“To be or not to be?” This is the famous question that haunted Shakespeare’s Hamlet as he struggled with his existence. It is now also the question that may be haunting some municipal water managers throughout North Carolina after a recent North Carolina Supreme Court decision involving water impact fees. The School of Government’s Local Government Finance Attorney Kara Millonzi recently wrote an excellent blog on the case that explains the legal background and repercussions. Read it!
At the heart of the issue is the phrase “to be” that is found in the enabling statutes that authorize water fees for some types of utilities in North Carolina (Water and Sewer Authorities, County Water Districts). These words are not found in the almost identical statutes that authorize fees for other public water utilities (Counties, and Cities):
Municipal (City) Water and Sewer Fee Authorization
(a) A city may establish and revise from time to time schedules of rents, rates, fees, charges, and penalties for the use of or the services furnished by any public enterprise.
Water and Sewer Authority Fee Authorization
(a) An authority may establish and revise a schedule of rates, fees, and other charges for the use of and for the services furnished or to be furnished by any water system or sewer system or parts thereof owned or operated by the authority
Water and Sewer Authorities are granted the power to charge fees for services “to be” furnished whereas Cities are granted authority to charge fees only for services furnished. The resulting decision means that water fees referred to as system development charges, capacity charges, and impact fees that are calculated and justified based on services (infrastructure) “to be” installed in the future are permissible for Water and Sewer Authorities but (at least some of these fees apparently are not) for Cities such as Carthage, the subject of the case, who had developed their fees to cover future investments.
There are many ways of calculating and labeling up front water fees across North Carolina as shown in a detailed survey of these fees carried out by the Environmental Finance Center in 2015. Industry standards put out by professional organizations (such as the American Water Works Association and the Water Environment Federation) that guide consultants in advising how to calculate system development charges include multiple methods for calculating these charges, some which consider future costs and some which only consider past costs. The North Carolina case highlights how important state law and state cases are in determining acceptable practices. Utilities across the North Carolina now will have to examine how they justified their fees and work with their attorneys to carefully evaluate the legality of their existing fees.
For more information on the court case, see Kara Millonzi’s blog. We will provide more information and guidelines on these and other water charges in future posts.
Note: blog was updated 9/22/2016 to reflect that the decision referred to a specific fee that was used by Carthage and does not necessarily rule out the use of all fees for future investments. “Future investments” are not synomous with future services — many future investments are absolutely essential to maintain current services.
Image source: https://gordoncstewart.com/2016/01/04/the-question-to-be-or-not-to-be/