Upper Neuse River Basin Watershed Protection ......Upper Neuse River Basin Watershed Protection...

Upper Neuse River Basin Watershed Protection Revenueshed Analysis How local governments in the Upper Neuse River Basin can cooperatively generate a sustainable revenue stream to implement watershed protection strategies

August 2012

Upper Neuse River Basin Watershed Protection Revenueshed Analysis

Environmental Finance Center at the University of North Carolina | ii

About the Environmental Finance Center The Environmental Finance Center is part of a network of university-based centers that work on environmental issues, including water resources, solid waste management, energy, and land conservation. The EFC at UNC partners with organizations across the United States to assist communities, provide training and policy analysis services, and disseminate tools and research on a variety of environmental finance and policy topics. The EFC at UNC is dedicated to enhancing the ability of governments to provide environmental programs and services in fair, effective, and financially sustainable ways.

Acknowledgements Researched and written by Jeff Hughes, Jon Breece, and Lauren Patterson. This report was made possible by funding from the Conservation Trust for North Carolina through a grant from the U.S. Endowment for Forestry and Communities and the Natural Resources Conservation Service, U.S. Department of Agriculture, under award number NRCS 68-3A75-9-128. Support was also provided by the Environmental Protection Agency’s Targeted Watershed Grants Program (WS-96493108-0). Editorial assistance was provided by Lisa Creasman and Erin Weeks. The analysis would not have been possible without the data and resources available through the National Center for Geographic Information and Analysis, the North Carolina Department of Environment and Natural Resources, and the North Carolina Department of the State Treasurer. This report is a product of the Environmental Finance Center at the University of North Carolina at Chapel Hill. Findings, interpretations, and conclusions included in this report are those of the authors and do not necessarily reflect the views of EFC funders, the University of North Carolina, the School of Government, or those who provided review. Cover image courtesy of Google depicts the branching of the Eno and Little Rivers north of Falls Lake.

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TA B L E O F C O N T E N T S 1 Executive Summary .............................................................................................................................. 1

2 Water Quality in the Upper Neuse River Basin and the Importance of Boundaries: Applying the

Revenueshed Concept .......................................................................................................................... 3

2.1 Introduction to the Upper Neuse River Basin (UNRB)................................................................ 4

2.2 Upper Neuse Clean Water Initiative (UNCWI) ............................................................................ 6

2.3 Revenueshed Concept ................................................................................................................ 7

2.3.1 What is a revenueshed? .................................................................................................. 7

2.3.2 What are the advantages of the revenueshed analysis framework? ............................. 7

2.3.3 How can revenuesheds be used as a tool for watershed protection? ........................... 8

2.4 Integrating Revenuesheds with North Carolina State Legislation for Watershed Protection ... 9

3 Revenueshed Analysis Applied to the Upper Neuse River Basin ....................................................... 11

3.1 Drinking Water Utilities ............................................................................................................ 14

3.1.1 Water Supply in the UNRB ............................................................................................ 15

3.1.2 Drinking Water Utilities as a Revenueshed ................................................................... 20

3.1.3 Water Demand Projections ........................................................................................... 23

3.1.4 Projected Demands for Durham and Raleigh – Revenueshed Implications ................. 24

3.2 Point Source (Municipal Wastewater Discharge in the UNRB) ................................................ 28

3.3 Non-point Discharge – Catchment Basins and Stormwater Management .............................. 33

3.3.1 Stormwater at the Federal and State Scale .................................................................. 33

3.3.2 Stormwater at the Local Government Scale ................................................................. 33

3.3.3 Municipal Non-Point Source Impacts in the UNRB ....................................................... 35

3.3.4 County Non-Point Source Impacts in the UNRB ........................................................... 40

3.4 Comparing Annual Revenue Trends for Water, Wastewater and Stormwater Utilities .......... 44

4 Watershed Protection Fees on water bills ......................................................................................... 47

5 UNCWI Dashboard .............................................................................................................................. 49

5.1 Calculations: ............................................................................................................................. 50

5.2 Dashboard Scenarios ................................................................................................................ 52

5.3 Ongoing applications of the revenueshed concept: ................................................................. 54

6 Appendix I — The Cost of Conservation: Property Tax Revenues and Land Protection .................... 55

6.1 Introduction .............................................................................................................................. 56

6.2 State Law and Property Tax Valuation ..................................................................................... 56


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6.3 Methodology ............................................................................................................................ 57

6.4 Results ...................................................................................................................................... 57

6.5 Conclusion: Not all land is created equal ................................................................................. 65

6.6 Potential for “spill-over” impacts ............................................................................................. 65

7 Appendix II — The Capitalization of Conservation: Land Protection and Effects on Tax-Assessed Values of

Adjacent Properties ............................................................................................................................ 66

7.1 Existing Research ...................................................................................................................... 66

7.2 Research Pertinent to Triangle Region ..................................................................................... 67

7.3 Limitations ................................................................................................................................ 70

8 Appendix III — Implementation ......................................................................................................... 71

8.1 Potential Inter-Institutional Arrangements .............................................................................. 71

8.2 Interlocal Agreements .............................................................................................................. 71

8.3 “Project” managed by a Regional Planning Entity/Council of Government ............................ 73

8.4 Not-for Profit ............................................................................................................................ 74

8.5 Soil and Water Conservation Districts ...................................................................................... 76

9 Literature Cited ................................................................................................................................... 78


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List of Tables Table 1: Percent of jurisdictions located inside the UNRB ......................................................................................... 12

Table 2: Matrix of local government services ............................................................................................................. 14

Table 3: Water supply intakes in the Upper Neuse River Basin .................................................................................. 17

Table 4: Surface water supply attributes of the reservoir and WTPs ......................................................................... 19

Table 5: Water utility rates for customers inside the city limits. ................................................................................ 20

Table 6: Monthly residential and non-residential bill given average water use. ........................................................ 21

Table 7: Estimated and reported 2010 revenue by water utility ................................................................................ 22

Table 8: Population in UNRB counties from 2000 to 2009 ......................................................................................... 23

Table 9: Water demand projections in the UNRB ....................................................................................................... 23

Table 10: Projected supply and demand for the City of Durham ............................................................................... 25

Table 11: Projected supply and demand for the City of Raleigh................................................................................. 26

Table 12: Attributes of Municipal Wastewater Treatment Plants discharging to Falls Lake ...................................... 29

Table 13: Wastewater utility rates for customers inside the city limits ..................................................................... 30

Table 14: Monthly residential and non-residential bill given average wastewater use ............................................. 31

Table 15: Estimated and reported 2010 revenue by wastewater utility. ................................................................... 32

Table 16: Stormwater utility rates in the UNRB ......................................................................................................... 38

Table 17: Estimated and reported 2010 revenue by stormwater utility. ................................................................... 39

Table 18: Three years of AFIR total revenue by water sales ....................................................................................... 45

Table 19: Three years of AFIR total revenue by wastewater sales ............................................................................. 45

Table 20: Three years of AFIR total revenue by stormwater fees .............................................................................. 45

