History of the Water Systemby John S. Stevens

Before 1884 residents of the small town of Asheville obtained water from springs and wells. Water for drinking, cooking and cleaning was hand carried from springs and wells to homes, businesses, hotels and restaurants. One did not turn on a faucet in one’s hotel room; water to drink and to bathe in was toted up to hotel rooms from barrels.Historian Foster Sondley who lived through the period wrote thatthere were two public wells on Pack Square and a large spring located in the area now occupied by T.S. Morrison Hardware on North Lexington Avenue. At that time Lexington Avenue was known as Water Street and writers often spoke of its persistent muddy condition. Sondley commented on fire protection in Asheville during the Civil War saying: “…a fire department could be of no use when there was no public water supply.”

In 1884 Asheville constructed a reservoir on Beaucatcher Mountain collecting water from various springs and branches. Pipes were laid and unfiltered water distributed by gravity flow down into the town.

Later, water was also channeled into what was known as the Beaucatcher Mountain Standpipe that was finished in 1887 and located at the east end of College Street near the bottom of the mountain. Theupper portion of this circular structure was made of metal plates and collapsed under pressure from a strong windstorm during construction. After repair it was filled with water and used for several years. In January, 1893, when, following a period of alternating thawing and severe freezing and ice expansion, there was a spectacular explosion as the standpipe failed and all the water and ice swept down the mountain causing considerable damage in its wake.

It was against this background of early, sporadic efforts, as Asheville became a real city in the early 1900’s, that the need for a substantial and reliable system of water supply and distribution was recognized by city government. In 1903 Asheville completed a water intake and pumping station on the Swannanoa River at the location of present day Recreation Park. Lines were laid from the intake down the valley and across Beaucatcher Gap into a new reservoir built two years earlier. Later, additional reservoirs were built including in 1920 the one on White Fawn Drive at the southern end of Beaucatcher mountain. In 1916 the city acquired the watershed of Bee Tree Creek, constructed an intake there and brought water in newly build lines down the Swannanoa Valley to the White Fawn Reservoir. By 1927 the city completed the acquisition of 20,000 acres comprising the watershed of the north fork of the Swannanoa River above Black Mountain known since simply as “North Fork.” Still, Bee Tree Reservoir remained the principal source of water for the Asheville system with limited amounts of water being drawn from North Fork.

In the decade of the 1920’s, Asheville and Buncombe County experienced a period of explosive growth and real estate development. Asheville’s growth in the 1920’s was exceeded only by the land booms in Florida. This real estate boom was a major contributing factor to the severe economic depression that so afflicted the area for several ensuing decades. This development occurred in areas outside the city aswell as in the city. Recognizing the need for water services in those new developments outside the city eleven separate water districts were organized to sell bonds and construct water and sewer lines. Whencompleted those water districts bought water from Asheville and sold it retail to consumers of water in those districts. Also, during the 1920’s the town of Weaverville and the Woodfin Water and Sanitary

District constructed their own separate reservoirs and water systems. The Town of Black Mountain’s water system was and continues to be obtained from wells, although today Black Mountain buys much of its water at wholesale from Asheville. The Town of Biltmore Forest built its water system in the early1920’s and has always purchased water at wholesale from Asheville and then retailed water to its users.

The rapid real estate development throughout the 1920’s led to rampant land speculation, financed in large part by local Asheville banks. By 1929 both city and county had incurred over $56 million in bonded debt to pay for a wide range of municipal and infrastructure improvements including the Courthouse and City Hall, paved streets, Beaucatcher Tunnel, school buildings and municipal parks. Part of Asheville’s bond debt was also for its water system. The eleven water districts in the county had incurred their own, separate bond debt to build water and sewer lines to serve development in those areas outside the city.

