selected to determine a fair purchase price for their land. Soon after, the
Burnetts were warned that their 183 acres had been condemned. Though the city gave North Fork's
families a fair price for their land, most lost the money when the Depression hit a few years later."
Deed Transfers
Water system assets have been captured by the City through the deed transfers of local governments.
The Buncombe County Board of Commissioners passed
Resolution 120506
(May 15, 2012) “granting the
Chairman of the Board of Commissioners authority to deed ... all county owned water assets to the City of
Asheville” which authorized the Chairman to “execute a nonwarranty deed to the City of Asheville to
transfer … all County owned waterlines, hydrants, valves, meters and maintenance easements to the City
of Asheville.” The deed transfer was executed by an instrument of transfer on June 5, 2012.
Contract
Water system assets have been captured by the City through contract negotiations.
In the preamble to the
Water Agreement of 1995
, it states that “the Authority as a joint agency may not
own real property and title to real property acquired by the Authority has been vested in Asheville.” And
in Section VIII, paragraph 8, it states that “all Region Water Lines installed at the Authority’ and/or
Asheville’s total or partial expense shall be titled in and remain the property of Asheville.”
Exaction
Water system assets have been captured by the City through exaction.
The City has purchased or improved water system properties through the debt instruments obligating
ratepayers. The issuance of revenue bonds is predicated on their repayment through future service
charges to water customers. The entity of Asheville is created as a municipal corporation in order to,
among other things, legally hold title to properties. Water system infrastructure expenditures and
improvements are made on the condition that title to those properties are conveyed to the City.
Therefore, ownership of assets is derived from the conditional expenditure of future system revenues. In
other words, water customers are paying for the public utility that serves them in exchange for laying
transfer of system assets to an agency that is in turn wholly created by the State. The agency in this case is
the City of Asheville who asserts ownership of assets by virtue of its tangential investment in the system.
This ownership capacity is required by "
The State and Local Government Revenue Bond Act
."
G.S. 15981
states, "A revenue bond project shall be owned or leased as lessee by the issuing unit"
As if the matter were not convoluted enough, in some cases certain “Refunding Bonds” were issued for the
express purpose of paying off debt incurred from earlier bond issuances.
In the June 30, 2013
City of Asheville Comprehensive Annual Financial Report (CAFR)
it is reported, "In
2005, the City advance refunded $42,960,000 in Water Revenue Bonds, Series 1996 and 2001, by placing
the proceeds of the refunding bonds in an irrevocable trust to provide for all future debt service payments
on the old bonds."
City of Asheville Ordinance No. 237, as documented in
20120123 B.LongBuncombe Co. Water
Presentation
before the legislature’s Metropolitan Sewerage/Water System Committee (17) state, "The
Water Refunding Bonds shall be issued for the purpose of refunding a like principal amount of
outstanding water debt."
Consolidation
Water system assets have been captured by the City through consolidation of existing water districts in
Buncombe County.
Original Complaint to the Superior Court
(5) states that “some distribution lines and other facilities
(including 21 identified pump stations and related storage tank facilities) have been constructed by other
governmental entities, such as Buncombe County, and by private entities and thereafter
conveyed
to
Asheville.”
Investment
Investments in water system infrastructure have historically been secured through the instrument of
revenue bonds—which means the water system customers (ratepayers) are the obligors and not the City
taxpayer. At no time have the taxpayers suffered indebtedness or been placed at risk of obligation to
repay.
Revenue Bonds
In a
January 23, 2012 presentation to city council
(52), the Water Resources Department documents the
bond issuances by year and amount from 1890 to 2007. (Note: omitted are Series 2005 Refunding Bonds)
Note that the bonds included in the list above are described as “voter approved.” Only General Obligation
Bonds are subject to voter approval. See
NC Const. Art. 5, Sect. 4(2)
: “The General Assembly shall have no
power to authorize any … unit of local government to contract debts secured by a pledge of its faith and
credit unless approved by a majority of the qualified voters of the unit...” The voter referendum
requirement only applies when a unit pledges its taxing power as security for its loan.
Though revenue bonds are not subject to voter approval,
they must be approved by the NC Local
Government Commission
(LGC) before a local government resolution can be adopted that authorizes
issuing the Bond Order.
G.S. 15951
(Application to Commission for approval of bond issue) states that "No bonds may be issued
under this Article unless the issue is approved by the Local Government Commission."
Established in 1931 under
G.S. 1593
, the
Local Government Commission
has as its primary mission three
areas of responsibility and authority: “First, a unit of government must seek LGC approval before it can
borrow money. In reviewing each proposed borrowing, the LGC examines whether the amount being
borrowed is adequate and reasonable for the projects and is an amount the unit can reasonably afford to
repay. Second, once a borrowing is approved, the LGC is responsible for selling the debt (or bonds) on the
unit’s behalf. Third, the LGC staff regulates annual financial reporting by oversight of the annual
independent auditing of local governments, by monitoring the fiscal health of local governments and by
offering broad assistance in financial administration to local governments.”
The voter approval requirement can be a significant hurdle to issuing GO bonds...Thus, although issuing
GO bonds is the simplest form of borrowing, and generally the cheapest, local units often look to one of
the other authorized borrowing mechanisms to avoid the voter approval requirement. [Kara A. Millonzi.
"County and Municipal Government in North Carolina." UNC Chapel Hill School of Government. Chapter
21: Financing Capital Projects, page 364.]