Table 21: Central Arkansas Water Watershed Protection Fees .................................................................................. 47

Table 22: Project specific revenue scenarios for the City of Durham. ........................................................................ 53

Table 23: Dedicated revenue stream generated for watershed protection by all utilities participating in a uniform rate

increase of $0.05 per kgal. ................................................................................................................................... 53

Table 24: Real property valuation in Durham and Orange Counties .......................................................................... 57

Table 25: Value of high priority lands in present use ................................................................................................. 59

Table 26: What will be impacted -- the land value of high-priority lands not in present-use .................................... 63

Table 27: Scenarios defined ........................................................................................................................................ 63

Table 28: Scenario results ........................................................................................................................................... 64

Table 29: Changes in county property tax revenues .................................................................................................. 64

Table 30: Impact on adjacent properties of encumbering properties with conservation easements ....................... 67

Table 31: Valuation of lands within 400 meters and one mile of high-priority lands ................................................. 68

Table 32: Elasticity and one mile buffer applied to the properties adjacent to the easement .................................. 69

List of Figures Figure 1: Location of Upper Neuse River Basin and 2010 Impaired Water Bodies status ............................................ 5

Figure 2: Schematic of Falls Lake reservoir storage ...................................................................................................... 6

Figure 3: Boundaries present within the study area..................................................................................................... 7

Figure 4: Revenueshed concept Venn diagram ............................................................................................................ 8

Figure 5: North Carolina river basins and additional water quality regulations ........................................................... 9

Figure 6: County and municipal boundaries in the UNRB........................................................................................... 12

Figure 7: Land cover in and around the UNRB in 2006 ............................................................................................... 13

Figure 8: Population density for the Upper Neuse in 2000 ........................................................................................ 13

Figure 9: Water utilities in the Upper Neuse River Basin ........................................................................................... 15

Figure 10: Water source locations and corresponding sub-watershed in the UNRB ................................................. 16

Figure 11: The watershed for each reservoir is delineated. ....................................................................................... 17


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Figure 12: The watershed for each reservoir and jurisdictional boundaries. ............................................................. 18

Figure 13: Moving water from the reservoir to the served jurisdictions. ................................................................... 19

Figure 14: Monthly residential and non-residential bill divided by the average use.................................................. 22

Figure 15: Population growth in the UNRB from 2000 to 2009 .................................................................................. 23

Figure 16: Average daily demand (MGD) and population served for the City of Durham ......................................... 24

Figure 17: Average daily demand (MGD) and population served for the City of Raleigh ........................................... 25

Figure 18: Projected supply and demand for the City of Durham .............................................................................. 26

Figure 19: Projected supply and demand for the City of Raleigh ............................................................................... 27

Figure 20: Municipalities serviced by the Raleigh Water Utility ................................................................................. 27

Figure 21: Receiving water bodies for municipal wastewater systems in the UNRB. ................................................ 29

Figure 22: Wastewater utilities in the Upper Neuse River Basin ................................................................................ 31

Figure 23: Monthly residential and non-residential bill divided by the average use.................................................. 32

Figure 24: Diagram illustrating the responsibilities of local and state governments to administer stormwater programs in

North Carolina. Figure is from Georgoulias (2010). ............................................................................................. 34

Figure 25: Revenue generated by stormwater utilities in 2008 in North Carolina ..................................................... 35

Figure 26: Stormwater and non-point discharge impacts from Roxboro to Falls Lake. ............................................. 36

Figure 27: Stormwater and non-point discharge impacts from Hillsborough to Falls Lake. ....................................... 37

Figure 28: Stormwater and non-point discharge impacts from Durham to Falls Lake. .............................................. 38

Figure 29: Stormwater and non-point discharge impacts from Butner and Creedmoor to Falls Lake. ...................... 39

Figure 30: Stormwater and non-point discharge impacts from Raleigh and Wake Forest to Falls Lake. ................... 40

Figure 31: Non-point source runoff for Person County .............................................................................................. 41

Figure 32: Non-point source runoff from Granville County ........................................................................................ 42

Figure 33: Non-point source runoff from Franklin County ......................................................................................... 42

Figure 34: Non-point source runoff for Orange County ............................................................................................. 43

Figure 35: Non-point source runoff for Durham County ............................................................................................ 43

Figure 36: Non-point source runoff for Wake County ................................................................................................ 44

Figure 37: Total water sales for utilities from 2008 to 2010 ....................................................................................... 46

Figure 38: Total wastewater sales for utilities from 2008 to 2010 ............................................................................. 46

Figure 39: Raleigh Dashboard showing the proposed rate increase and resulting impact ........................................ 52

Figure 40: Uniform rate increase for all utilities and local jurisdictions in the UNRB ................................................. 54

Figure 41: Acres under conservation easement in Orange County, NC...................................................................... 55

Figure 42: Healthy Forests-identified "high-priority" parcels in UNRB ....................................................................... 56

Figure 43: Land area vs. valuation .............................................................................................................................. 57

Figure 44: Valuation, Durham County (January 1, 2010) ............................................................................................ 58

Figure 45: Valuation, Orange County (January 1, 2010) ............................................................................................. 59

Figure 46: Land status negatively impacting Durham County tax rolls ....................................................................... 61

Figure 47: Land status negatively impacting Orange County tax rolls ........................................................................ 62

Figure 48: Impact as percent of county totals ............................................................................................................ 65

Figure 49: Adjacency effects: Durham and Orange, 2010 .......................................................................................... 68

Figure 50: Adjacency impacts: Durham County, 2010 ................................................................................................ 69


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1 Executive Summary

The Environmental Finance Center (EFC) was hired by the Conservation Trust for North Carolina (CTNC) as part of the U.S. Endowment for Forestry and Communities Healthy Watersheds through Healthy Forests grant: Protecting the Future of the Upper Neuse River Basin (UNRB). CTNC facilitates the Upper Neuse Clean Water Initiative (UNCWI) on behalf of the region’s six land trusts. In 2010, UNCWI developed a model to assess high-priority parcels for land conservation, particularly forests, to pro-actively protect the health of the watershed in the UNRB. The role of the EFC, and the content of this report, was to examine the potential for cooperatively generating a sustainable revenue stream among local governments in the UNRB to purchase conservation easements and implement other watershed protection strategies. One of the main challenges of watershed protection is that jurisdictional and watershed boundaries rarely align. This generates questions about who is responsible for, and who should pay for, watershed protection. We have developed and applied the concept of a revenueshed, which is the area within which revenue is generated for watershed protection, to address these challenges by (1) cultivating accountability, (2) generating discussions among local governments, and (3) developing interactive financial tools to assist in policy decision-making. This report also discusses strategies for implementing watershed protection financing as a sustainable revenue stream. Examples of policy implications highlighted in the report:

1. Hydrological connectedness binds residents up- and downstream. Upstream communities’ land-use decisions, stormwater runoff, and wastewater treatment plants have a significant impact on water quality in the UNRB. Despite this obvious connection, there are limited examples of local governments “connecting” their revenue-generating authority in ways that mirror hydrological boundaries.

