City memo: if Cane Creek merger happens, City/MSD will end up subsidizing Henderson development

In a memo to city of Asheville officials, staff analyze a study of the Cane Creek water and sewer system, asserting that if the system merges with the city’s and the Metropolitan Sewerage District, Buncombe residents will end up “subsidizing the cost of system expansion and real estate development in northern Henderson County.”

The full memo is below:

To: Mayor Terry Bellamy

From: Lauren Bradley, Finance & Management Services Director
Steve Shoaf, Water Resources Director

Subject: Proposed Sewer District consolidation and Cane Creek FY 09 Drainage Basin Study

CC: Asheville City Council Members

The purpose of this memorandum is to respond to questions raised during the December 11, 2012 City Council work session on the proposed water and sewer utility consolidation. City Council asked for additional information regarding the inclusion of the Cane Creek Water & Sewer District in a regional utility as well as the Cane Creek Water & Sewer District FY 09 Drainage Basin Study (“Drainage Basin Study”).

Staff reviewed the Drainage Basin Study and would offer the following highlights and areas for further consideration. It should be noted that these points are drawn from the content of the report, a draft report dated 2009, and that further in-depth analysis, access to updated information, and coordination with Henderson County officials would be necessary to develop complete and comprehensive conclusions. In addition to the Drainage Basin Study, staff also review related planning documents including Henderson County’s 2020 Comprehensive Plan and the Etowah Horse Shoe Communities Plan.

Highlights from the study

• According to the 2009 study, the Cane Creek Sewer Utility served 6 industries, 229 commercial businesses and 2740 residential customers.

• The study indentifies $26.27 million in capital needs between 2010 and 2029. Projects are categorized by “Immediate Needs,” “Short-Term Projects,” and “Long-Term Projects.”

• The study projects the need for additional wastewater capacity over the next 20-25 years. The study states that, “The [Henderson] County will have to participate in the funding of an upgrade to MSD facilities at some point in the future to accommodate additional flows.” The study goes on to recommend that Henderson County begin negotiating with MSD for a new allocation and board representation while exploring the option of constructing a treatment facility in northern Henderson County.

• The district was studied in detail for sewer line extensions and the provision of sewer service with possible service areas including the Etowah/Horse Shoe community and Mills River west of NC 280. There are relatively large tracts of vacant land in these areas.

• The study shows that Cane Creek’s cost of wastewater treatment at the time of the report was $4.14 per 1000 gallons of flow. Over the study period, the report shows the unit cost going down to $4.04 per 1000 gallons of flow due to expanding from 750,000 gallons treated daily to 2 MGD. If the system is projected to grow from 750,000 GPD to 1,000,000 MGD between now and 2019, the study is projecting approximately 30% growth over that time period. The growth rate between the report date and build out (2029) is 167%. The study’s Capital Improvement Plan is spread out to 2029, but much of the expenses in the plan are upfront.

Preliminary questions and areas for further consideration

• Henderson County’s 2020 Comprehensive Plan states that Henderson County should establish and fund a 10 year Capital Improvement Plan that is adequate to fund planned investments in water and sewer infrastructure. The plan goes on to say that this would “require a permanent source of revenue.” If utility consolidation does not occur, what is Henderson County’s plan of finance for future capital needs? Debt funded by utility rate increases? County General Fund? Does this study represent Henderson County’s most current capital projections? The rate impact of $26.27 million in capital needs (as identified in the Drainage Basin Study) on a system of 2740 residential customers could be significant. The financial analysis section of the executive summary is not included in the draft report.

• If utility consolidation does occur, what would be MSD’s plan of finance for capital needs in Henderson County? If those capital costs are shared by water and sewer rate payers in Buncombe County, those rate payers would essentially be subsidizing the cost of system expansion and real estate development in northern Henderson County. In addition, Asheville water rate payers and MSD rate payers would be accepting the unfunded liability of renewal and replacement of existing infrastructure in the Cane Creek service area.

• What are the study’s assumptions for achieving approximately 30% growth by 2019? 167% by 2029? What are the assumptions for projecting a decrease in average cost per unit when there is such a large increase in fixed cost over such a short period of time? The rate of growth projected in the study is significant. Typically, to achieve that rate of growth, the infrastructure would have to be built first and real estate development would follow. Under a consolidated utility scenario, Asheville water and MSD rate payers could be taking on the development risk for those areas indentified in northern Henderson County by funding system expansion.

