County Water and Sewer Districts were created to allow counties to provide water and sewer service to discrete populations. With encouragement from USDA lending programs, many counties created several of these districts, especially counties in rural areas. Over time, it has become a challenging administrative process to manage all of the separate districts. The districts themselves are a separate legal entity and therefore are able to contract, borrow money, acquire land, and set rates all on their own. While this independence has its advantages, it can also lead to complexities on the backend for operations and accounting.
Our team has helped multiple clients, with the most recent being this year, find ways to streamline this process and make it easier for finance officers and public utilities directors alike. A tool we have utilized in practice is an operating agreement between a county and its water and sewer districts. This is a contract whereby a county assumes all operating activities of the districts (rate-setting, billing, maintenance, etc.) The county can then maintain the financial and operational health of the districts as a whole by setting variable rates or one uniform rate for the system. In addition, the expenditures and revenues may be consolidated for accounting purposes as noted in ยง 162A-6(8). This a can be a real time-saver in a county with several districts.
This agreement also works regardless of any debt or bonds the districts may have accumulated before the operating agreement is adopted. No bond documents or debt instruments need to be changed solely because of the agreement itself. Furthermore, the agreement should have no impact on the ability of individual districts to borrow money in the future.
North Carolina law allows for local governments to contract with other local governments (including limited-purpose entities like water and sewer districts) for any undertaking. Thus, our operating agreement essentially takes the form of an interlocal agreement. Once the agreement is in place, all that is needed is a resolution from the County Board adopting the agreement. Fairly straightforward and better yet, no formal Local Government Commission (LGC) approval is required, though we have previewed this approach with USDA and LGC staff, and the LGC has routinely signed-off on county financial statements reflecting this approach.
Contact us: info@shalawgroup.com if we can help you decide if this approach is right for your community!
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