2. Watershed restoration regulations promote the “polluter pays” principle, resulting in less

attention towards the “beneficiary pays” principle.



Downstream communities located outside of the UNRB use water impounded in the watershed’s reservoirs. This water has helped fuel regional growth and now supports a population exceeding 450,000 (predominantly in the city of Raleigh). These downstream communities do not directly impact the water quality and quantity flowing into Falls Lake, but they are heavily invested in protecting their water supply watershed. While current watershed protection legislation in North Carolina targets those local governments within the watershed, the beneficiaries of the watershed can provide substantial assistance to watershed protection and should not be overlooked.

3. Leveraging the resources necessary for comprehensive restoration requires jurisdictional collaboration. The population in the UNRB and adjacent areas has grown rapidly in the last few decades and has placed greater stress on water resources. Growing populations require advance, proactive planning to increase water security. Collaboration between local jurisdictions within and adjacent to the UNRB is critical to effectively manage and protect water resources to meet growing demand. Restoration and preservation financing that is done piecemeal fails to tap into the economies of scale and beneficiary pooling advantages of a more comprehensive approach.

4. North Carolina law provides the freedom to implement watershed protection taxes and pay

for it through utility fees (N.C. General Statutes §160A-314, §162A-9, §162A-49). Water utilities often expand outside of municipal boundaries and can draw from their full customer base. Stormwater utilities have a smaller customer base, since they are limited to those customers located inside the municipal boundary. Stormwater fees are collected to minimize the impact of a city on its watershed and are often used to protect the water flowing downstream. Raleigh has expanded their water bill to include a watershed protection fee. Water utilities are an ideal conduit through which to leverage watershed protection fees because they focus on protecting their own water supply source. The City of Durham also approved a watershed protection fee in 2011 (one cent per 100 cubic feet) and dedicates $500,000 of its water utility revenue toward watershed protection.

5. Watershed protection often costs less than watershed restoration.

It costs less money to protect a watershed now than to attempt to restore a watershed to health in the future. A previous study estimated the average willingness-to-pay for watershed protection in a western North Carolina watershed at $139 per year per residential household (Kramer, 2002). Most examples of explicit watershed protection fees cost less than $20 per year.



2 Water Quality in the Upper Neuse River Basin and the Importance of

Boundaries: Applying the Revenueshed Concept The Upper Neuse River Basin (UNRB) is the most upstream watershed (Hydrologic Unit Code 8) in the Neuse River Basin, North Carolina (Figure 1). The UNRB is 770 mi2 and outflows through the Falls Lake Reservoir. Approximately 670,000 people living within and outside of the basin depend on surface water supplies within the UNRB for their drinking water (SDWIS 2011). The UNRB boundaries include part or all of thirteen separate political jurisdictions with different land use, water-related utilities (water, wastewater, and stormwater), and responsibilities. The Falls Lake Reservoir and several streams draining into the Reservoir have been designated as impaired water bodies. As a result, the state of North Carolina passed a comprehensive set of rules and regulations in 2010 that will require a wide range of locally-implemented pollution control and mitigation measures. Water systems face complex challenges that cut across multiple jurisdictional boundaries. The 2010 Interagency Climate Change Progress Report noted several components of a comprehensive water resource management plan that are essential to effectively address these complex issues (White House Council, 2010). Many of the components listed below are being proactively addressed by the State of North Carolina and the UNCWI Endowment for Forestry and Communities grant:

1. Apply an ecosystem-based approach that simultaneously strives to protect ecosystem services from being degraded and restores ecosystem services that are already negatively impacted. The goal of this project is to protect healthy working forests that contribute to healthy watersheds, while also working to mitigate and restore those sections of the watershed that currently have degraded water quality.

2. Build strong partnerships that can leverage existing efforts and the knowledge of a wide range of stakeholders across jurisdictional boundaries and geographic scales. UNCWI is working with multiple jurisdictions and stakeholders in the UNRB to build partnerships dedicated to protecting the health of the watershed.

3. Maximize mutual benefits by using strategies that support ecosystem needs, as well as the needs of multiple jurisdictions and stakeholders in the watershed. UNCWI, in collaboration with the EFC, explored ways to generate dedicated sustainable watershed protection funds that can be used to improve water quality through land conservation and other measures. Spreading the cost of watershed protection across those living in the UNRB and to those relying on the basin for their water supply needs provides a large revenue source at more amenable costs for households.

4. Continually evaluate the effectiveness of already implemented strategies to improve water quality, and be prepared to adapt strategies if the desired outcomes are not being met. This component has been built into the phased sections of the Falls Lake Rules (discussed below).

In an effort to better understand the UNRB water system and to help inform and support local government initiatives, the Environmental Finance Center (EFC) at the University of North Carolina in Chapel Hill has developed an analytical approach to examining watershed protection challenges. We refer to this approach as a revenueshed analysis, which is used to explore the complex relationships between environmental services, local government jurisdictions, and watershed boundaries. The revenueshed analysis provided the framework to identify and analyze potential revenue streams for watershed protection, with the ultimate goal of providing information that generates discussion and assists in the development of a dedicated watershed protection revenue stream.



Our revenueshed analysis is not designed to be a full “eco-system” services study, but rather as a pragmatic snapshot that is primarily bounded by existing local government services such as stormwater management and water treatment. For example, our analysis does not include economic assessments of less tangible and more difficult revenue capture services such as the value of natural capital providing goods (water, fish, forests) and services (flood protection, recreation clean water, forests removing nutrients and sediment, biodiversity, etc). As a result, the base line characterization and potential revenue solutions outlined in the analysis simply address existing governmental services such as stormwater, land use planning, and drinking water provision. This section provides the background on the UNRB and describes the attributes and advantages of the revenueshed approach.

2.1 Introduction to the Upper Neuse River Basin (UNRB)

Historically, the Neuse River Basin has had water quality problems due in particular to excess nitrogen, which increases algal growth and eutrophication. In 1995, poor water quality and high rainfall resulted in a die-off that killed millions of fish. The NC General Assembly responded in 1997 by passing House Bill 1339, also known as the Neuse Nutrient Sensitive Waters Rules (NSWR), with the goal of reducing nitrogen loads by thirty percent. A major component of this effort has been the establishment of riparian buffers, which are forested or vegetated stands that protect nearby water bodies from neighboring land-use impacts. Conserving forests adjacent to streams allows trees to denitrify shallow groundwater (sub-surface runoff) prior to entering the water body. A NCDWQ (2011) study estimated that the amount of nitrogen reaching the Neuse River would increase by 17% if half of the current riparian areas were lost, thereby highlighting the importance of prioritizing land conservation as a strategy for watershed protection. In addition, forested riparian buffers slow water velocity and reduce the amount of sediment that is deposited into a stream via stormwater runoff by as much as 61 to 97%, depending on the width of the riparian buffer (Gilliam et al., 1997). The UNRB covers 770 square miles of the upper reaches of the Basin, covering portions of six counties and eight municipalities. While the UNRB was included in the Neuse NSWR, during the 2008 EPA sampling period, 46% of sampled UNRB streams were impaired and placed on the 303(d) list (approximately 60% of all streams were sampled; EPA 2010; Figure 1). The main source of impairment for streams was poor biological / ecological integrity. In Falls Lake, high Chlorophyll A levels, which serve as a surrogate for excessive nitrogen and phosphorus concentrations, were the basis for the listing of Falls Lake as impaired in 2008. Falls Lake was also found in violation of turbidity standards above Interstate 85. The poor water quality of Falls Lake, which releases water downstream to the Neuse River, resulted in the NC General Assembly passing Senate Bill 1020 to add additional requirements to SB 981 for water quality protection in the Upper Neuse River Basin. The final rules have been termed the Falls Lake Rules and were implemented in January 2011. The Falls Lake Reservoir was constructed in 1981 by the US Army Corps as a multi-purpose dam for flood control, water supply, recreation, fish and wildlife enhancement, and the augmentation of low flows for water quality control in the Neuse River Basin. Falls Lake is the only significant water supply for the City of Raleigh’s Water System (~475,000 residents). There are eight additional water supply reservoirs located in the UNRB.