Sarah Curry notes, “North Carolina municipalities and counties issue debt or bonds to pay for specific
projects such as schools, jails, county or municipal buildings, libraries, water treatment plants, streets,
and sidewalks, among other things. Historically, all debt issued by local governments was voted on in
referenda and issued as General Obligation bonds. Over time, local governments throughout North
Carolina found ways to incur more debt through easier and faster methods than the traditional bond
referendum. Many started by moving away from the tradition of voting on bonds during normal elections
and towards less popular election times such as primaries or special elections. In the early 2000s, state
legislation was passed that allowed local governments to use methods of borrowing money without asking
for the approval of voters and taxpayers. That legislation has caused a lack of accountability and
transparency when it comes to local government debt. Today, many of the large cities in North Carolina
have a higher reliance on nonvoter approved debt than on voter approved. As of the end of fiscal year
2012, the cities of Rocky Mount, Jacksonville, and Concord only had nonvoter approved debt in their
financial reports. The city of Asheville has used over
one hundred times more
nonvoter approved debt
than voterapproved.” [emphasis added] [Curry, Sarah. "Local Government Debt Increasing, and
Sometimes Without Voter Approval." John Locke Foundation. January 14, 2014.
bit.ly/1RhbREd
]
A municipality issuing revenue bonds to fund an expansion to its water system is prohibited from
repaying the loan with general fund monies.
G.S. 15994
specifies that only the pledged revenues may be
used to meet a unit’s debt service obligations on revenue bonds. (Note, however, that the City may
appropriate general fund monies to cover enterprise operating expenses, thereby freeing up the pledged
enterprise revenue to be used to make the debt payments.)
The primary security for a revenue bond is the revenue generated by the financed asset or the system in
which the financed asset becomes a part. By law such a pledge creates a lien on the pledged revenues in
favor of the bondholders. [Millonzi, Kara. "Security for a Local Government Loan." Coates' Canons: NC
Local Government Law. January 27, 2014.
http://canons.sog.unc.edu/?p=7492
]
G.S. 15994
(Limited Liability) states, "Every
revenue bond
shall recite in substance that the principal of
and interest on the bond is payable solely from the revenues pledged to its payment and that the State or
the municipality, as the case may be, is not obligated to pay the principal or interest except from such
revenues."
The City’s original
complaint
to Superior Court makes numerous references to the water system’s reliance
on financing through revenue bonds for its existence and improvement:
1. Paragraph 5 states that Asheville issued Revenue Bonds for investment in the water system.
2. Paragraph 24 states that the debt incurred from the issuance of the Revenue Bonds was intended
to finance capital expenditures for the water system. Paragraph 24 cites the authority for issuing
the bonds as
Article 5 of Chapter 159
, “Revenue Bonds.” Paragraph 24 states that Asheville is the
obligor of the Revenue Bonds.
3. Paragraph 30 states that a bond default would obligate the City to pay debt incurred by issuing
the Revenue Bonds in full, presumably out of the City’s General Fund as opposed to future
systemgenerate revenue, and, therefore, damage the City’s credit rating. Thus acknowledging
that the City not invested in the system with City funds, but with customer funds.
4. Paragraph 61 states that the State’s action puts the City at risk of exposure by potentially
impairing its ability to perform against issuance of Revenue Bonds.
5. Paragraph 62 emphasizes that the City is subject to the provision of the state statute governing
Revenue Bonds.
6. Paragraph 63 clearly states that the bonds that are at risk are Revenue Bonds and that the City is
deserving of protection from default.
7. Paragraph 64 indicates how the State’s action could jeopardize the City’s performance against the
Revenue Bonds.
8. Paragraph 65 contemplates how the City taxpayers could be at risk in the event of default on the
Revenue Bonds and how this might presumably impact both the City and the water system.
9. Paragraph 74, 75, & 76 reiterate that a default on the Revenue Bonds, caused by the State’s action,
would expose the City to financial risk and thereby impair the City’s creditworthiness.
Additionally,
Asheville City Council Resolution No. 1236
(February 14, 2012) states, "since 1991, the City
has issued over $100 million in revenue bonds and other financing for the repair, maintenance, and
improvement of the water system, including $39 million in 2007."
In
Candler v. City of Asheville
(1958), the court ruling stated, “Asheville contributed nothing to the
construction of these systems, neither does it contribute anything to the cost of repairing and maintaining
them. Asheville renders no service except to pump the water into the water systems, read the meters,
which it did not furnish and does not service, and to bill the consumers.” And the same holds true today,
many millions of dollars later. The City continues putting water customers in debt to finance water system
improvements while publicly taking credit and claiming ownership.
However, the City has continually referred to the Revenue Bonds in public documents and statements
simply as “the bonds,” or funding “the city has invested” in the system, without explicitly disclosing their
true nature. This could have the mistaken effect of leading readers to assume that borrowing against “the
bonds” or “investments” made in the system derive from the City’s general fund and that the taxpayers are
thereby indebted.
For example, in a
letter to Governor Pat McCrory
(January 11, 2013), Mayor Terry Bellamy says, “
we have
invested
more than $70 million in capital infrastructure since FY 200506 (after the Water Agreement
was dissolved), two and a half times more than the previous six years. We project $125.9 million in system
improvements over the next ten years.”
Revenue bonds do not encumber city taxpayers and to imply otherwise, or leave the impression that city
investments have been made (“we have invested”), is less than entirely forthcoming.
General Obligation Bonds, in contrast, are backed backed by the full faith, credit and taxing power of the
City, ensuring there would be no default on debt service. “Full faith and credit” is a phrase used to
describe the unconditional guarantee or commitment by one entity to back the interest and principal of
another entity’s debt. It expresses the commitment of the issuer (the City) to repay the bonds from all
legally available funds, including a good faith commitment to use its legal powers to raise revenues to pay
the bonds. Pledging a unit of government’s “faith and credit” is defined as pledging its taxing power. Voter
approval is not required for all other authorized borrowing methods because they do not involve a pledge
of a unit’s taxing power.
The City has pledged future water customer revenues, net of specified operating expenses, to repay the
$41,800,000 in Series 2005 Revenue Bonds. The bonds are payable solely from water customer new
revenue and are payable through 2026.
