Reluctant partners: Asheville, MSD take tentative steps toward merger

On May 4, 2011, freshman state Rep. Tim Moffitt of Buncombe County filed a brief bill calling for the transfer of Asheville’s water system to the Metropolitan Sewerage District. Although the bill didn’t mention the city by name, its language pointed directly to Asheville and Buncombe County.

The move sparked a firestorm of protest — apparently, neither party had been warned — and the legislation quickly morphed into a request for a study committee to consider whether combining the two would best serve the public interest. One year and four public hearings later, that committee — headed by Moffitt — recommended proceeding with such a merger.

According to the committee’s report, released April 19, the benefits would include "economies of scale" in the areas of administration, planning and engineering, plus having a "single location for water and wastewater availability and planning."

But the Legislature’s usurping a city-owned utility didn’t sit well with either City Council or many Asheville residents. On Feb. 14, Council adopted a resolution opposing the merger, which was also decried as a move toward privatizing a public asset — a charge Moffitt categorically denies. Meanwhile, there’s been no answer to the glaring question of what compensation, if any, the city would get for the loss of its water system; estimates of its value vary wildly, from $173 million to $1.3 billion.

Moffitt's committee did extend a slender olive branch, however. The report also states: "Should the interested governments craft their own solution for consolidation, which achieves all the objectives of the committee, before the 2013 North Carolina General Assembly convenes, due consideration would be given to the local plan. Action will not be taken if the parties are engaged in good-faith negotiations on this matter."

Playing it straight

Despite the city's public opposition to the legislative mandate, both Asheville and MSD appear to be taking the “good-faith negotiations” concept seriously.

On June 12, the city hired former City Manager Doug Bean, who’s now with Raftelis Financial Consultants, to handle communications concerning the water system’s finances. And in a June 19 letter to Moffitt, Asheville Mayor Terry Bellamy addressed various issues raised in the study findings, including a 1996 conservation easement for the North Fork and Bee Tree watersheds; an extension (to 2014) of the deadline for determining the fate of the disputed 137-acre Brevard Road property that Asheville conveyed to Henderson County under the terms of the now defunct 1995 Water Agreement; and initiating discussions between the city and Henderson County on Asheville’s continuing to provide (and possibly expanding) water service there.

Meanwhile, the MSD board had written to Bellamy May 18 proposing direct talks on the legislative committee’s recommendations and how best to proceed. The board has also been working with city staff to gather and analyze information on the two systems, and on July 18, board members approved paying consultants Malcolm Pirnie/Arcadis $197,500 to produce an independent study of the potential merger’s impacts.

The Legislature created MSD in 1962; in 1990, various local sewage systems were folded into it. Today, the agency operates and maintains a 40-million-gallon-per-day wastewater-treatment plant and some 750 miles of sewer lines spanning 16 political subdivisions within Buncombe County.

According to Council member Chris Pelly, who serves on the MSD board, the city also wants to meet with the local legislative delegation. "We're playing this straight," he says about the Legislature’s good-faith-negotiations clause, adding, "Asheville's gone above and beyond to do that."

Does it make sense?

Faced with a potential merger, MSD is focusing on gathering and evaluating facts.

"We're engineers here, and this is an engineering-run organization," says Tom Hartye, the agency’s longtime general manager.

Such a merger, notes Hartye, “has been talked about before. Instead of being a Republican issue, it was a Democratic issue; everybody was pushing toward regionalization, and we were looking at it." But that was several years ago; the current proposal, he admits, "came out of left field." And that, he believes, distracted people from the real issue — whether a regional approach makes sense.

"You know, everybody thought so five years ago, and 85 percent of the water-and-sewer utilities across the United States are combined. It makes sense because they're similar types of service industries, similar types of people, similar types of background," continues Hartye. "You can have combined support services as well — that's information-technology support, personnel support, all these expensive things are similar for wastewater [and] for water. And telemetry … and mechanical facilities. There's a lot of synergies there."