Figure 1: Location of Upper Neuse River Basin and 2010 Impaired Water Bodies status

Falls Lake plays a crucial role in the Neuse River Basin as a water supply and water quality control reservoir (Figure 2); however, managing the reservoir for both water quantity and quality has been challenging. The water quality conservation pool is designed to meet water quality standards for both impounded water and the water released downstream of the dam. While our research was designed specifically to address watershed protection for water quality in Falls Lake, it is recognized that degraded water quality limits the amount of water available for consumption. For this reason, the City of Raleigh has been a strong advocate for protecting the water quality of Falls Lake in order to protect their main water supply.



Figure 2: Schematic of Falls Lake reservoir storage (Water Wiki 2011)

Water quality protection has been mandated by the federal government through laws such as the 1972 Clean Water Act (CWA) in order “to restore and maintain the chemical, physical, and biological integrity of the Nation’s waters” (33 U.S.C §1251(a)). Under section 303(d) of the CWA, each state is responsible for identifying those waters for which a water body exceeds the Total Maximum Daily Load (TMDL) of different pollutants as established by the State. A TMDL is the maximum amount of a pollutant that a water body can receive and still safely meet water quality standards. Where a water body fails to comply with TMDL standards, it is placed onto the 303(d) list and the state or local jurisdiction is required to prioritize resources and work toward improving the water quality. According to Perciasepe (1997), “if we are to achieve clean water everywhere, though, we must continue to build capacity to identify remaining problem areas and fix each problem on a watershed-by-watershed basis. The TMDL program is crucial to success because it brings rigor, accountability, and statutory authority to the process.” The Neuse River Basin is one such watershed that has continued to be plagued by water quality problems despite the CWA.

2.2 Upper Neuse Clean Water Initiative (UNCWI)

This work was funded by the Conservation Trust for North Carolina (CTNC) as part of the U.S. Endowment for Forestry and Communities Healthy Watersheds through Healthy Forests grant. The Upper Neuse Clean Water Initiative (UNCWI) was formed in 2005 as a partnership between seven non-profit organizations (Conservation Trust for North Carolina, Ellerbe Creek Watershed Association, Eno River Association, Tar River Land Conservancy, Triangle Greenways Council, Triangle Land Conservancy and Trust for Public Land) with the goal of protecting the drinking water sources in the UNRB through upstream land conservation. UNCWI, which is facilitated by the Conservation Trust for North Carolina, has received project funding from a number of sources, including the City of Raleigh. As of December 2010, for every dollar the City of Raleigh has invested, UNCWI has leveraged almost $11 of land value (fifty-one projects acquisitioned for $54 million [Personal Comm. with CTNC Conservation Programs Director L. Creasman, April 6, 2011]). Land conservation focuses on protecting or restoring forests as a means of absorbing excess nutrients (such as nitrogen and phosphorus), trapping sediments (reducing turbidity), and controlling stormwater runoff. Our analysis therefore focuses primarily on land conservation based watershed protection; however, many of the communities we’ve studied could benefit from other types of watershed protection measures, such as best management practices and education.



2.3 Revenueshed Concept

The EPA identifies a “watershed planning approach” as one of the four pillars of sustainable infrastructure. Many watershed plans, despite receiving wide support, have yet to be implemented due to a lack of financial resources. Tapping into local government revenue is essential to achieving watershed protection goals.

2.3.1 What is a revenueshed?

We define a revenueshed as the geographic area within which revenue is generated for a specific purpose. Here, a revenueshed describes the area within which revenue is generated for watershed protection.

2.3.2 What are the advantages of the revenueshed analysis framework?

Jurisdictional boundaries were developed to meet social, economic, and/or political needs, rather than to coincide with hydrologic boundaries. As a result, jurisdictional boundaries (sources of revenue for watershed protection) often do not match watershed boundaries (Figure 3). This leads to:

Multiple jurisdictions being responsible for financing watershed protection in a single watershed. The result is often a free-rider problem whereby all jurisdictions want the benefit of clean water but nobody wants to pay for it. Pooling revenue from these communities for efforts that exceed their jurisdictional boundaries is difficult. The consequence is that water quality is not directly addressed until it approaches a crisis point where action is necessary.

Single jurisdictions become responsible for watershed protection in multiple watersheds. All jurisdictions have limited financial resources; therefore, decisions have to be made regarding how much money is invested in each watershed. In addition, each watershed may have different legislative requirements for water quality and/or watershed protection.

Water quality and quantity are affected by decisions made upstream. Who is responsible for ensuring the quality and quantity of water available for downstream users? The upstream impacting jurisdictions, the downstream benefitting jurisdictions, or both?

Figure 3: Boundaries present within the study area. B) River basins are spatially non-congruent with county boundaries. C) Durham municipal and utility boundaries do not overlap with county or watershed boundaries.



2.3.3 How can revenuesheds be used as a tool for watershed protection?

Griggs (1999) stated that the main challenge for water resource management in the future will be institutional, particularly regarding questions about who is responsible for, and who should pay for, water resource management. We have applied the revenueshed concept to address these challenges along three main avenues (Figure 4):

Figure 4: Revenueshed concept Venn diagram

1. Revenuesheds are used to cultivate accountability by providing an unbiased documentation of

the baseline revenue generated by each jurisdiction from water, wastewater, and stormwater fees within a specific watershed. Additional sources of revenue may be considered – such as property taxes and nutrient impact fees. These sources of revenue can be explored with respect to the proportion of the jurisdiction within the watershed, per capita, per impaired streams, etc.

2. Revenuesheds are used to generate discussions among jurisdictions directly related to the watershed. Data are visually displayed through maps to provide the geographic context of the watershed, impaired streams, legislation, jurisdictions, utilities and associated revenue.