Following the stock market crash in November, 1929, sales of land in the city and county largely ceased and banks began calling loans. With increasing numbers of people out of work these loans remained unpaid. On November 30, 1930, all six local Asheville banks failed. Only Wachovia remainedopen with infusions of cash from Winston-Salem. The city, county and the eleven water and sewer districts defaulted on the combined $56 million bond debt. People were indicted and some went to prison. Asheville’s mayor committed suicide. It is not suggested that indictments and the mayor’s suicide had anything directly to do with Asheville’s water. These happened because city and county governments deposited most of their money into Central Bank and Trust Company and all of that money was lost when the bank failed. The entire area fell into a decline from which it did not completely recover until after World War II.

It was against this background that the North Carolina General Assembly in 1933, adopted Chapter 399, An Act to Regulate Charges Made by the City of Asheville for Water Consumed in Buncombe County Water Districts, known then and since as “the Sullivan Act” after its introducer, Buncombe County resident, Representative William (Billy) Sullivan.

The Sullivan Act made it unlawful for the city to charge residents who lived in those water and sewer districts that had issued bonds to pay for the districts’ water lines a higher rate for water than that charged to persons residing in the city. The Act also provided that only surplus water, that exceeding the needs of city residents, would be available for sale to district consumers outside the city. The county and water districts were directed to repair and maintain those district lines to insure against leakage and waste.

Looking back over these 69 years it is difficult to exactly discern Representative Sullivan’s motives. On the surface it would seem that he was simply trying to protect his fellow county residents from having to pay more for water. After all, no one had any money and people had to have water. It is unknown whether Sullivan’s legislation followed actual rate increases for district consumers or whether such increases were simply threatened. It is also unknown whether before the Sullivan Act the city was charging more for its water sold to district users. It is known that after the bond defaults by city and county there followed a 4 to 5 year period during which efforts to find solutions to the bond debt were undertaken. It is also known that during this period bond holders made serious efforts to seize control of the city’s water system in order to secure a source of payment on defaulted bonds. Bond holders realized that people may not be able to pay their mortgage or their taxes, and a substantial number paid neither, they would pay their water bills. Whether the Sullivan Act was adopted as part of the

overall strategy in dealing with bond holders is worthy of consideration.

Following the adoption of the Sullivan Act in 1933 and following protracted efforts to reach accommodation, in 1936 the city and county finally reached agreement with bondholders. Bond payments were renegotiated to mature in 1976 and a sinking fund created to assure payment. The area began its slow climb out of the economic depression and the Sullivan Act remained on the books. Beginning in the 1930’s tax revenue plummeted and notwithstanding the constraints of the Sullivan Act the city began to rely on water revenues as a source of funds to pay for municipal services and for general operations.

Following the end of World War II the demand for housing and development resumed in the city and the county. With increased development in the area came the need for other infrastructure maintenance and improvements. For the city much of these improvements were funded with excess revenue derived from sale of water. This helped to keep down ad valorem taxes. One of those infrastructure improvements that was required after World War II was to the city’s water system itself.By the late 1940’s water demand was beginning to exceed supply. This coupled with a severe drought in 1950 led to the construction of a new, larger dam and intake system at the city’s North Fork Reservoir. By 1955 North Fork became the primary source of the city’s water system and a few years later the Bee Tree Reservoir was converted to a recreation facility. Bee Tree has since been reactivated and then again decommissioned as a water source. In the 1970’s a modern filtration system was added to North Fork as result of some matters I shall ask my Respondent to explore.

The Sullivan Act and coping with increasing demand have not been the only problems with which city water managers have had to contend. In 1963 Nell Stroup and Frances K. McLaren, president and secretary of The Pure Water Association sued Asheville’s mayor and city council to restrain the city from introducing fluorides into the city’s water system. This action followed a 4 to 3 vote by city council to begin fluoridation after having been advised to do so by the County Health Officer and the Buncombe County Dental and Medical Associations. In 1964 the Supreme Court of North Carolina ruled in favor of the city, no doubt persuaded to do so in no small measure by the extra ordinary eloquence of counsel for the city, attorney O.E. Starnes. In its decision the court pointed out that the city council’s action could be reversed upon a referendum of voters but that such recall could only be “…determined by the voters of the city…, those outside (the city) notwithstanding their dependence on the city for their water supply, may not participate in any election to recall an ordinance of city council.” The Pure Water Association was given a reasonable time to call for a referendum but one was never held and the city’s water was and remains fluoridated.