The City has pledged future water customer revenues, net of specified operating expenses, to repay
$39,025,000 in Water System Revenue Bonds issued in December 2007. Proceeds from the bonds
provided financing for the replacement of an antiquated pipe system. The bonds are payable solely from
water customer new revenue and are payable through 2032.” ["City of Asheville Comprehensive Annual
Financial Report (CAFR)." June 30, 2013.
bit.ly/1VAkWLp
]
Credit Rating
The City has pointed to its superior credit rating as a positive indication of its financial management
capabilities and as a sufficient justification for maintaining its custody and control of the water system.
It’s true that Asheville has received a top rating from all three credit rating agencies. The City states in it
original brief to the Superior Court (24) that it had a Aa2 rating from Moody's Investors Service and AAA
from Standard & Poor’s. But Metropolitan Sewer District’s (MSD) also has maintained a top credit rating
and is wellpositioned to assume indenture in the event of a merger.
Revenue Bond Rating (June 2011)
Asheville
MSD
Moody's
Standard & Poor's
Moody's
Standard & Poor's
Fitch*
Aa2
AA
Aa2
AA
AA+
*NOTE: “The rating could be impacted by a merging of the district and the City of Asheville's water
system, although if such an event were to occur over the next few years it is expected to be a credit
neutral.”
In fact, in a
recent press release
(December 7, 2016), Moody's announced that it has upgraded the revenue
bond credit rating for MSD’s from Aa2 to Aa1.
Moody’s rating rationale: “The Aa1 rating reflects MSD’s sound financial performance characterized by
ample liquidity, healthy debt service coverage, and comprehensive fiscal planning. The rating also
incorporates the MSD’s regional customer base, adequate system capacity, manageable debt levels, and
satisfactory protections for bondholders.”
Moody’s report also stated that MSD has completed an impact study indicating that savings could be
realized from the merger and the agency will continue to monitor the potential credit impact of a merger.
Not only does MSD hold a revenue bond credit rating comparable to Asheville’s, MSD’s rating, at least as
far as Moody’s is concerned, now surpasses that of Asheville’s. Asheville received a Aa2 credit rating from
Moody's in 2015. The Aa2 applies to $62.7 million of water revenue debt. (
Moody's assigns Aa2 to
Asheville, NC's Water System Revenue Refunding Bonds, Series 2015
)
Dillon Rules
Speaking of the
appeals court ruling
in
Asheville v. State (
2015),
Frayda S. Bluestein
, UNC School of
Government Professor of Public Law and Government writes,
“Relying on precedent dating back to 1903, the court of appeals held that the city is not entitled
compensation, and upheld the entire law as a valid exercise of the General Assembly’s almost unlimited
authority to define the powers of local governments. The lesson is, as I sometimes describe it: What the
legislature giveth, the legislature can taketh away. Indeed, the opinion reads like a primer on North
Carolina local government law and the power of the legislature.”
[Bluestein, Frayda. "Legislative Transfer of Asheville Water System Is Constitutional « Coates' Canons."
October 15, 2015. Accessed March 15, 2016.
http://canons.sog.unc.edu/?p=8258
]
Merger
Functions and Processes
The consolidation of water and sewerage operational and administrative functions has been extensively
planned for, has precedents and, in some cases, already exists.
The State legislature has compiled extensive documentation from meetings, hearings and presentation at
the
Metropolitan Sewerage/Water System Committee website
.
The City has an extensive, if incomplete,
library of documents
on their government Web site related to the
eventual merger, including
Analysis
,
Correspondence
,
Council Updates
,
General Water System Info
,
Legal
Documents
,
Legislative Documents
,
MSD Documents
.
The Metropolitan Sewerage District (MSD) has its own analysis of the eventual merger and has published
documents on their website, including the
Final Report: Impact Study of Proposed Consolidation/Merger
,
a
Presentation of Merger Report March 20, 2013
.
The consolidated functions of the merger has precedent. In 1981, Buncombe County, the city of Asheville
and individual water districts in the county came together and created the Asheville/Buncombe Water
Authority. In 1995, Henderson County joined in, creating a
historic regional group
.
A
Moody’s credit report
puts the regional aspect in concrete terms: The land area of Asheville is 44.2
square miles but the water system service area is 298 sq. miles.
Regional Water Supply and Water Service Agreement
: Section XXI: Regional Water and/or Sewer
Authority, para 21.0: “It is the intention of the parties to this Agreement to establish herein the basis for
the formation of a Regional Water and/or Sewer Authority, which would, at a minimum, include as
members Henderson and Buncombe Counties, the Authority and Asheville. Pursuant to that intent, the
parties herein shall in good faith work towards the creation of a regional authority and the promotion of
said authority to other units of local government in the western part of North Carolina. At the time that
the Regional Authority is created, all assets and improvements accumulated pursuant to this Agreement
shall be transferred to such Regional Authority upon such terms and conditions as are then mutually
acceptable.”
Some consolidated functions of a merger already exist. In its record of an
Asheville City Council
Worksession
, July 31, 2012 (page 2, para 3), “Update on the Metropolitan Sewerage District Water/Sewer
Consolidation Impact Study,” Water Resources Director Steve Shoaf informs city council that, “Customer
service is already merged and produces a
combined services statement
”
And
the Asheville government website states
, “City residents are billed for water and sewerage services
together in one bill.”
The Asheville Water Department webpage states
, “The City of Asheville teams up with the Metropolitan
Sewerage District (MSD) to send out bills to its customers. Water and sewer charges are combined on one
bill providing you with the convenience of one bill instead of two.