3. Revenuesheds provide a means to develop scenarios to assist in policy decision-making and fund

watershed protection. This includes examining how to collaboratively and intentionally finance a project or generate a dedicated revenue stream. This is particularly important if there is unclear leadership or responsibility. Commonly, this ambiguity is the result of a negative externality where personal or community decisions have a broader impact on the watershed as a whole. For example, land conversion or poor agricultural practices are land use decisions that impact water quality in surrounding streams. Downstream water users are impacted by the cumulative effect of decisions that lead to water quality degradation, but it is unclear who is directly responsible and whether the polluters or the water users are responsible for improving water quality to the level required for its desired use. A combination of interactive financial tools and maps are used to promote the implementation of actual policies that lead to sustainable watershed protection financing.



2.4 Integrating Revenuesheds with North Carolina State Legislation for Watershed

Protection

In the mid-1980s, the Pamlico River estuary had excess nutrients in the water that led to algal blooms and stressed biota. North Carolina responded by designating the entire Tar-Pamlico River Basin as Nutrient Sensitive Waters (NSW) in 1990 and has worked towards developing basin-wide strategies to reduce the nutrient load entering the estuary. This approach to watershed protection can be labeled a “problemshed” approach, whereby the specific water body is the problem and the watershed draining into that region is the problemshed (Gerlak, 2006). In the above example, the excess nutrients in the Pamlico River estuary were the problem and the Tar-Pamlico River Basin was the problemshed.

Figure 5: North Carolina river basins and additional water quality regulations. The City of Durham is located within the boundaries of the Neuse Rules and the Jordan Lake Rules. Only municipalities with a population greater than 10,000 are shown.

This approach of identifying a water body that requires protection and then passing legislation for the jurisdictions in the upstream watershed to improve the water quality of runoff entering the water body has been taken by the State of North Carolina on multiple occasions since the 1990s (Figure 5). The two most recent and controversial watershed rules were passed for Jordan Lake in 2009 and Falls Lake in 2011. The controversy highlights two challenges to the problemshed approach:

1. First, the problemshed only looks to the upstream jurisdictions as a resource to improve water quality to the benefit of downstream users. This is particularly problematic for those jurisdictions who receive no benefit from water quality improvements (e.g. Durham is affected by Jordan Lake and Falls Lake Rules but neither lake is a main water supply for Durham). Revenuesheds address this issue by considering both the polluters and the beneficiaries as being viable financing options for working towards sustainable watershed protection. The different jurisdictions are responsible for collaborating and discussing which options are feasible for their particular situation.

2. Second, serious implementation discussions and actions to improve water quality often occur only after a problem has been identified and mandatory legislation enacted. The process is reactive and likely more expensive than if proactive measures to improve water quality had



been taken. The revenueshed approach provides an alternative means to examine jurisdictions and watersheds simultaneously and to proactively engage discussions on how to generate sustainable revenue for watershed protection. The goal is for sustainable watershed protection funding and implementation to occur prior to water quality impairment.



3 Revenueshed Analysis Applied to the Upper Neuse River Basin

Cultivate Financial Accountability and Generate Discussions In this section we will outline the process of creating a revenueshed to cultivate financial accountability and generate discussions between jurisdictions. We will examine what jurisdictions are directly tied to the UNRB, in particular Falls Lake. We will explore the revenueshed characteristics for “impactors” (those jurisdictions located upstream of Falls Lake that impact water quality), and “benefactors” (those jurisdictions benefiting from improved water quality downstream) with the understanding that these designations are rarely clear-cut and communities often are both impactors and benefactors of watersheds.

Data Sources (see Inventory.xls) for details Spatial and tabular data were collected for the UNRB. Wherever possible, tabular data were attached to spatial data for visualization. Spatial data includes natural, political, utility and parcel boundaries. Natural boundaries include watersheds, land use, and water bodies (NC One Map). EPA stream ratings (NCDWQ 2011) are tabular data that were attached to spatial data for visualization (e.g. Figure 1). Jurisdictional boundaries include counties, municipalities, parcel, conservations easements, and census data (NC One Map and local jurisdiction’s GIS). Utility boundaries include water, wastewater, and stormwater service areas. Additional spatial data for utilities include the location of water intakes and discharges, interconnections between utilities, water supply watersheds, and stormwater regulatory boundaries. This data came from a variety of sources including NCGIA, NCDENR, NCDWQ, and NCLWSP. Lastly, utility information, property tax rates, and government budgets were obtained from the respective agency and available annual financial information reports (AFIR) from the State Treasurer.

Overview of the Upper Neuse River Basin (UNRB) The UNRB includes all or parts of six counties, eight municipalities, seven water utilities, seven wastewater utilities, and two stormwater utilities (Table 1; Figure 6). Jurisdictions located within the UNRB are termed “impactors” because their land use decisions directly impact water quality. Services provided by impactors are more directed toward deterring negative impacts to the watershed (such as wastewater and stormwater utilities). On the other hand, the role of the benefactors is more related to using a resource in the watershed (such as drinking water utilities). Jurisdictions located downstream of the UNRB that benefit from improved water supply quality are termed “benefactors.” Jurisdictions range on this continuum from the role of mostly impactor (e.g. Town of Roxboro) to mostly benefactor (e.g. City of Raleigh). The City of Durham is both an impactor and benefactor (its water supply source is located inside the UNRB). Again, all jurisdictions impact and benefit from watersheds.



Table 1: Percent of jurisdictions located inside the UNRB

County Area (mi2) % in UNRB Municipality Area (mi2) % in UNRB

Durham 299 69% Durham 106 44%

Franklin 495 2% None ---

Granville 536 25% Butner 14 100%

Creedmoor 4 100% Stem 1 100%

Orange 402 49% Hillsborough 5 100%

Person 404 32% Roxboro 6 50%

Wake 856 12% Raleigh 143 1%

Wake Forest 14 7%

Total 2,992 293

Figure 6: County and municipal boundaries in the UNRB

Approximately 58% of the watershed is forested, 18% is agricultural and 11% is developed. Figure 7 shows the location of recent development pressure within and directly outside the UNRB, particularly along the southern boundary from Durham to Raleigh. The highest population densities in the UNRB are located inside the Durham municipality (Figure 8). Most areas have population density less than 200 people per mile. Stormwater from Durham is located downstream of all water supply watersheds except Falls Lake (Figure 10).



Figure 7: Land cover in and around the UNRB in 2006 (NLCD data from the USGS)

Figure 8: Population density for the Upper Neuse in 2000 (population per square mile)



Below we will explore three types of utilities and their relationship to watershed protection in the UNRB. First, we look at drinking water utilities, which are focused on protecting their water supply. Second, we look at wastewater utilities, which focus on discharging clean, treated water back into the watershed and meeting federal regulations. Third, we look at stormwater utilities that focus on mitigating and improving the water quality of non-point source discharge, as well as restoring impaired water bodies. All three types of utilities provide the opportunity to offer expertise and monetary resources for watershed protection.