Throughout the decades following World War II there was continued growth and development in bothcity and county and continued expansion of the city’s water system. New lines were constructed in the county, many outside of the old eleven districts. These county lines were built both by the developers who conveyed their completed lines to the county and by the county itself. Meanwhile substantial partsof the area of the original eleven water districts were annexed into the city and the city assumed responsibility for construction and maintenance of water lines in those areas. In some instances the entire area of old water districts were annexed into the city. Meanwhile excess water revenues continued to be used by the city to augment general city revenues.

By the late 1970’s and notwithstanding some enlargement of city limits by annexation it became clear that most major new residential and commercial development was occurring in the county. City

population was static and city land values, particularly those downtown were static or declining. There was increased recognition that many services being underwritten by the city were in fact being used and enjoyed by the county residents as much or more then city residents. These included the airport, library, civic center and parks and recreation facilities. In 1979 city and county created the Airport Authority which provided that the county would underwrite any of the airport’s operating deficit. The community had also become impressed with the utility of the Metropolitan Sewerage District created in 1963 in addressing in a cooperative way wastewater treatment needs of the larger community.

It was against this background of successful experience with the Metropolitan Sewerage District and the newly created Airport Authority together with increasing needs for water system maintenance and improvements that many in the community began expressing the need for a similar approach to water.Even though faced with these maintenance and expansion needs the city was initially reluctant to embrace an authority bringing with it shared control over its water system.

There is certainly sympathy for the city’s reluctance. Except for some district and county built lines thecity had built the water system. It had sold and paid off bonds to buy and build Bee Tree, North Fork and the 20 or so miles of expensive lines to bring water down out of the mountains to the city. In addition to paying for the water system the city had also paid for the new airport. After the defeat in 1956 of a countywide airport bond referendum, 1960 the city stepped forward and sold city bonds for the new airport. That airport now serves more out of city residents than those in the city.

Despite these and other serious misgivings the city finally agreed on the 29th of October, 1981 to creation of the Asheville/Buncombe Water Authority. This Authority was granted policy control over the city’s water system and the district and county lines until June 30, 2005, when pursuant to notice given a year earlier by the city the Authority ended. In many respects the Asheville/Buncombe Water Authority was misnamed. While policy control over water and the perceived need to locate a new watersource were catalysts for the agreement it was as much about shared services and tax fairness between city and county residents as it was about water. For years city residents complained that with their static tax base they were funding many services that served county as much as city residents. These included the airport, civic center and city parks. City residents also argued that they paid taxes to the county for sheriff’s services that mostly served county residents.

The Water Authority was initially comprised of seven members. Three appointed by the city, three by the county and those six chose a seventh. This is the same model as the Airport Authority created a year earlier. The Water Agreement made clear that ownership of the system remained in the city. In fact the agreement called for transfer of county and district lines to the city but only so long as the agreement remained in existence.

The Water Authority had these responsibilities: to identify a new water source, determine water extension policies, acquire and build new water systems, hire consultants, establish annual budgets that were subject to approval by both city and county, a feature that created considerable friction in later years, and to establish uniform water rates throughout the area consistent with the spirit of the Sullivan Act. Indeed, the Water Agreement contained a specific prohibition against any city challenge to the Sullivan Act. Commencing in 1986 and thereafter the agreement awarded the city 5% of gross water revenues annually.

A separate portion of the agreement listed the county’s responsibilities: the county agreed to

reimburse the city and other municipalities for the sheriff’s patrol and investigative functions, so calledPI costs, that city residents were paying for as part of their county taxes and for which they received little benefit. The county took over many of the city’s parks and recreation facilities. The county agreed to pay rent to the city for civic center space at that time used by the Asheville Art Museum, Asheville Symphony and Coleman Mineral Museum. The agreement recognized other programs and agencies that served both city and county residents in an attempt to achieve tax and cost fairness between city and county.