Transferring the contracts of the Water Resources Department's 148 employees is not an issue as there
are no contracts to transfer. Water department staff are not contractors, they are employees. MSD has
sent a
formal letter
to the Asheville Water Resources Department employees as an unsolicited act of “good
faith” to reassure them that the merger will not negatively impact their employment contracts, salaries or
benefits, and that MSD in planning for a “smooth operational transition” when the merger takes effect.
Federal and State healthandsafety certifications for employees are not in jeopardy as those certifications
are for people. They are retained for those people and would not be voided in the event of a transfer of the
employee.
Transferring of financial, accounting and information technology systems is not an issue. MSD is ready to
assume operation of legacy systems immediately. Information systems would be operated in parallel with
the current sewerage operational systems and data migration can place over a phasein period under
MSD's control environment.
Training new employees is not an issue. There will be no need for new employees to train. Current Water
Department employees will perform the same job in the same capacity but under new management. In the
event of attrition, expertise is readily available on the market.
Indenture
The issue of bond default and damaged credit ratings in the event of a merger is a nonstarter.
The trial court raised the matter of the
issuance of revenue bonds
and states that the bonds are “secured
by the net revenues of the Water System” and that there is “no provision made anywhere in the Act for
obtaining the consent of the bondholder” for any transfer to an “unrated successor.”
The State has an office dedicated to resolving bond transfer issues and this has already been addressed
well in advance of the coming transfer. In fact, the bonds themselves anticipate this eventuality and
provides for a smooth transference to another political subdivision of the state.
There is no provision in the Water Act for transfer of debt precisely due to the existence of a longstanding
process for handling the intergovernmental transfer of debt obligations as established by the State
Department of Treasury’s Division of State and Local Government
.
State Treasurer Janet Cowell said in a
October 2015 radio interview
, “we put in an oversight system, called
the
Local Government Commission
run through the Treasurer's Office and we look at the finances for
every single unit of government. We help them issue debt and just make sure that everything stand
between the guard rails. In the situation with Asheville, we are sort of the technical adviser to the situation
and all of this gets complicated because, actually, the bill is drafted strangely, so it was not clear: does this
need to go through the Local Government Commission? But we're trying...my goal is to make sure that
everything is smoothfunctioning, that there's no disruption to the bond market in North Carolina, you
know, that the operations continue and try to work with everyone to make sure that that is what happens.”
The assumption of debt of one subdivision of the state by another is a phenomenon with which the City is
very familiar. That is precisely what they themselves did when they annexed several existing Buncombe
County water districts as noted in the appeals court ruling in
Asheville v. State (2008)
(cited above).
Notes
North Carolina Law Review
Volume 45, Number 2 (1967)
Joseph S. Ferrell, Local Legislation in the North Carolina General Assembly, 45 N.C. L.
Rev. 340 (1967)
Legal Background
Asheville has been the object of legislation and court rulings going back to 1933. The city acquired water
assets by way of involuntary annexation, eminent domain, deed transfer, contractual obligation, exaction,
consolidation, and creative financing.
Sullivan Acts
● House Bill 931 / Chapter 399 of the 1933 PublicLocal Laws
: Sullivan Act I. (pages 422 423,
document pages 376 377)
● House Bill 1065 / S.L. 2005140
: Sullivan Act II. Sponsors: Sherrill (D), Fisher (D), Goforth (D).
● House Bill 1064 / S.L. 2005139
: Sullivan Act III—Asheville Public Enterprises. Sponsors: Sherrill
(D), Fisher (D), Goforth (D).
Law Affecting Sullivan
● House Bill 702 / S.L. 2009114
: Amendments to the Sullivan Act. Sponsors: Goforth (D), Whilden
(D), Fisher (D). Companion: Senate Bill 552: Sponsors: Martin Nesbitt (D).
● House Bill 252 / S.L. 201365
: Asheville Transfers. (repeals
Sullivan Act III
). Sponsors: Moffitt
(R), Ramsey (R), McGrady (R).
● House Bill 1113 / S.L. 201451
: Bent Creek Property Sullivan Act Exemption. Sponsors: McGrady
(R), Fisher (D), Moffitt (R), Ramsey (R).
Unratified
● House DRH50265LB103C (2/21)
: Sullivan Act II (Draft) 2005. Sponsors: Sherrill (D), Fisher
(D), Goforth (D).
Lawsuits
This is the THIRD time the City of Asheville has lost in court over the water system.
1. Candler v. Asheville (1958). Status: Lost.
http://bit.ly/1NnG8lp
2. Asheville v. State (2008). Status: Lost.
http://bit.ly/1Ll0Ifv
3. Asheville v. State (2013). Status: Lost.
http://bit.ly/1Q5E1jK
Ownership
The City of Asheville cannot properly claim ownership of the water system it is charged to operate.
Asheville City Council Resolution No. 1236
(February 14, 2012) acknowledges, "The water system is a
public asset held by the City of Asheville for the benefit of its citizens and regional customers."
The City has presented to the court the process of the acquiring
a catalog of water system assets
in
different ways at different times. At one point, the water system assets were
conveyed p
iecemeal to the
City. At another, the City’s taxpayers
invested i
n the assets from the beginning.
The court is told that the water system assets are conveyed to Asheville after a long sequence of
incremental planning, development and investment by various entities. Then, the court is given the
impression that water system assets arose and were amassed from the beginning at the direction of a
single agency (the City) and acquired through the purchase of its taxpayers.
1. Original Complaint to the Superior Court
(5): “The acquisition, construction, expansion, upgrade,
and replacement of the capital assets of the Asheville Water System have been financed from a
combination of the operating revenues of the system, from grants and loans made to Asheville by
federal and state governments, from general tax revenues of the City, and from the proceeds of
general obligation and revenue bonds issued by and in the name of Asheville. Additionally, some
distribution lines and other facilities (including 21 identified pump stations and related storage
tank facilities) have been constructed by other governmental entities, such as Buncombe County,
and by private entities and thereafter
conveyed
to Asheville.”