We developed a matrix to guide your understanding of which utilities have an investment in watershed protection for the UNRB based on their capacity to impact or benefiting from the watershed (Table 2). This table highlights the important role that drinking water utilities can play in protecting their water supply source through a dedicated revenue stream, such as watershed protection fees. Currently there are only two dedicated watershed protection fees in the UNRB: Raleigh’s newly passed watershed protection fee ($0.10 per kgal of drinking water consumed) and the City of Durham’s stormwater utility. In addition, the City of Durham recently passed a new watershed fee ($0.01 per ccf) in addition to setting aside $500,000 of their annual drinking water revenue for watershed protection.

Table 2: Matrix of local government services that directly impact or benefit from the UNRB Watershed

Drinking Water

Utility Wastewater

Utility Stormwater

Management Services

Creedmoor X .

Durham X X X

Hillsborough X X .

Orange-Alamance X .

Raleigh* X

Roxboro .

SGWASA X X . . Stormwater management program – not a separate Stormwater Utility *If this matrix was created only for Falls Lake – Raleigh would be the only water utility marked with an X.

3.1 Drinking Water Utilities

The UNRB intersects seven water utilities (Figure 9), although the City of Roxboro does not use water from the UNRB and the City of Durham uses water from both the UNRB and the Cape Fear River Basin. In this section, we will first examine the sub-watersheds, reservoirs, and water treatment plants in the UNRB. Next we will provide basic information for all drinking water utilities which have customers in the UNRB and / or withdraw source water from the UNRB.



Figure 9: Water utilities in the Upper Neuse River Basin

3.1.1 Water Supply in the UNRB

The UNRB contains seven sub-watersheds draining into Falls Lake (Figure 10). There are seven water treatment plants (WTP) accessing nine reservoirs (Table 3). Four of these plants are located within the Eno River watershed. Corporation Lake is the Reservoir for Orange-Alamance, and the remaining three reservoirs are used to manage Hillsborough’s water supply. Hillsborough draws directly from the Ben Johnston reservoir. The remaining sub-watersheds each contain a single WTP, except Ellerbe Creek, which has no WTPs. Falls Lake is the most downstream reservoir and contains all of the upstream water supply watersheds (Figure 11).



Figure 10: Water source locations and corresponding sub-watershed in the UNRB

The purpose of visualizing the water supply watershed for each reservoir is to understand that land use and water resource management decisions made upstream have a direct impact on both water quantity and quality in the reservoir. Figure 11 andFigure 12 highlight the directional impact that land use and water resource decisions have on each respective water supply reservoir, as well as which jurisdictions are located upstream. For example, decisions made in the City of Roxboro will have an impact on water resources at Lake Michie and Falls Lake. Hillsborough, Durham, and Wake Forest are located downstream of all water supply reservoirs except Falls Lake (so they only impact the water quality in Falls Lake). Lake Orange, Hillsborough, Corporation Lake, Ben Johnston, Little River Reservoir, and Lake Holt do not have any municipalities located within their watershed, with only the counties in those reservoirs having the potential for influencing land use decisions.



Table 3: Water supply intakes in the Upper Neuse River Basin

Utility Stream Reservoir Water Treatment

Plant (WTP) Use Type

Raleigh Neuse River Falls Lake E.M. Johnson Regular

Durham

Flat River Lake Michie Williams Regular

Little River Little River Lake Brown Regular

Eno River

Emergency

Orange-Alamance

Eno River Corporation Lake Orange-Alamance Regular

Hillsborough

Eno River Lake Ben Johnston Hillsborough Regular

East Fork of the Eno River

Lake Orange Hillsborough Emergency

West Fork of the Eno River

Hillsborough / West Fork Reservoir

Hillsborough Regular

Creedmoor Ledge Creek Lake Rogers Creedmoor Regular

South Granville Water and

Sewer Authority Knap of Reeds Creek R.D. Holt Butner Regular

Figure 11: The watershed for each reservoir is delineated. Shading darkens farther downstream. Arrows show flow direction and size reflects relative contribution. Reservoir size is relative to the raw water supply held in the reservoir (millions of gallons).



Figure 12: Same as Figure 11, except jurisdictional boundaries are overlaid to highlight which reservoir watersheds are impacted by each jurisdiction

The most recently available (2006 and 2009) local water supply plans (LWSP) for each water utility contain information regarding the raw water supply storage of the reservoir and the available raw water supply on a daily basis (Table 4). In 2007, Raleigh and Durham were utilizing 76% and 93% of their daily available raw water supply from the UNRB (Durham has additional water supply from the Cape Fear River Basin). There is an increased risk for water scarcity as utilities approach an equivalent water demand to supply ratio. On May 12, 2010 Raleigh opened the Dempsey E. Benton WTP with a capacity of 20 MGD from Lake Benson and Lake Wheeler, and plans to expand the E.M. Johnson WTP capacity to withdrawal up to 120 MGD from Falls Lake. In addition to the Little River and Lake Michie reservoirs, the City of Durham has access to Teer Quarry, Jordan Lake, as well as emergency interconnection contracts with Orange Water and Sewer Authority (OWASA), Chatham County, Cary, Orange-Alamance, and Hillsborough. Figure 13 shows the main service area for each water supply reservoir. Hillsborough, Butner and Creedmoor drinking water utilities serve customers that are only located inside the UNRB. Water withdrawn by Orange-Alamance serves customers in Orange County (29% of service population), but most of the water is sent outside of the UNRB to Alamance County. Water withdrawn by Durham serves customers inside of the UNRB (44% of service population), but 56% of their service population is located in the Cape Fear River Basin. Durham discharges approximately half of its wastewater to the Cape Fear and the other half to the UNRB. Roxboro does not use water from the UNRB for drinking water, but uses water from and discharges water to the Roanoke River Basin.



Table 4: Surface water supply attributes of the reservoir and WTPs (source: LWSP)

Reservoir

Average Inflow Water

Supply (MGD)

Usable Impounded

Water Supply (MG)

2007 Ave Daily

Withdrawal (MGD)

Water Utility Permitted Capacity (MGD)

Ratio Withdraw/

Supply *

Lake Orange 0.08 478

1.14 Hillsborough 3 45% Hillsborough 1.80 786

Ben Johnston 0.68 24

Corporation 0.37 19 0.3 Orange Alamance

0.90 42%

Lake Rogers 0.44 215 0.3 Creedmoor 0.46 30%

Lake Holt 11 2,200 2.4 SGWASA 7.50 25%

Lake Michie 19 3,300 14.0 Durham - Williams

22

60% Little River 18 4,900 20.4

Durham - Brown

30

Falls Lake 67 10,033 51.0 Raleigh 86 68%

*Ratio withdraw / supply was taken from LWSP and reflects purchase agreements and GW sources as well

Figure 13: Moving water from the reservoir to the served jurisdictions



3.1.2 Drinking Water Utilities as a Revenueshed

One of the main concerns with all nine of the reservoirs in the UNRB is that the water quality does not deteriorate to the point of being unusable or prohibitively expensive to treat. The cities of Raleigh and Durham have the largest demand for water in the UNRB (Figure 13). There has not been a clear trend in water demand for most of these water utilities over the last decade. One confounding factor is the presence of two severe hydrologic droughts that resulted in mandatory water conservation and technological improvements. Thus, while the population has continued to increase, water demand does not show a clear increasing trend for most utilities.

