LGC frowns on Polk water contract

Published 12:38 pm Friday, January 30, 2015

by Leah Justice


The N.C. Local Government Commission (LGC) made it clear during a Jan. 8 meeting that it would not approve of a proposed contract between Polk County and Inman-Campobello Water District (ICWD) because of the possible burden it could leave on taxpayers.

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The LGC is part of the N.C. Department of State Treasury and because the proposed contract includes a possible future debt on Polk County to ICWD, the LGC said it couldn’t approve.

The meeting, held in Raleigh, included Polk County Commissioners and county staff, LGC’s Senior Financial Analyst Biff McGilvray and representatives from ICWD, including general manager Jeff Walker, ICWD attorney C.D. Rhodes and bond attorney Joe Lucas.

McGilvray opened the meeting by saying what he understood of the county’s water system. The water district serves 140 customers, McGilvray said and the county does not have an enterprise system of any type, but has spent a lot of money developing water lines.

McGilvray said from what he understands, Polk County has put in a fair amount of water lines and there are no revenues to cover them and the county has not financed any of the lines, but rather paid for them through whatever revenue the county can find.

He said the county’s Lake Adger is the “crown jewel” of what is being offered in the contract and in return for Lake Adger, ICWD will make improvements on the lake and the dam.

The proposed contract includes that ICWD would pay for repairs to the Turner Shoals Dam as well as run at least $100,000 worth of water lines within Polk County and administer the system. If the contract were ever cancelled, Polk County would owe ICWD, with depreciation, what ICWD invested in the county.

McGilvray said from his understanding, Polk County cannot be in any kind of water business because it doesn’t have the customer base and probably never desires to be because it doesn’t have the needed density.

“It sounds kind of like we painted ourselves sort of into a corner and now we’re having a hard time getting out,” McGilvray said.

He said the county has some idea of what it wants the end result to be but the real methodology of getting there is going to be complex.

“You’ve got an obligation out there on the taxpayer,” McGilvray said. “The beauty of an enterprise fund is the people that use the service pay for the service or use the asset, pay for the asset. What ratepayers in this case pay for isn’t necessarily what they are, probably paying for much less than what it’s costing and the taxpayers are paying a disproportionate share of the freight on this.”

He said before the LGC will approve anything, the contract has to have a very tight fence built around the whole transaction in terms of the amount, the payment structure, the terms of an arrangement with a bank and who is going to finance.

“But what you’re talking about right now, without any mitigation of the burden, the whole thing could be put back on the taxpayer at some future date and we have no idea what the amount or what the term or anything else would be,” said McGilvray.

Polk County Commissioner Chair Tom Pack said he’s been on the board eight of the last 10 years and was on the board when the county acquired Lake Adger, when it made the deal with ICWD when they bought water from Broad River Water Authority and Polk County allowed Broad River to bring water through the southern part of the county.

“Once they got that 20-inch line in it was really good for Polk County because we got a 20-inch line for several miles at no cost to the county,” Pack said. “We tapped onto that and started using tax revenue to bring that line from the southern part of the county to the northern part of the county. In doing so we have all the public schools on public water now, which we didn’t have before. We had schools on wells, which was an issue for them. We have all of our main fire stations on public water now and provided fire hydrants.”

Pack said Polk County knows it somehow has to get off the tax revenues and have water revenues to continue to pay for the expansion of the water system and that is what has led the county to a contract with ICWD. Pack said ICWD has been a partner and has had a good relationship with ICWD. The county is now looking to get ICWD in some form or fashion to basically take over Polk’s whole water system and run it for the county.

Pack also said he estimates Polk has spent $5-$6 million on its water system so far, including the $1.6 million purchase of Lake Adger.

McGilvray said he understands Polk County has a few small municipalities with their own water systems and he doesn’t know how they all fit into the equation and if there’s any hope of folding them into the merger.

Pack said one of the reasons Polk started with a contract with ICWD was to test the waters to make sure both parties are happy and the citizens of Polk County are getting something that’s good for them.

“Once you merge, it’s hard to take it back,” said Pack.

McGilvray said he understands that but what could happen is the county wishes it hadn’t put its water with ICWD and now it has significant improvements that are already seeing this capital fund that are unrecovered, un-depreciated, “and now it’s yours to pay for,” and even with growth Polk has gone from 140 customers to 155 customers. McGilvray said. Where the improvements are very valuable, Polk has no market so it’s going to have to pay ICWD back through the taxpayer.

Pack said one thing in the contract is a way to protect the county with a joint committee that Polk would have majority control to make decisions on what money is spent. Pack said also in the contract Polk did not tie up all of Lake Adger’s water and ensured that Polk County could still pull water out of the lake without any approval from ICWD.

“We’re trying to protect it so we didn’t go down that road too far and not feel comfortable,” said Pack. “That may not be what the LGC was looking for but we tried to put some of those protections in there.”

Polk commissioner Ray Gasperson said the Polk board is split on the issue and McGilvray spoke on a lot of the same issues he has and verbalized them well. Gasperson also admitted he was the one who contacted McGilvray with his concerns.

Gasperson said Polk has a wonderful relationship with ICWD with a current contract that has seven or more years left on it and he would love to just stay with the current contract. Gasperson said the county has concerns on repairs to Lake Adger, the dam specifically, with estimates at approximately $2.5 million.

“And I look at it as a big carrot that Inman Campobello is certainly putting in front of us, that they could provide the money for that,” Gasperson said.

Gasperson asked if the lake and the dam could be used as valued collateral that the county could borrow money for the repairs.

Walker discussed how ICWD got into a partnership with BRWA to purchase water and discussed the low rates and good service ICWD can offer Polk County. ICWD rates are lower than any rates within Polk County except inside residential Columbus rates.

Walker said the deal with Polk County in his mind, is just helping. Walker grew up in Polk County and explained to the LGC that it’s not really two different states because of the close proximity between Polk County and ICWD.

Walker also said it’s not just the water that Polk County has, it’s the raw water that ICWD has as well. ICWD has a permit to withdraw water out of the North Pacolet River to the tune of eight million gallons per day, Walker said, which far exceeds ICWD’s demands.

The discussion then turned to the possibility of Polk County offering water rights to ICWD if it ever wanted to get out of the contract instead of owing money. Different scenarios were discussed, included the risk on ICWD’s part.

McGilvray said there’s so many things no one knows.

“I mean we might wind up in some sort of economic nuclear winter as far as the western part of the state or rural mountain county, you can’t tell,” he said. “Development and things like that might come to a screeching halt and then you know, like I said, the farmer out there who has just received a jaw dropping tax bill for something that is just totally meaningless to him,” McGilvray said. “If it was a revenue stream, you tell the people this is what you’re bill is, this is the way it goes. What we have to have is some reasonable expectation in terms of the impact of the taxpayer.”

McGilvray said the best of all worlds would be to try to come up with some kind of arrangement where ICWD walks away with an asset of some value, a settlement of some value, which would be water rights.

The Polk County Board of Commissioners is scheduled to meet Monday, Feb. 2 with a couple of items on the agenda addressing the LGC meeting and the proposed contract with ICWD. The meeting begins at 7 p.m. on the second floor of the Womack building in Columbus.