2. Appellate Brief to Court of Appeals
(3): "The Water System has been built and maintained over
the past century using a
combination
of taxes, service fees, connection charges, bonded debt,
various federal and state grants, contributions from Buncombe County, and conveyance by
dedication or deed from property owners and developers."
3. New Brief the the Supreme Court
(7): “The taxpayers of the City have
invested
in the water
system's proprietary assets over a 130year period. These assets include: a 17,000acre watershed
of protected forest lands, three water treatment plants that can supply over forty million gallons
of water per day, two large impoundment reservoirs, twentynine reservoirs for treated water,
forty pumping stations, other equipment and facilities, and 1660 miles of distribution lines.”
The original brief clearly describes the various ways in which assets were conveyed to the City over time,
whereas the new brief finds the text altered in a peculiar way, seeming to suggest that city taxpayers
intentionally invested in the water system’s assets from 1886 up to the present time.
It would be presumptuous of the State to infer that the altered text from an earlier presentation to the
court to the one contained in the current presentation is designed to create a different picture of the
process in the mind of the court in the City’s pursuit of a favorable ruling. But the change of frame from
one version to the next presents a curiosity and the State fails in its duty to assume this shift in emphasis
has escaped the court’s notice.
“Conveyance” or “Capture”
In its original brief, the City tells the court that the proprietary assets of the water system it claims to own
were largely
acquired
through the legal means of annexation, eminent domain, deed transfer, tax
revenues, bond issuance and outside grants.
While it is certainly truthful to use the valueneutral term “conveyance” to characterize these types of
acquisitions, the term that seems to express their more salient aspect would be “capture.”
Involuntary Annexation
Water system assets have been captured by the City through the
thenlegal mechanism of involuntary
annexation
.
The appeals court ruling in
Asheville v. State (2008)
states, “in 1960, Asheville annexed portions of the
territory of the original water districts and thereby assumed $396,000.00 in bonded indebtedness as a
prorata share of the existing principal balance from the water districts for areas annexed into Asheville
that year. According to Jackson, ‘[w]hen Asheville and Buncombe County defaulted on their bonded
indebtedness during the Great Depression, the water district indebtedness was part of the consolidated
indebtedness that was refinanced through refunding bonds․
Th[is] debt was finally paid off in 1976.’ ”
Eminent Domain
Water system assets have been captured by the City through the process of condemnation, eminent
domain and discounted purchase.
The Water Agreement of 1995
, Section III, Chapter 3, makes reference to land acquired in Henderson
County by the City through eminent domain for “the placement of water intakes, water storage, a
treatment plant and other water treatment facilities.” Chapter 3.1 further states that these “Water Plant
Sites and improvements thereto along with water lines or distribution lines, pump stations and other
related equipment or facilities...shall be...considered part of ‘the water system of the City of Asheville’”
The story of the eminent domain acquisition of the North Fork Valley watershed property and the
displacement of the settlers homesteading there is chronicled in
Now & Then Magazine, Vol. 30, No. 1,
"This Was Our Valley: Taking Asheville's Watershed"
page 68.
"But, still, in 1926, W.H. and Elsie Burnett and their neighbors received a notice from Asheville's Chief of
Police that six jurors had been selected to determine a fair purchase price for their land. Soon after, the
Burnetts were warned that their 183 acres had been condemned. Though the city gave North Fork's
families a fair price for their land, most lost the money when the Depression hit a few years later."
Deed Transfers
Water system assets have been captured by the City through the deed transfers of local governments.
The Buncombe County Board of Commissioners passed
Resolution 120506
(May 15, 2012) “granting the
Chairman of the Board of Commissioners authority to deed ... all county owned water assets to the City of
Asheville” which authorized the Chairman to “execute a nonwarranty deed to the City of Asheville to
transfer … all County owned waterlines, hydrants, valves, meters and maintenance easements to the City
of Asheville.” The deed transfer was executed by an instrument of transfer on June 5, 2012.
Contract
Water system assets have been captured by the City through contract negotiations.
In the preamble to the
Water Agreement of 1995
, it states that “the Authority as a joint agency may not
own real property and title to real property acquired by the Authority has been vested in Asheville.” And
in Section VIII, paragraph 8, it states that “all Region Water Lines installed at the Authority’ and/or
Asheville’s total or partial expense shall be titled in and remain the property of Asheville.”
Exaction
Water system assets have been captured by the City through exaction.
The City has purchased or improved water system properties through the debt instruments obligating
ratepayers. The issuance of revenue bonds is predicated on their repayment through future service
charges to water customers. The entity of Asheville is created as a municipal corporation in order to,
among other things, legally hold title to properties. Water system infrastructure expenditures and
improvements are made on the condition that title to those properties are conveyed to the City.
Therefore, ownership of assets is derived from the conditional expenditure of future system revenues. In
other words, water customers are paying for the public utility that serves them in exchange for laying
transfer of system assets to an agency that is in turn wholly created by the State. The agency in this case is
the City of Asheville who asserts ownership of assets by virtue of its tangential investment in the system.
This ownership capacity is required by "
The State and Local Government Revenue Bond Act
."
G.S. 15981
states, "A revenue bond project shall be owned or leased as lessee by the issuing unit"
As if the matter were not convoluted enough, in some cases certain “Refunding Bonds” were issued for the
express purpose of paying off debt incurred from earlier bond issuances.
In the June 30, 2013
City of Asheville Comprehensive Annual Financial Report (CAFR)
it is reported, "In
2005, the City advance refunded $42,960,000 in Water Revenue Bonds, Series 1996 and 2001, by placing
the proceeds of the refunding bonds in an irrevocable trust to provide for all future debt service payments
on the old bonds."