Water utilities charge different rates for their services (Table 5). All utilities have updated rates within the last year. Data was obtained from the local water supply plan (LWSP), annual financial data report (AFIR), and an EFC rate survey. Utilities have a monthly fixed base charge and a rate charge per unit of water consumed. Hillsborough, Roxboro, and South Granville Water and Sewer Authority (SGWASA) have a uniform rate. The remaining utilities have an increasing block structure, meaning that as more water is consumed the cost per unit of water increases. Durham and Raleigh charge their customers in units of hundred cubic feet (ccf) while the remaining utilities use units of a thousand gallons (kgal). One ccf is 0.748 kgal. This information was incorporated into the dashboard for the UNRB to produce scenarios for the average impact on a household and the total revenue generated with an increase in the base or rate charge. Southern Granville Water and Sewer Authority is abbreviated to SGWASA. All utilities charged a uniform rate for wastewater. Franklin County was excluded since such a small portion of customers are served in the UNRB. Table 5: Water utility rates for customers inside the city limits. Rates were converted to kgal for comparison.

Residential Accounts Non-Residential

Accounts

Water Utility Base

Charge ($)

In Base

Charge (kgalt)

Current Rate ($/kgal)

Ave Water

Use (kgal / Month)

FY 2010 #

Accounts

Ave Water

Use (kgal / Month)

FY 2010 #

Accounts

Last Update

Creedmoor $12.87 0

$5.54 (<5 kgal) $7.86 (>5 kgal)

3.5 1,916 13.0 140 2010

Durham**† $5.35 0

$2.30 (<1.5 kgal) $3.46 (1.6-3.7 kgal) $3.80 (3.8-6 kgal)

$4.96 (6-11.2 kgal)

$7.43 (>11.2 kgal)

4.0 75,801 37.4 8,954 2011

Hillsborough $21.75 3 $7.25 4.5 4,729 26.4 448 2010

Orange-Alamance

$18.00 0

$4.00 (<20 kgal) $5.50 (>20 kgal)

3.9 3,255 15.1 152 2010

Raleigh†† $5.24 0

$3.05 (<3 kgal) $5.08 (3-7.5 kgal) $6.78 (>7.5 kgal)

4.4 152,956 23.6 14,221 2010



Roxboro* $8.24 0 $3.62 3.9 4,028 33.7 704 2010

SGWASA $22.70 2 $3.60 2.5 3,228 43.6 252 2010

* Utility drinking water source is outside the UNRB **Utility drinking water source is inside and outside the UNRB † Durham: Current Rate (per CCF) = $1.72 (<2 ccf), $2.59 (2-5 ccf), $2.84 (5-8 ccf), $3.71 (8-15 ccf), and $5.56 (>15 ccf), Average Use – see Table 6. †† Raleigh: Current Rate (per CCF) = $2.28 (<4 ccf), $3.80 (4-10 ccf), and $5.07 (>10 ccf) , Average Use – see Table 6

Average Customer Bill The monthly bill for residential and non-residential customers was calculated for each utility based on the reported average use (Table 6). The average monthly bill is not directly comparable since each utility has a different average monthly water use. To incorporate the fixed, rate, and use into a comparable value we divided the average monthly bill by the average use to get a dollars paid per kgal of water consumed (Figure 14). This also enables comparison between residential and non-residential customers. Table 6: Monthly residential and non-residential bill given average water use. The average monthly bill divided by the average

use provides the amount paid (fixed and rate included) per kgal of consumption.

Residential Non-Residential

Water Utility Ave Use kgal (ccf)

Average Bill ($)

Bill / Use ($/kgal)

Ave Use kgal (ccf)

Average Bill ($)

Bill / Use ($/kgal)

Creedmoor 3.5 (4.7) $32.09 $9.17 13.0 (17.4) $103.14 $7.93

Durham** 4.0 (5.3) $17.41 $4.35 37.4 (50.0) $147.35 $3.94

Hillsborough 4.5 (6.0) $32.63 $7.25 26.4 (35.3) $191.40 $7.25

Orange-Alamance 3.9 (5.2) $33.52 $8.59 15.3 (20.5) $79.20 $5.18

Raleigh 4.4 (5.9) $21.58 $4.90 23.6 (31.5) $98.13 $4.16

Roxboro* 3.9 (5.2) $22.40 $5.74 33.7 (45.1) $130.35 $3.87

SGWASA 2.5 (3.3) $24.57 $9.83 43.6 (58.3) $172.46 $3.96 * Utility drinking water source is outside the UNRB **Utility drinking water source is inside and outside the UNRB

Comparing the bill/use we find that Creedmoor, Hillsborough and SGWASA pay more money per unit of water consumed. Raleigh and Durham overall pay the least per kgal of water consumed. Hillsborough is the only utility that has an equal amount paid for kgal by both residential and non-residential customers. All remaining water utilities charge residents a higher amount per kgal than non-residential customers.



Figure 14: Monthly residential and non-residential bill divided by the average use. This value accounts for both fixed and rate charges to enable comparison between water utilities.

Annual Revenue Generated by the Drinking Water Utility

The average monthly bill for residents was multiplied by the total number of reported accounts and multiplied by 12 (months in a year). The same calculation was done for the non-residential customers. The results were summed together to estimate the 2010 total water utility revenues (Table 7). The municipal water utilities have AFIR data available that reports the annual revenue from water sales. This data was compared with our 2010 estimated annual revenue as a check. Some discrepancy is anticipated since we are using average and not actual use for all customers. We anticipate underestimating revenues due to the increasing block rate structure for many of these utilities. Our estimated value was 7 to 18% less than the reported water sales for all utilities except Raleigh, which were an estimated 8% higher than reported in AFIR.

Table 7: Estimated and reported 2010 revenue by water utility. Orange-Alamance and SGWASA do not have AFIR data.


Water Utility Ave Bill

($) Number Accounts

Ave Bill ($)

Number Accounts

2010 Estimate Annual

Revenue

2010 AFIR Reported Revenue

Percent Difference

Creedmoor $32.09 1,916 $103.14 140 $911,088 $1,025,728 -11%

Durham** $17.41 75,801 $147.35 8,954 $31,668,808 $38,044,534 -17%

Hillsborough $32.63 4,729 $191.40 448 $2,880,654 $3,531,295 -18%

Orange-Alamance

$33.52 3,255 $79.20 152 $1,453,752 No Data No Data

Raleigh $21.58 152,956 $98.13 14,221 $56,355,567 $52,061,800 8%

Roxboro* $22.40 4,028 $130.35 704 $2,183,923 $2,339,325 -7%

$9.17

$4.35

$7.25 $8.59

$4.90 $5.74

$9.83

$7.93

$3.94

$7.25 $5.18

$4.16 $3.87

$3.96

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

Creedmoor Durham Hillsborough Orange-Alamance

Raleigh Roxboro SGWASA

Mo

nth

ly B

ill D

ived

by

Ave

rage

Use

($

/kga

l) Non-Residential

Residential



SGWASA $24.57 3,228 $172.46 252 $1,473,340 No Data No Data * Utility drinking water source is outside the UNRB **Utility drinking water source is inside and outside the UNRB

3.1.3 Water Demand Projections

The following section addresses the potential impact of population growth revenue generation for water utilities in the UNRB. The Upper Neuse River Basin has a growing population (Table 8 and Figure 15). The growing population has resulted in additional strain on this region’s water resources. The remainder of the revenueshed section will focus on the potential impact of increased water stress on the City of Durham and Raleigh as demand is projected to grow (Table 9).

