Partnerships and Regionalization—A Real Life Situation

Did you know there are over 250 publicly owned small water systems serving less than 1,000 connections in North Carolina? In the case of water and wastewater utilities, bigger can often mean better.

The Environmental Finance Center at the University of North Carolina at Chapel Hill was asked earlier this year to take the lead on a wastewater regionalization study for a small town of 700 people in Western North Carolina. The Town (which will remain anonymous as the study is still in progress) had been awarded a regionalization grant from the North Carolina Department of Environmental Quality’s Division of Water Infrastructure (DWI) to study alternatives to their existing wastewater business model.

The Town faces multiple issues surrounding its wastewater system: an aging plant that needs significant renovations; environmental concerns regarding discharge location; and its largest industry left town some years ago, taking a significant amount of revenue along with it. With no anticipated growth and only 330 residential connections to spread costs over, the Town is looking for ways of serving customers without unbearable rate increases.

Less than one mile away, the neighboring city of over 10,000 people has a much different story. This City has plenty of capacity in their wastewater treatment plant, a good record of environmental compliance, and a strong residential and industrial customer base. The City’s in-city rates are lower than the previously discussed Town’s rates and, best of all, they have shown interest in providing service to the Town.

After developing a work plan, we started with informal conversations with each of the potential regionalization stakeholders. Stakeholders include the Town, the City, local county planning and economic development officials, representatives of the State Treasurer’s office and DWI. These conversations were invaluable not only in learning the history of this situation, but also allowing the stakeholders to clearly state their individual goals. Without these important conversations, assumptions would have been made that may not have been applicable to this exact situation. These conversations also revealed a high level of trust between the Town and the City—a valuable asset in regionalization efforts.

We also researched case studies of other regionalization efforts across North Carolina to demonstrate to the Town and the City that they are not blazing new ground should they enter into a regionalization partnership, as well as that there is flexibility in the potential processes to pursue a successful partnership. Two of the case studies included a payback period for improvements made as part of the regionalization process, which our team felt was especially applicable to some of regionalization options explored below.

Potential Solutions

With a good foundation of institutional knowledge, our EFC team developed a menu of specific regionalization options for the stakeholders. The resulting options can be summed up as follows:

• Option 1: Leave the Town as is and invest in the existing infrastructure.
• Option 2: Have the Town extend its collection system to the City’s facilities and purchase bulk service from the City. This option appears to be one of the most obvious solutions since the Town and City had previously entered into a bulk services contract prior to this study.
• Option 3: The same as Option 2, except the City would own and finance the interconnection.
• Option 4: Full regionalization; in this instance the City would own and maintain the Town’s collection system and also own and finance the interconnection.
• Option 5: The County’s existing sanitary district takes over ownership.

For each of the regionalization options we also examined a number of funding possibilities. These included traditional bonds, partial loans and partial principal forgiveness, and the use of existing capital reserve funds. The loan terms considered included market based loans, zero interest loans, current state revolving fund loan terms, and loans of 20 to 40 years in length. Recognizing that some of the potential regionalization options and funding possibilities combinations may not be probable for certain situations, we felt it was important to show the breadth of what was available. For Options 3 and 4, we also looked at the impact of various payback periods for improvements made as part of the regionalization process.

Next Steps

Our EFC team expects to submit a final report to the Town and the rest of the stakeholders by the end of August. Some questions are expected and there may be the need to qualify some of the work produced, but we are looking forward to meeting with the Town, the City, and other stakeholders to talk about the final report and what they want to consider moving forward.

Key Takeaways

It was refreshing to work with potential partners that trusted each other and were willing to look to solutions that benefited the region as a whole. It was also important to understand that the potential regionalization of the wastewater systems would probably only work if one of the systems was healthy and large enough to consider a partnership with a smaller system. Finally (and most importantly), how you pay for it matters; the Town and City both expressed their concern of a regionalization option that would have a negative impact on the rates their residents pay for wastewater service. In the end, we were able to address their concerns. Check back in a few months to see what decision the stakeholders will find most beneficial and plausible.

Tom Roberts is the Community Assistance Manager for the EFC at UNC. Tom provides in-depth advising and technical assistance to environmental service providers on finance and management issues. Tom’s primary focus is supporting two projects funded by the US Environmental Protection Agency: one working with small systems across the country and one working with medium-sized systems in each of the EPA’s 10 regions. Tom has an Associate in Applied Sciences in Civil Engineering Technology from Delaware Technical and Community College and a Bachelor of Science in Business Administration from the University of Phoenix. Before joining the EFC at UNC, Tom was the president and chief operating officer of Aqua North Carolina Inc., where his responsibilities included the oversight of the operations and maintenance of over 700 water and 60 wastewater systems located throughout the state.