City of Asheville Ordinance No. 237, as documented in
20120123 B.LongBuncombe Co. Water
Presentation
before the legislature’s Metropolitan Sewerage/Water System Committee (17) state, "The
Water Refunding Bonds shall be issued for the purpose of refunding a like principal amount of
outstanding water debt."
Consolidation
Water system assets have been captured by the City through consolidation of existing water districts in
Buncombe County.
Original Complaint to the Superior Court
(5) states that “some distribution lines and other facilities
(including 21 identified pump stations and related storage tank facilities) have been constructed by other
governmental entities, such as Buncombe County, and by private entities and thereafter
conveyed
to
Asheville.”
Investment
Investments in water system infrastructure have historically been secured through the instrument of
revenue bonds—which means the water system customers (ratepayers) are the obligors and not the City
taxpayer. At no time have the taxpayers suffered indebtedness or been placed at risk of obligation to
repay.
Revenue Bonds
In a
January 23, 2012 presentation to city council
(52), the Water Resources Department documents the
bond issuances by year and amount from 1890 to 2007. (Note: omitted are Series 2005 Refunding Bonds)
Note that the bonds included in the list above are described as “voter approved.” Only General Obligation
Bonds are subject to voter approval. See
NC Const. Art. 5, Sect. 4(2)
: “The General Assembly shall have no
power to authorize any … unit of local government to contract debts secured by a pledge of its faith and
credit unless approved by a majority of the qualified voters of the unit...” The voter referendum
requirement only applies when a unit pledges its taxing power as security for its loan.
Though revenue bonds are not subject to voter approval,
they must be approved by the NC Local
Government Commission
(LGC) before a local government resolution can be adopted that authorizes
issuing the Bond Order.
G.S. 15951
(Application to Commission for approval of bond issue) states that "No bonds may be issued
under this Article unless the issue is approved by the Local Government Commission."
Established in 1931 under
G.S. 1593
, the
Local Government Commission
has as its primary mission three
areas of responsibility and authority: “First, a unit of government must seek LGC approval before it can
borrow money. In reviewing each proposed borrowing, the LGC examines whether the amount being
borrowed is adequate and reasonable for the projects and is an amount the unit can reasonably afford to
repay. Second, once a borrowing is approved, the LGC is responsible for selling the debt (or bonds) on the
unit’s behalf. Third, the LGC staff regulates annual financial reporting by oversight of the annual
independent auditing of local governments, by monitoring the fiscal health of local governments and by
offering broad assistance in financial administration to local governments.”
The voter approval requirement can be a significant hurdle to issuing GO bonds...Thus, although issuing
GO bonds is the simplest form of borrowing, and generally the cheapest, local units often look to one of
the other authorized borrowing mechanisms to avoid the voter approval requirement. [Kara A. Millonzi.
"County and Municipal Government in North Carolina." UNC Chapel Hill School of Government. Chapter
21: Financing Capital Projects, page 364.]
Sarah Curry notes, “North Carolina municipalities and counties issue debt or bonds to pay for specific
projects such as schools, jails, county or municipal buildings, libraries, water treatment plants, streets,
and sidewalks, among other things. Historically, all debt issued by local governments was voted on in
referenda and issued as General Obligation bonds. Over time, local governments throughout North
Carolina found ways to incur more debt through easier and faster methods than the traditional bond
referendum. Many started by moving away from the tradition of voting on bonds during normal elections
and towards less popular election times such as primaries or special elections. In the early 2000s, state
legislation was passed that allowed local governments to use methods of borrowing money without asking
for the approval of voters and taxpayers. That legislation has caused a lack of accountability and
transparency when it comes to local government debt. Today, many of the large cities in North Carolina
have a higher reliance on nonvoter approved debt than on voter approved. As of the end of fiscal year
2012, the cities of Rocky Mount, Jacksonville, and Concord only had nonvoter approved debt in their
financial reports. The city of Asheville has used over
one hundred times more
nonvoter approved debt
than voterapproved.” [emphasis added] [Curry, Sarah. "Local Government Debt Increasing, and
Sometimes Without Voter Approval." John Locke Foundation. January 14, 2014.
bit.ly/1RhbREd
]
A municipality issuing revenue bonds to fund an expansion to its water system is prohibited from
repaying the loan with general fund monies.
G.S. 15994
specifies that only the pledged revenues may be
used to meet a unit’s debt service obligations on revenue bonds. (Note, however, that the City may
appropriate general fund monies to cover enterprise operating expenses, thereby freeing up the pledged
enterprise revenue to be used to make the debt payments.)
The primary security for a revenue bond is the revenue generated by the financed asset or the system in
which the financed asset becomes a part. By law such a pledge creates a lien on the pledged revenues in
favor of the bondholders. [Millonzi, Kara. "Security for a Local Government Loan." Coates' Canons: NC
Local Government Law. January 27, 2014.
http://canons.sog.unc.edu/?p=7492
]
G.S. 15994
(Limited Liability) states, "Every
revenue bond
shall recite in substance that the principal of
and interest on the bond is payable solely from the revenues pledged to its payment and that the State or
the municipality, as the case may be, is not obligated to pay the principal or interest except from such
revenues."
The City’s original
complaint
to Superior Court makes numerous references to the water system’s reliance
on financing through revenue bonds for its existence and improvement:
1. Paragraph 5 states that Asheville issued Revenue Bonds for investment in the water system.
2. Paragraph 24 states that the debt incurred from the issuance of the Revenue Bonds was intended
to finance capital expenditures for the water system. Paragraph 24 cites the authority for issuing
the bonds as
Article 5 of Chapter 159
, “Revenue Bonds.” Paragraph 24 states that Asheville is the
obligor of the Revenue Bonds.
3. Paragraph 30 states that a bond default would obligate the City to pay debt incurred by issuing
the Revenue Bonds in full, presumably out of the City’s General Fund as opposed to future
systemgenerate revenue, and, therefore, damage the City’s credit rating. Thus acknowledging
that the City not invested in the system with City funds, but with customer funds.