• Would utility consolidation include the private sewer systems/package plants in the Cane Creek service area? There are 18 private systems identified in the Drainage Basin Study. The Etowah and Horse Shoe Communities Plan, adopted by Henderson County, includes a recommendation stating, “Five (5) existing private wastewater treatment plants are located on the French Broad River in the Planning Area. Three (3) of the private wastewater treatment plants are in the Upper French Broad River Watershed (WSIV). Privately owned wastewater treatment plants are more likely to malfunction than publicly operated systems resulting in degraded water quality. A feasibility study should be conducted focused on consolidating the existing wastewater treatment plants into one publicly controlled and operated plant.” In addition, Henderson County’s 2020 Plan states, “The County should study the feasibility of establishing public sewer service in the Etowah area and other areas in the County, especially those with private package plants, in light of the growth management strategy plan.” Has a feasibility study focused on consolidating existing private systems into one public system been conducted? What are the capital needs and what is the financial impact?

• Would utility consolidation include Hendersonville’s water and sewer system? Henderson County’s 2020 Plan calls for county-wide water and sewer infrastructure planning and management. However, the report also states, “Hendersonville and other local governments recognize the strategic importance and value of the water and sewer infrastructure. Therefore, the probability of these assets simply being turned over to a regional entity is slight.” Hendersonville Water and Sewer is responsible for providing water service to more than 62,000 residents and businesses of Hendersonville and Henderson County and sewer service to more than 19,000 residents and businesses.

• What does the financial forecast of a combined City Water, MSD, and Cane Creek utility show? City staff’s analysis of possible merger scenarios showed that water and sewer consolidation under MSD (without Cane Creek) could produce positive cash flow for the sewer rate payer by taking the City water system’s contribution to community infrastructure and shared central services. However, the maintenance and capital improvement needs of the Cane Creek system could feasibly exceed that cash flow. What would the impact be on consolidated water and sewer rates?

Next steps

Utility consolidation including the Cane Creek Sewer District warrants further comprehensive analysis. A complete analysis of the impacts of a utility consolidation including Asheville’s water system, MSD’s wastewater system, and the Cane Creek Sewer District would be necessary to fully understand how a merger would impact the equity of each respective customer base in its existing system. This type of analysis would require an in-depth third-party review of detailed financial records, capital plans, and facility/infrastructure needs from all three systems.

City staff will follow up with Henderson County officials to request additional information about the Drainage Basin Study and discuss the questions outlined above. Staff will also be prepared to review the analysis MSD is prepared to conduct in January 2013 evaluating the impacts of a merger with the Cane Creek Sewer District and will continue to provide updates to City Council.

Please let us know if you have any further questions.


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0 thoughts on “City memo: if Cane Creek merger happens, City/MSD will end up subsidizing Henderson development

  1. tatuaje

    Thank you Xpress for covering this and to the City for realizing one of King Moffitt’s & Chuck McGrady’s reasons for forcing an Asheville water system takeover.

    McGrady, FROM HENDERSONVILLE, will provide to his city, free of charge, a brand-spanking-new water treatment plant, one that they’ve needed for years, but couldn’t afford mind you. This will also force residents of Asheville to subsidize real estate development in Hendersonville.

    I wonder if McGrady or Moffitt, or any of their friends & relatives, might happen to own vacant land in Hendersonville Co. that might benefit from these subsidies….

  2. Chuck McGrady

    I’m disappointed, although not surprised, that the Xpress printed the memo produced by the City under the headline that a water and sewer merger will have the City and MSD subsidizing development in Henderson County. Of course when one reads the memo, its authors state that their questions and observations are largely based on review of a “draft report.” The city staff’s report is preliminary, at best, since it doesn’t include a review of other documents from MSD and Henderson County.

    What does surprise me is that the City’s staff relied on a draft report out of Henderson County when MSD has studied the merger of Cane Creek and MSD and not come to the same conclusion as the City report. It is also curious that no where does the City staff note that the merger would also include the $4.7 million in Cane Creek reserve for capital needs.

    I hope both the City’s staff and Xpress will get MSD’s analysis of a Cane Creek merger. Again, my understanding is that MSD doesn’t come to the same conclusions as the City’s staff.

    As for tatuaje’s comments, the assertion that the merger will provide Hendersonville with “a brand-spanking-new water treatment plant” is just plain false. Hendersonville doesn’t need a new treatment plant, and even Henderson County’s needs can be completely met by MSD. MSD has excess capacity and is already treating the sewerage from the Cane Creek system.