In 1989 and again in 1996 the Water Agreement was amended. The 1989 amendment made permanent the 5% of gross water revenues allocated to the city and also allocated 2 ½% of such revenues to the county for economic development. The 1996 revision to the water agreement extended its term until 2024 and enlarged the Authority to 10 members to include 2 from Henderson County and 2 elected by the 8 appointed members. Inclusion of 2 members from Henderson County was recognition of the Water Authority having acquired land, in the name of the city of course, in Henderson County and construction there of the new Mills River intake facility.

The perceived need for a unified city-county approach to establishment of a new source of water was one of the reasons behind the Water Agreement in 1981. Indeed, projections included significant increases in industrial uses of water that demanded a new source. The French Broad river was the logical source and, in 1985 the Water Authority acquired land on the French Broad River north of LongShoals Bridge for this purpose. A citywide bond issue to construct the intake facility failed. West Asheville voters, echoing a 30 year complaint of the 1956 airport bond vote that all they would get for their money was aircraft noise, became convinced that less than quality water from the planned French Broad intake would be piped to them while the rest of the city would continue to enjoy pristine water from North Fork. It was following this bond defeat that the Mills River facility was acquired and built using revenue bonds that required no vote by taxpayers.

The irony to all this frantic search for water is that by 2000 industrial demand for water dropped sharply due to the closing of Gerber, Sayles Bleacheries and several other large water consuming industries. The further irony is that one of the principal motivators for the creation of the Water Authority in the first place, to identify and construct a new water intake facility, was no longer an issue.

This brings us to June, 2004, when then city notified the county that it was ending its participation it the Water Agreement effective one year later as it had the right to do under the Water Agreement.

In announcing termination of the Water Agreement city representatives made clear that the city intended to utilize the water system it had built and paid for to generate additional revenue.

The city announced that it would charge more for its water to those customers outside the city than those inside city limits. In doing so the city believe that the old 1933 Sullivan Act was both unconstitutional and no longer applicable since it only regulated water sales to residents in those old districts.

The city correctly pointed out that almost every city in North Carolina that owned its water system charged the typical county resident about double for the same amount of water consumed by the typical city resident. No city in the state except Asheville was constrained by state law to charge equal

rates.

Following the city’s 2004 announcement to terminate the Water Agreement formal negotiations between city and county representatives to head off what was acknowledged by all to be a train wreck were begun. Motives and attitudes of those persons involved on both sides of the controversy are difficult to determine. It is probably correct to say that both sides underestimated the resolve of the other. The city felt it was correct on the facts and law and never appeared to move from its one principal, that it would charge more for its water to non-city users than to city users. While county representatives made a number of proposals and, in the view of their representatives concessions in the form of payment transfers to the city, the county never moved from its position that county users would not be surcharged for water bought from the city.

It is probably also the case that neither side was as expeditious as they should have been in the early stages of negotiations. Time elapsed and by late winter of 2005 the parties themselves and indeed most people in the county could indeed see the train wreck ahead.

The Asheville Citizen-Times kept up a drum beat, publishing a daily count-down chart of days left to resolve. The parties began to meet more frequently. Each side cranked up public relation machines that espoused its views. The parties were persuaded to engage in mediation that came to naught. Responsible citizens in the area, both city and county residents, wrote op-ed articles published in the Citizen-Times. In general, the prevailing attitude of county residents who thought much about it at all seemed to be that the Water Agreement had worked well for 24 years and why change it. Many believed that a substantial number of city residents shared this view. It is possible that members of citycouncil, aware as they were of the fundamental inequality and unfairness of the old Sullivan Act, were out ahead of their rank and file residents because of their unique knowledge. It was certainly easier to explain to county residents that the city is going to double your water rates than for city council to explain to city residents that the system was unfair and that if we can change it city revenues stand to be enhanced without tax increases.

