News: CJ Exclusives

Struggling small towns weigh merging public services with larger jurisdictions

Image courtesy Pixabay
Image courtesy Pixabay

Possible GenX contamination in municipal water supplies is a reason cash-strapped municipalities have discussed merging public works systems with larger cities and counties.

The UNC School of Government’s Environmental Finance Center is working with the Local Government Commission in the state Treasurer’s Office and the Department of Environmental Quality’s Division of Water Quality to find solutions. Treasurer Dale Folwell has consistently warned about the financial stability of some municipalities.

Jeff Hughes, director of the center, told Carolina Journal dozens of depopulating towns and cities have seen businesses leave and tax bases shrink. They haven’t been able to maintain water and wastewater infrastructure.

The presence of GenX and some emerging contaminants pose public health and environmental hazards and enormous mitigation costs, Hughes said.

“If your local government or small local utility is having a challenge dealing with historic water and wastewater challenges, how are they going to be positioned to deal with some of these new threats coming down the line?” he said. “I think that is what is driving quite a few of the communities to be really open to new options.”

An inability to provide sustainable water and wastewater services could pose public health and environmental threats, Hughes said. A merger might be the best option for those on a list of the 42 most troubled financially. Not all of them are in small towns.

“It’s not like we can automatically say you’re not a strong utility, therefore your folks are drinking contaminated water,” Hughes said. But the link between financial condition and potential public health risks has become more worrisome in recent years.

Improved business practices could shore up some operations. Other communities don’t have that option, Hughes said. “It’s not just about raising water and sewer rates a little bit or cutting costs a little bit.”

To fix problems and operate efficiently, ratepayers in those struggling towns and districts would have to pay hundreds of dollars more a month. Creating DEQ grant incentives to merge is among alternatives under review.

The Environmental Finance Center works with municipal clients in North Carolina and other states.

The Local Government Commission had a robust discussion during a July meeting, warning some small and shrinking towns they might need to dissolve.

Folwell would welcome legislative involvement to help fix the infrastructure crisis.

“We will see opportunities, I think, to combine water and sewer districts,” Folwell said. His office has been working with Hughes’ group for more than a year to merge water and sewer districts in Fairmont, Fair Bluff, Proctorville, Cerro Gordo, and Boardman into the larger system in Lumberton which has excess capacity.

The Local Government Commission maintains a Unit Assistance List of government entities whose shaky fiscal audits bear close monitoring. In 2018 it included 88 municipalities, four utility districts, and 16 counties. Just 21 improved their standing since 2017. Most worsened or remained unchanged. Hurricane Florence likely magnified their plight. Hurricane Matthew didn’t help.

“As a result of [Florence] a lot of these areas that were under financial pressure before are under even more pressures of all types now,” Folwell said. Matthew’s damages still haven’t been fully assessed.

“It’s not just water and sewer districts that are under pressure, it’s actually entire cities, some who have lost their tax base for one reason or another, some of whom were created as a defense mechanism, for example, to involuntary annexation.”

Some water and sewer districts might have as few as 15 customers.

“There’s just no way they’re going to be able to financially make it,” Folwell said.

Hughes said some communities recognize they should seek state help, even if it means relinquishing local authority through mergers.

Others that will want to continue providing their own service, he said, “even after almost all evidence suggests that it’s going to be challenging, [and] not going to get any better.”

Folwell’s office has suggested creating a new legal jurisdiction: historic charter municipality. Those entities would retain a mayor and a governing body, with its tax, service, and utility operations assumed by a larger municipality or the county.

Merging operations should be viable for some communities, especially in eastern North Carolina, said Christina Alphin, Village of Marvin administrator. She said Kinston, where she formerly served as city clerk, has been exploring combining various services with Lenoir County.

“It’s not a viable option for Marvin, or Union County,” Alphin said. Marvin is relatively new, having been incorporated July 1, 1994. With about 7,900 residents it is among the fastest growing municipalities in North Carolina.

She said there have been occasional discussions about Marvin sharing fire and police, public works, and facility maintenance with the county.

Marvin might intensify those talks if the moves would increase efficiency and provide greater bang for the buck, Alphin said. But she added such changes may be five or 10 years down the road.

She thinks the General Assembly has denied local governments’ ability to raise revenues for maintaining and improving water and sewer services. She cited as an example the legislature eliminating local business privilege licenses without giving local governments a way to recoup the money.

“Some of those municipalities heavily relied on some of those revenues to supplement some of their general fund services,” Alphin said. Without the money, municipalities must delay needed repairs, consider tax and/or rate increases, or generate cost savings by merging.