Putting ratepayers first

Another potential benefit of a merger may be insulating the utility from politics, which Hartye concedes “ties it in knots.” Many municipalities, he observes, may look at "a rate study here, an engineering study there … and then when the budget time comes, they go one year at a time and they say, ‘Well, can we afford next year?’” Such conflicts can be compounded when board members run for office.

Richard Whisnant, a professor of public law and government at the University of North Carolina School of Government, agrees. In theory, he says, an agency that’s one step removed from the city or county government has more flexibility when it comes to raising rates. Elected officials, says Whisnant, may be "trying to keep prices as low as possible," even if it means delaying basic maintenance and long-term capital investments.

In North Carolina, cities typically provide water-and-sewer services, notes Whisnant, a former general counsel with the state Department of Environment and Natural Resources. But in the past five to 10 years, he reports, there’s been a statewide movement toward consolidation, with smaller systems feeling pressure to consider regional mergers.

"Cities have seen water-and-sewer services as a means of growth management," he observes, "which I'm sure is a factor in the [Asheville] debate. But one example of a merged system that is somewhat like the proposal for Asheville would be the Chapel Hill/Carrboro/Orange County merger that was created by the Legislature.

"When you lay aside all of the history and personal feeling," asks Whisnant, "how are you best able to serve ratepayers?"

Pelly says he’s gotten a taste of that perspective in his first year as a city-appointed MSD board member. And though he’s leery of having the public "one step removed" in a potential merger involving a non-elected board, Pelly concedes that he’s “taken to heart" the mantra that’s expressed at almost every MSD board meeting: You're here to look out for ratepayers, not the city that appointed you.

Nonetheless, Pelly remains opposed to a merger. "I'm a good-government guy,” he asserts. “If there's a good reason to do it, I'll do it. [But] nobody's been able to present a good case for doing this."

Pulling it all together

The impact study’s first-phase results are due in October, and Hartye knows what he hopes MSD will learn from them.

It relates to the agency’s 10-year plan, which addresses the basic maintenance, capital improvements and rate increases (reviewed and perhaps adjusted annually) needed to keep the system functioning properly while avoiding unanticipated costs. This big-picture approach, he says, helps avoid sudden hefty rate hikes.

“It’s all right there," says Hartye, referring to a boiled-down, one-page version of the plan that he describes as “digestible by a board.” "When there's a problem in planning," he continues, it's often because a council or commission doesn't have that "pulling-it-all-together [perspective].”

That kind of comprehensive planning, he believes, is another potential benefit of a merger. The impact study, says Hartye, should "quantify things and take a look at those [planning] issues.

"There must be something to the fact that these two types of utilities are combined largely across the United States, because there are efficiencies. This study will take a look at those — without governance issues, without asset-worth issues.”

Instead, he says, the consultants will “take a look at asset-condition issues … at what level [the city is] replacing [aging infrastructure]. Everybody seems real happy with the [water] system right now, but in 10 years? We'll be looking at that. And then we'll be looking at the operation and how it could function together and save money."

MSD board Chair Steve Aceto, meanwhile, points out that a merger can take time. "When we dealt with sewer consolidation in the ’80s, that process started back in the ’70s,” he recalls. “We were meeting for a couple of years before an agreement was hammered out.

“We’re going to feel a lot better when we get our impact study," Aceto predicts. "The idea is to get it in hand before the Legislature meets again, so that if we do get to negotiate in earnest with the city, we have a month or two to do that.”

MSD, he notes, “has a fiduciary responsibility to operate for the benefit of the ratepayer. Is there some sort of impact that would be negative that we didn't already know about? So if we have to negotiate, we can do so intelligently — and if [a merger is] handed to us, know how loudly to scream."

— To view documents referenced in this story, go to avl.mx/ir.

Nelda Holder can be reached at nfholder@gmail.com.

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