4. Paragraph 61 states that the State’s action puts the City at risk of exposure by potentially
impairing its ability to perform against issuance of Revenue Bonds.
5. Paragraph 62 emphasizes that the City is subject to the provision of the state statute governing
Revenue Bonds.
6. Paragraph 63 clearly states that the bonds that are at risk are Revenue Bonds and that the City is
deserving of protection from default.
7. Paragraph 64 indicates how the State’s action could jeopardize the City’s performance against the
Revenue Bonds.
8. Paragraph 65 contemplates how the City taxpayers could be at risk in the event of default on the
Revenue Bonds and how this might presumably impact both the City and the water system.
9. Paragraph 74, 75, & 76 reiterate that a default on the Revenue Bonds, caused by the State’s action,
would expose the City to financial risk and thereby impair the City’s creditworthiness.
Additionally,
Asheville City Council Resolution No. 1236
(February 14, 2012) states, "since 1991, the City
has issued over $100 million in revenue bonds and other financing for the repair, maintenance, and
improvement of the water system, including $39 million in 2007."
In
Candler v. City of Asheville
(1958), the court ruling stated, “Asheville contributed nothing to the
construction of these systems, neither does it contribute anything to the cost of repairing and maintaining
them. Asheville renders no service except to pump the water into the water systems, read the meters,
which it did not furnish and does not service, and to bill the consumers.” And the same holds true today,
many millions of dollars later. The City continues putting water customers in debt to finance water system
improvements while publicly taking credit and claiming ownership.
However, the City has continually referred to the Revenue Bonds in public documents and statements
simply as “the bonds,” or funding “the city has invested” in the system, without explicitly disclosing their
true nature. This could have the mistaken effect of leading readers to assume that borrowing against “the
bonds” or “investments” made in the system derive from the City’s general fund and that the taxpayers are
thereby indebted.
For example, in a
letter to Governor Pat McCrory
(January 11, 2013), Mayor Terry Bellamy says, “
we have
invested
more than $70 million in capital infrastructure since FY 200506 (after the Water Agreement
was dissolved), two and a half times more than the previous six years. We project $125.9 million in system
improvements over the next ten years.”
Revenue bonds do not encumber city taxpayers and to imply otherwise, or leave the impression that city
investments have been made (“we have invested”), is less than entirely forthcoming.
General Obligation Bonds, in contrast, are backed backed by the full faith, credit and taxing power of the
City, ensuring there would be no default on debt service. “Full faith and credit” is a phrase used to
describe the unconditional guarantee or commitment by one entity to back the interest and principal of
another entity’s debt. It expresses the commitment of the issuer (the City) to repay the bonds from all
legally available funds, including a good faith commitment to use its legal powers to raise revenues to pay
the bonds. Pledging a unit of government’s “faith and credit” is defined as pledging its taxing power. Voter
approval is not required for all other authorized borrowing methods because they do not involve a pledge
of a unit’s taxing power.
The City has pledged future water customer revenues, net of specified operating expenses, to repay the
$41,800,000 in Series 2005 Revenue Bonds. The bonds are payable solely from water customer new
revenue and are payable through 2026.
The City has pledged future water customer revenues, net of specified operating expenses, to repay
$39,025,000 in Water System Revenue Bonds issued in December 2007. Proceeds from the bonds
provided financing for the replacement of an antiquated pipe system. The bonds are payable solely from
water customer new revenue and are payable through 2032.” ["City of Asheville Comprehensive Annual
Financial Report (CAFR)." June 30, 2013.
bit.ly/1VAkWLp
]
Credit Rating
The City has pointed to its superior credit rating as a positive indication of its financial management
capabilities and as a sufficient justification for maintaining its custody and control of the water system.
It’s true that Asheville has received a top rating from all three credit rating agencies. The City states in it
original brief to the Superior Court (24) that it had a Aa2 rating from Moody's Investors Service and AAA
from Standard & Poor’s. But Metropolitan Sewer District’s (MSD) also has maintained a top credit rating
and is wellpositioned to assume indenture in the event of a merger.
Revenue Bond Rating (June 2011)
Asheville
MSD
Moody's
Standard & Poor's
Moody's
Standard & Poor's
Fitch*
Aa2
AA
Aa2
AA
AA+
*NOTE: “The rating could be impacted by a merging of the district and the City of Asheville's water
system, although if such an event were to occur over the next few years it is expected to be a credit
neutral.”
In fact, in a
recent press release
(December 7, 2016), Moody's announced that it has upgraded the revenue
bond credit rating for MSD’s from Aa2 to Aa1.
Moody’s rating rationale: “The Aa1 rating reflects MSD’s sound financial performance characterized by
ample liquidity, healthy debt service coverage, and comprehensive fiscal planning. The rating also
incorporates the MSD’s regional customer base, adequate system capacity, manageable debt levels, and
satisfactory protections for bondholders.”
Moody’s report also stated that MSD has completed an impact study indicating that savings could be
realized from the merger and the agency will continue to monitor the potential credit impact of a merger.
Not only does MSD hold a revenue bond credit rating comparable to Asheville’s, MSD’s rating, at least as
far as Moody’s is concerned, now surpasses that of Asheville’s. Asheville received a Aa2 credit rating from
Moody's in 2015. The Aa2 applies to $62.7 million of water revenue debt. (
Moody's assigns Aa2 to
Asheville, NC's Water System Revenue Refunding Bonds, Series 2015
)
Dillon Rules
Speaking of the
appeals court ruling
in
Asheville v. State (
2015),
Frayda S. Bluestein
, UNC School of
Government Professor of Public Law and Government writes,
“Relying on precedent dating back to 1903, the court of appeals held that the city is not entitled
compensation, and upheld the entire law as a valid exercise of the General Assembly’s almost unlimited
authority to define the powers of local governments. The lesson is, as I sometimes describe it: What the
legislature giveth, the legislature can taketh away. Indeed, the opinion reads like a primer on North
Carolina local government law and the power of the legislature.”