It also seems clear that the mayor and city council both failed to appreciate the resolve of county commissioners and failed to appreciate what, if they had thought much about it would have known, that members of the General Assembly from the area would get into the controversy and that they would do so on the side of county residents. The reason lies in the math. There are over two times as many Buncombe County residents who live outside the city than there are city residents.

It is generally understood that members of the General Assembly, while reluctant to become involved and were strongly encouraging to city and county to resolve the matter by a continued water agreement, nevertheless made it understood that they would intervene if the matter remained unresolved.

At midnight, June 30, 2005, the Water Agreement ended and the city took over control of its water system. One day earlier the General Assembly enacted what is known as Sullivan II to provide that the city may not charge more for water to any county consumer than charged to its comparable city consumer. This had the effect of making the 1933 Sullivan Act (Sullivan I) apply to all county water consumers, not just those in the old districts.

Also on June 29, 2005, the General Assembly enacted what is now called “Sullivan III” that purports to

restrict the city in how it uses surplus revenue from its water system. As pointed out in the city’s Declaratory Judgment lawsuit Sullivan II and Sullivan III were enacted to prevent Asheville from utilizing its water system asset in the manner otherwise permitted by law and as enjoyed by every other city and town in the state that owns it water system.

In its lawsuit Asheville relies on provisions in the North Carolina Constitution that prohibits the General Assembly from enacting any local or private act relating to health, sanitation and abatement ofnuisance and from enacting any local or special act regulating labor, trade or manufacture. The case will be heard by Wake County judge and will likely be ultimately decided by the North Carolina Supreme Court. The ultimate decision could be as much as eighteen months to two years off. Meanwhile, the city will run its water system, its civic center and parks and recreation and county water consumers will see no differential in rates. If the city wins its case and the Courts say that the legislature’s passage of Sullivan I,II and III violated the state’s constitution the city will likely do what it said it would do, increase water rates for out of city users, something denied the city for almost seventy years.

If the county wins the case Sullivan I, II and III will remain the law in Buncombe County. Water rates will remain uniform and relations between city and county government will likely suffer further. With only Sullivan I on the books, and it becoming more and more vulnerable because of its limited applicability to the eleven districts, the city had considerable leverage with the county when it negotiated the Water Agreement in 1981. If not only Sullivan I but also the more restrictive Sullivan II and III remain the law in Buncombe County this will represent and almost seismic shift in the balance of power between the city and county. Sullivan II will make rates uniform throughout the county and Sullivan III will impact to some degree the city’s ability to extend its municipal boundaries through involuntary annexation. The city has much more at stake in the outcome of its declaratory judgment lawsuit than does the county. If the city wins it wins big; if the city loses future development and growth in the city will be inhibited. If the city loses it will be like the standpipe failure of 1893.

The city’s historical role in Buncombe County has been one of risk taking, of daring to change, of being modern and of committing itself to undertaking large things. There is no better monument to the different historical philosophies between city and county than the magnificent city hall and the staid, drab courthouse that sits beside it. The city’s gamble in this lawsuit, its willingness to stake much on a favorable outcome is rooted in that historical cultural difference between city and county.

But is the city’s position in staking so much on a uncertain outcome a wise course? If the city loses, willcounty residents be better off in the long run? Perhaps not because a strong county is inseparable froma strong city.

So what should the parties do? Very simple; now that city council elections are over, and with a new mayor, the city should immediately initiate renewed negotiations with the county over a new water agreement. Given that the city’s odds of winning its declaratory judgment are better than 50/50 the city will continue to enjoy considerable leverage in renewed negotiations. The principles on which the 1981 Water Agreement were based reflected acknowledgement of certain inequities in the cost of services and the burden of paying for those services between city and county. That 1981 Agreement, while rigid and imperfect in many ways did achieve some measure of tax and cost fairness between cityand county.

There is a short window of opportunity for city and county representatives to agree on a new water agreement before the lawsuit is decided. Failure to do so leaves this area’s future to chance. It is time now for the parties to resume negotiation and produce a new water agreement.