    And personal attacks on me—asking whether I own any vacant land in Henderson County—hopefully will not be viewed as credible.

    I’ve spent almost my entire adult life as an environmental leader. I led the successful effort to adopt a land use ordinance in Henderson County, and I’ve been involved in numerous efforts to acquire and protect public lands. I’ve never been affiliated with development interests, and I’ve never as a public official done anything to financially benefit myself or my family.

    And, by the way, to specifically answer tatuaje’s suggestion, I don’t own any vacant land in Henderson County that is served by MSD, Cane Creek, or the water system operated by the City of Asheville. I own no land within their service areas.

    • Ascend (of Asheville)

      You Sir are writing the bill. Prove those of us who suspect your motives wrong. You have every opportunity to do the right thing, but until your actions, motives and plans are revealed through your actions, you can protest all you want but you will not have our trust. You were not elected by us. You do not represent us, and the man who does has motives even more suspect than yours.
      Show us your best, Sir, because we fear the worst.

  3. bsummers

    Tat – it’s important to recognize that the prime beneficiary of all this is not the City of Hendersonville, but Henderson County, more specifically, northern Henderson County. That’s where the real estate, commercial development, etc. has been stymied by lack of infrastructure.

    It’s a little simplistic, but Hendersonville plays a similar role in Henderson as Asheville does in Buncombe. They control the utilities that developers in the outlying county want directed to make their projects financially viable. Hendersonville water/sewer can’t or won’t serve northern Henderson County, so McGrady & his fellow cohorts have found a way to get that, & as a bonus, they will put the squeeze on us here in Asheville/Buncombe to pay for it.

    The City of Hendersonville wants nothing to do with all this anymore than Asheville does, but truthfully, they are next on the menu. It won’t surprise me at all if the bill written by McGrady grabs their water and/or sewer to be made part of MSD also. He’s suggesting that that is coming, but whether he tries to do it all in one grab remains to be seen.

    • chuckmcgrady

      Another fictional report from Barry. First, I’m not aware any “real estate, commercial development, etc. has been stymied by lack of infrastructure” in northern Henderson County.

      Second, you are mistaken is saying that Hendersonville water can’t or won’t serve northern Henderson County. In fact, Hendersonville’s water lines go all the way to the county’s northern boundary. It is true, however, that sewer cannot be extended to the northern part of the county in a financially viable way. That is why there is the Cane Creek system.

      And I’m sorry to disappoint you by telling you again that I don’t expect any surprise regarding Hendersonville. I’ve told you this several times, but you continue to like to spread that rumor.

  4. Margaret Williams

    Thank you for the comments, responses and clarifications, Tatuaje, BSummer and Rep. McGrady.

    This post reports the assertions of a city-staff memo, obtained by Xpress (and noted in the headline as such). Everyone is entitled to an opinion, and cares deeply about the outcome of these proposals, but do keep things civil and respectful.

    • chuckmcgrady

      Margaret, My only request is that when the Mountain Express actually “reports” on the issue, that someone talk to MSD. MSD has actually studied the Cane Creek system.

    • Margaret Williams

      Thank you, Rep. McGrady. I’m trying to get hold of that report and have asked the reporters closest to the issue to do so (Contributing Editor Nelda Holder and Senior Reporter David Forbes).

  5. bsummers

    Rep. McGrady – is it true that the City had to file an open records request with Henderson County in order to see the 2009 Cane Creek draft study? And can you tell us why MSD dropped the language from their merger proposal that keeps water and sewer accounting separate? Gen. Mgr. Tom Hartye said they did it after meeting with you, and hearing that you intended to go ahead the Cane Creek merger:

    http://tinyurl.com/c7qjdh5

  6. chuckmcgrady

    I don’t know anything about the need to file an open records request. I also don’t know about MSD dropping any language from its merger proposal, but at the MSD committee meeting I did publicly state that the legislation would include the merger of at least MSD, Cane Creek, and the water system operated by the City of Asheville.

    • bsummers

      Yes, and Tom Hartye told the MSD Board at the next meeting that they dropped the separate water/sewer accounting promise specifically because you included Cane Creek.

      I think it’s a fair matter of concern to Buncombe ratepayers, whether they be water or sewer, to find that those monies will now be merged, solely in order to accommodate bringing in Henderson County sewer.

      Someone in the press ought to ask Mr. Hartye to more fully explain that, especially since he didn’t see fit to tell MSD’s Planning Committee about that change until after they had voted to approve the proposal.

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