The N.C. Court of Appeals reaffirmed a lower court's decision, finding that state lawmakers did not exceed their constitutional authority in enacting a law preventing the city from charging higher water rates to customers living outside its municipal boundaries. The three-judge panel's ruling also upheld lawmakers' right to require that the city use water-system revenues only on water-system maintenance and operation.
The current legal skirmishing has its roots in the adoption of the Sullivan Act in 1933, a 1981 city/county agreement known as the Water Agreement and the adoption of Sullivan Acts II and III in 2005.
The first Sullivan Act prohibited Asheville from charging residents who lived in water districts outside city limits a higher rate for water than those residents living inside the city. It was passed after a spectacular economic crash that put Asheville banks out of business and put those outside water districts, funded by bonds, in default. The city began began slowly climbing out of debt, but it also began relying on revenue from its water system to fund other city services.
By 1981, Asheville was growing again and looking to tap a new water source. The 1981 Water Agreement created an authority to oversee the city's water system, and was charged with establishing a new source for drinking water. The agreement stated that ownership of the system was the city's and granted the Asheville a slice of gross water revenues. The agreement also sought to reach some tax and cost parity between the two governments by requiring the county to pay the city for certain costs, such as Sheriff's Department services (that city residents pay for in their county taxes but don't use) and the funding of some city parks and recreation facilities.
By 2004, Asheville had lost several large industrial water users and was looking to use the water system it had built and paid for to generate more revenue. For example, the city wanted to require voluntary annexation for land in exchange for water hook-ups. The city announced it was pulling out of the water agreement in '05.
The two sides tried negotiating a new agreement, but those talks withered, and Buncombe County commissioners lobbied state lawmakers, who passed Sullivan Acts II and III in 2005. The two new state laws reaffirmed the original act's restrictions and stopped Asheville from being able to require voluntary annexation in exchange for water hook-ups.
Asheville responded by suing North Carolina and Buncombe County. The city lawsuit challenged the constitutionality of the Sullivan Acts and claimed it had a right to charge differential water rates. The move stopped the city from seeing the financial gain it had hoped for by pulling out of the Water Agreement.
What's next? The city, which has already spent thousands of dollars in legal fees on the case, could appeal to the N.C. Supreme Court. It's also possible that further city-county discussions could take place, but the county now sits in a much stronger negotiating stance.
Click here to go to the Xpress Files and download a copy of the N.C. Court of Appeals' Aug. 19 ruling.
— Jason Sandford, multimedia editor
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