[Bluestein, Frayda. "Legislative Transfer of Asheville Water System Is Constitutional « Coates' Canons."
October 15, 2015. Accessed March 15, 2016.
http://canons.sog.unc.edu/?p=8258
]
Merger
Functions and Processes
The consolidation of water and sewerage operational and administrative functions has been extensively
planned for, has precedents and, in some cases, already exists.
The State legislature has compiled extensive documentation from meetings, hearings and presentation at
the
Metropolitan Sewerage/Water System Committee website
.
The City has an extensive, if incomplete,
library of documents
on their government Web site related to the
eventual merger, including
Analysis
,
Correspondence
,
Council Updates
,
General Water System Info
,
Legal
Documents
,
Legislative Documents
,
MSD Documents
.
The Metropolitan Sewerage District (MSD) has its own analysis of the eventual merger and has published
documents on their website, including the
Final Report: Impact Study of Proposed Consolidation/Merger
,
a
Presentation of Merger Report March 20, 2013
.
The consolidated functions of the merger has precedent. In 1981, Buncombe County, the city of Asheville
and individual water districts in the county came together and created the Asheville/Buncombe Water
Authority. In 1995, Henderson County joined in, creating a
historic regional group
.
A
Moody’s credit report
puts the regional aspect in concrete terms: The land area of Asheville is 44.2
square miles but the water system service area is 298 sq. miles.
Regional Water Supply and Water Service Agreement
: Section XXI: Regional Water and/or Sewer
Authority, para 21.0: “It is the intention of the parties to this Agreement to establish herein the basis for
the formation of a Regional Water and/or Sewer Authority, which would, at a minimum, include as
members Henderson and Buncombe Counties, the Authority and Asheville. Pursuant to that intent, the
parties herein shall in good faith work towards the creation of a regional authority and the promotion of
said authority to other units of local government in the western part of North Carolina. At the time that
the Regional Authority is created, all assets and improvements accumulated pursuant to this Agreement
shall be transferred to such Regional Authority upon such terms and conditions as are then mutually
acceptable.”
Some consolidated functions of a merger already exist. In its record of an
Asheville City Council
Worksession
, July 31, 2012 (page 2, para 3), “Update on the Metropolitan Sewerage District Water/Sewer
Consolidation Impact Study,” Water Resources Director Steve Shoaf informs city council that, “Customer
service is already merged and produces a
combined services statement
”
And
the Asheville government website states
, “City residents are billed for water and sewerage services
together in one bill.”
The Asheville Water Department webpage states
, “The City of Asheville teams up with the Metropolitan
Sewerage District (MSD) to send out bills to its customers. Water and sewer charges are combined on one
bill providing you with the convenience of one bill instead of two.
Transferring the contracts of the Water Resources Department's 148 employees is not an issue as there
are no contracts to transfer. Water department staff are not contractors, they are employees. MSD has
sent a
formal letter
to the Asheville Water Resources Department employees as an unsolicited act of “good
faith” to reassure them that the merger will not negatively impact their employment contracts, salaries or
benefits, and that MSD in planning for a “smooth operational transition” when the merger takes effect.
Federal and State healthandsafety certifications for employees are not in jeopardy as those certifications
are for people. They are retained for those people and would not be voided in the event of a transfer of the
employee.
Transferring of financial, accounting and information technology systems is not an issue. MSD is ready to
assume operation of legacy systems immediately. Information systems would be operated in parallel with
the current sewerage operational systems and data migration can place over a phasein period under
MSD's control environment.
Training new employees is not an issue. There will be no need for new employees to train. Current Water
Department employees will perform the same job in the same capacity but under new management. In the
event of attrition, expertise is readily available on the market.
Indenture
The issue of bond default and damaged credit ratings in the event of a merger is a nonstarter.
The trial court raised the matter of the
issuance of revenue bonds
and states that the bonds are “secured
by the net revenues of the Water System” and that there is “no provision made anywhere in the Act for
obtaining the consent of the bondholder” for any transfer to an “unrated successor.”
The State has an office dedicated to resolving bond transfer issues and this has already been addressed
well in advance of the coming transfer. In fact, the bonds themselves anticipate this eventuality and
provides for a smooth transference to another political subdivision of the state.
There is no provision in the Water Act for transfer of debt precisely due to the existence of a longstanding
process for handling the intergovernmental transfer of debt obligations as established by the State
Department of Treasury’s Division of State and Local Government
.
State Treasurer Janet Cowell said in a
October 2015 radio interview
, “we put in an oversight system, called
the
Local Government Commission
run through the Treasurer's Office and we look at the finances for
every single unit of government. We help them issue debt and just make sure that everything stand
between the guard rails. In the situation with Asheville, we are sort of the technical adviser to the situation
and all of this gets complicated because, actually, the bill is drafted strangely, so it was not clear: does this
need to go through the Local Government Commission? But we're trying...my goal is to make sure that
everything is smoothfunctioning, that there's no disruption to the bond market in North Carolina, you
know, that the operations continue and try to work with everyone to make sure that that is what happens.”
The assumption of debt of one subdivision of the state by another is a phenomenon with which the City is
very familiar. That is precisely what they themselves did when they annexed several existing Buncombe
County water districts as noted in the appeals court ruling in
Asheville v. State (2008)
(cited above).
Notes
North Carolina Law Review
Volume 45, Number 2 (1967)
Joseph S. Ferrell, Local Legislation in the North Carolina General Assembly, 45 N.C. L.
Rev. 340 (1967)
