It seems like almost everyone, including regulators and utility organizations, recognize the benefits and need for expanded partnerships and collaboration in the water and wastewater sector. Small towns are finding it difficult to meet their growing infrastructure and regulatory needs and are talking with each other and their larger neighbors about different regional service models.
Partnerships are not limited to small systems; the cost of new water and wastewater supply is so great, that even large, financially healthy systems are increasingly working together to share costs and partner on large facilities. Most of these partnerships involve two or more utilities working together, but in at least one North Carolina county, one of the key partners in many of the region’s recent water partnerships is a local government that is not a direct utility service provider. For more than 20 years, Catawba County has assisted many of the municipalities in the county to install high impact water and wastewater projects without ever sending out a single water or wastewater bill to a retail customer.
Years ago, when faced with the challenges of providing water service to rural schools, the County realized that the municipal service providers, while willing to help, did not have the financial resources or incentives to extend their municipal systems deep into the county. In response, the County developed several approaches for partnering with municipalities that have resulted in millions of dollars of investment and large areas of the county gaining service. The County works closely with municipalities and, in some cases, projects are initiated by the county and sometimes by municipalities.
Catawba County deploys two general approaches:
Revenue sharing agreements. For appropriate projects, the County will invest in installing new infrastructure designed to serve new customers with water and/or wastewater services from an existing municipal utility. In some cases, Catawba County is able to access grants and other subsidized assistance for the projects. Specific contracts vary, but, in general, the agreements stipulate a long term (as long as 40 years) revenue sharing agreement where the County recoups the cost of its investment by retaining half of the revenue from customers served by the infrastructure and the participating municipal utility retains the other half to cover their operating costs. Customers along the new lines pay double the rates of what customers inside the city limits pay in order to compensate for the higher costs of running rural low density infrastructure. Municipal utilities have access to new customers without having to make the initial investment, and the County has a cost effective way of serving its unincorporated areas without having to get into the retail business.
Revolving loan program. Catawba County also runs their own revolving loan program in which the County provides a highly subsidized loan and grant mix to municipalities for them to install high impact community or economic development water projects. The loan portion (typically 75 percent) is paid back over 10 years at zero percent interest.
Even with the revenue sharing agreements and revolving loan payments, this approach does require seed investment funds which are raised through a dedicated portion of county property tax and a small portion of sales tax each year. One of the keys to making these arrangements is successfully navigating governance and regulatory issues. Under the revenue sharing model, the County maintains ownership of the infrastructure but all operation and regulatory responsibility stays with the municipal service provider. Under the revolving loan model, the assets belong to the municipality from the outset and the County only serves a financial catalyst role. In both cases, the County and its staff can focus on community development and infrastructure investment and the municipal utility staff can focus on operating the systems.
This post was initially published for the Community and Economic Development (CED) blog on October 25, 2017.
Jeff Hughes is the director of the EFC at UNC. Jeff works with local governments, not for profit organizations, and private companies to identify and implement innovative methods of financing and maintaining environmental facilities and programs. Jeff has a Masters in Water Resources Engineering from the School of Public Health, University of North Carolina at Chapel Hill and an undergraduate engineering degree from Duke University. Jeff served as the Chatham County Public Works and Utility Director between 1996 and 1999. He has worked extensively overseas as an environmental finance specialist with the Research Triangle Institute, providing technical support and training assistance to local and national governments throughout Eastern Europe and Africa.