United States: State Government Control Of Local Water Systems

Background

It is impossible to know the internal considerations of the North Carolina Supreme Court when it accepted for review the case of City of Asheville v. State of North Carolina and the Metropolitan Sewerage District of Buncombe County, __ N.C. App. ___, 777 S.E. 2d 92 (October 6, 2015). But the tragedy of the State of Michigan taking over and operating the Flint Michigan water system was prominently in the news.

Under basic law, a North Carolina municipality possesses only those powers granted by the General Assembly. Municipal powers are of two types – (1) governmental and (2) proprietary. Proprietary powers authorize municipalities to establish public enterprises, business-like operations, to provide important public services to local citizens, such as drinking water. Without an express grant of authority, the City of Asheville is powerless to establish, own or operate a public drinking supply system. But, pursuant to proprietary powers granted uniformly to all North Carolina municipalities, the City of Asheville has established, owned and operated a drinking water system for over 100 years. The City supplies drinking water to over 100,000 customers.

Although there was no finding of solvency or water quality problems, the North Carolina General Assembly adopted laws in 2013 which appear to target the City of Asheville's water system. The laws involuntarily transferred ownership and operational responsibility of the City's water system to a metropolitan sewage district and authorized the sewage district to begin operating a water system.

The City of Asheville challenged the validity of the law transferring assets and operational responsibility of its water system (the "Transfer Law"). The trial court declared the Transfer Law unconstitutional and void. The State of North Carolina appealed the trial court's declaration to the North Carolina Court of Appeals.

The Court of Appeals' Decision

Under the North Carolina Court of Appeals analysis, resolution of the legal questions arising from the Transfer Law is elegantly simple. Since the General Assembly possesses discretion to grant powers or withhold powers from municipalities, it possesses the discretionary power to withdraw or modify a proprietary power unless prohibited by a provision of the state or federal constitutions:

[U]nless prohibited by some provision in the state or federal constitution, our General Assembly has the power to create a new political subdivision, to withdraw from Asheville authority to own and operate a public water system and to transfer Asheville's water system to the new political subdivision. 777 S.E.2d 92, 96 (2015)(italic by the Court of Appeals).

The North Carolina Court of Appeals concluded the Transfer Law did not relate to health, found no constitutional prohibition, reversed the trial court and upheld the validity of the Transfer Law.

The City's Petition to the North Carolina Supreme Court

In November 2015, the City of Asheville petitioned the North Carolina Supreme Court requesting the North Carolina Supreme Court to review the Court of Appeals' decision. The Court granted the petition at the end of January 2016.

The City contends that the North Carolina Constitution restricts the General Assembly's authority (1) to withdraw a proprietary power when it has been exercised for the purpose of supplying drinking water to local citizens and (2) to take municipal assets used for propriety purposes without paying just compensation. Specifically, the City contends that the Transfer Law is a local law relating to health and Article II, section 24 of the North Carolina Constitution forbids adoption of the Transfer Law. More broadly, the City contends that the North Carolina Constitution forbids taking municipal property used for propriety functions, such as operating a water system, without payment of just compensation.

Comments

1. Justice Oliver Wendell Holmes wrote: "The life of the law has not been logic; it has been experience."

Experience is clear. In 21st century urban life, whether you are a developer, business owner or resident, clean drinking water is presumed. Without it, public health, property values, and quality of life drops like a rock.

When a municipal water system fails, health is harmed and sometimes irrevocably damaged. Running municipal water systems may seem simple from afar – move assets, debts and permits around - but it isn't. Go visit a treatment water plant or study the interplay between types, sizes and ages of pipes pushing drinking water to homes and businesses. People run water systems and people are the difference between good water and bad water. Just ask the citizens of Flint Michigan.

2. The narrow scope of the Transfer Law shows its purpose is not to establish a state-wide plan for regional water and sewer services. The Transfer Law affects ownership of assets and operational control of a single municipal water drinking system providing service to local customers only.

3. The Court of Appeals noted that the Transfer Law does not expressly state that it regulates health. Relying upon North Carolina Supreme Court precedent and the broad recitals of the Transfer Law, the Court of Appeals concluded that the Transfer Law "prioritize[s] concerns regarding the governance over water and sewer systems and the quality of the services rendered." Therefore, the Court of Appeals held that the Transfer Law did not relate to health.

It is possible that the General Assembly failed to recognize the gravity of the Transfer Law's risks to health. After all, the General Assembly has no water system operational experience. For example, the Transfer Law didn't require the startup provider to hire City personnel who had been operating the 100 year old water system.

After the events in Flint Michigan, the general public understands that: People run water systems and people are the difference between good water and bad water. The Transfer Law relates to health.

4. One hopes the judiciary's examination of the constitutionality of a law is not halted because the General Assembly sets out broad recitals in a narrow law. If the Court of Appeals' understanding of North Carolina Supreme Court precedent is correct, then the power of the judiciary is quite limited and seems at odds with the People's restriction on the General Assembly: "T[he General Assembly shall have no power to deprive the judicial department of any power or jurisdiction." N.C. Constitution, Art IV., sec. 1.

Cases involving suits between a municipality and state government are politically charged. But, respectfully, the judiciary's role is to drill down to the facts and protect citizens. After all, the life of the law has been experience.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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