Table 8: Population in UNRB counties from 2000 to 2009 (source: US Census Bureau)

County Jul-00 Jul-03 Jul-06 Jul-09 2000 to 2009 growth

Durham 224,635 236,753 249,253 269,706 20.1%

Franklin 47,610 51,932 55,447 60,088 26.9%

Granville 48,844 52,362 54,117 57,639 18.0%

Orange 116,049 117,575 122,084 129,083 11.2%

Person 35,746 36,532 37,077 37,667 5.4%

Wake 633,517 701,347 792,940 897,214 41.2%

Figure 15: Population growth in the UNRB from 2000 to 2009

Table 9: Water demand projections in the UNRB (MGD; Source is LWSP 2006 to 2009)

Utility 2010 2020 2030 Projected increase in water demand from 2010 to 2030

Creedmoor 0.30 0.41 0.57 91%



Durham 28.2 32.0 35.8 27%

Hillsborough 1.3 1.8 2.0 55%

Orange-Alamance 0.66 0.69 0.73 11%

Raleigh 59.6 78.4 94.0 58%

SGWASA 2.7 3.0 3.2 19%

3.1.4 Projected Demands for Durham and Raleigh – Revenueshed Implications

The City of Durham’s residents impact, but do not directly benefit from improved raw drinking water quality in Falls Lake, while the City of Raleigh is a beneficiary of the water quality in Falls Lake. Both cities have experienced significant population growth from 2000 to 2008 (Durham at 22% and Raleigh at 37%); which has placed stress on available water supplies and contributed to water pollution. While the trend in population has consistently grown in these two municipalities, the average daily water demand has fluctuated due to drought, changes in technology, water conservation measures, etc. The overall trend for water demand is increasing for this area, but not at the rate previously projected (Figure 16 and Figure 17). If the trend in water demand can be increasingly decoupled from population growth, it will reduce the water stress in this region and delay the need for further water supply development.

Figure 16: Average daily demand (MGD) and population served for the City of Durham (source: AFIR, Durham (2009), LWSP)

31

28

27 27

28 28

27

26

28

165

181

205 209

215

222 228

234

140

160

180

200

220

240

24

25

26

27

28

29

30

31

32

33

34

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Po

pu

lati

on

Ser

ved

Th

ou

san

ds

Ave

rage

Dai

ly D

eman

d (

MG

D)

Average Daily Demand

Population Served



Figure 17: Average daily demand (MGD) and population served for the City of Raleigh (source: AFIR, Raleigh (2007), LWSP)

Information regarding projected supply and demand is presented below. The baseline for this information was taken from the 2007 LWSP and updated capacity improvement reports. The City of Durham has direct access to 37 MGD from Lake Michie and the Little River Reservoir, in addition to 10 MGD of allocation space from Jordan Lake (Table 10). The drought from 2007 and 2008 resulted in accelerated water supply capacity enhancement developments by the City of Durham that was not anticipated prior to the drought (Morrison 2011). The City of Durham developed Teer Quarry to add an additional 7 MGD to their water supply. Durham also accessed 2 of its 10 MGD allocation at Jordan Lake through an interconnection with the Town of Cary for a total available water supply of 46 MGD. It is assumed that Durham will gain access to all 10 MGD of Jordan Lake by 2050. The water demand for Durham is anticipated to increase by 45% from 2010 to 2050, and its 2010 projected demand is similar to the recorded average demand. In spite of the population increase, the City of Durham anticipates meeting demand through 2050 (Figure 18). The City of Durham is currently looking toward the Cape Fear River Basin for additional water supplies. Future water supply alternatives that would impact Falls Lake involve expanding the capacity of Lake Michie and developing a new water supply on either Flat River or Little River (DCP, 2010).

Table 10: Projected supply and demand for the City of Durham

City of Durham 2007 2010 2020 2030 2040 2050

Surface Water Supply 37 37 37 37 37 37

Teer Quarry 0 7 7 7 7 7

Purchases 1.4 0 0 0 0 0

Jordan Lake

2 2 2 2 10

Total Available Supply (MGD) 38 46 46 46 46 54

Service Area Demand 25 28 32 36 39 41

Total Demand (MGD) 25 28 32 36 39 41

Demand as Percent of Supply 64% 61% 69% 78% 85% 76%

44

47

45

43

47

49 48

51

45

48

50

243

286

325 338

356 367

377 384

200

250

300

350

400

450

40

42

44

46

48

50

52

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Po

pu

lati

on

Ser

ved

Tho

usa

nd

s

Ave

rage

Dai

ly D

eman

d (

MG

D)

Average Daily Demand

Population Served



Figure 18: Projected supply and demand for the City of Durham

The City of Raleigh has access to 75 MGD through the E.M. Johnson WTP at Falls Lake (Table 11 and Figure 19). The WTP capacity is rated at 86 MGD, but the plant can only reliably deliver 75 MGD due to hydraulic restrictions and lack of filter redundancy (Hazen and Sawyer 2010). In 2010, the Dempsey E. Benton WTP was opened to provide an additional 20 MGD from Lake Benson and Lake Wheeler at a cost of $97.5M (Morrison, 2011). The WTP at Falls Lake is expanding to handle an additional 34 MGD by 2015 at an estimated cost of $250M (Morrison, 2011; Raleigh, 2007). The final water supply project currently being assessed is the construction of a new reservoir on Little River for an additional 13.7 to 20 MGD for an estimated $263M (Morrison, 2011; Raleigh, 2007). The Little River project is hotly debated due to the large amount of area that would be inundated for such a small increase in water supply. Water demand for the city of Raleigh is projected to more than double by 2050 and the peak demand is anticipated to exceed the projected future water supply by 2040 (Morrison, 2011). Raleigh is currently searching for new water supply sources. Clearly, Falls Lake is an essential water source to protect to ensure the future of Raleigh and the surrounding municipalities receiving water from Raleigh (Figure 20).

Table 11: Projected supply and demand for the City of Raleigh

City of Raleigh 2007 2010 2020 2030 2040 2050

Falls Lake Reservoir 75 75 120 120 120 120

Smith Creek Reservoir 2 2 2 2 2 2

Dempsey Benton WTP 0 20 20 20 20 20

Little River Reservoir

0 17 17 17 17

Total Available Supply (MGD) 77 97 159 159 159 159

Service Area Demand 52 50 76 92 102 117

Sales 0.6 2 2 2 2 2

Total Demand (MGD) 52 52 78 94 104 119

Demand as Percent of Supply 68% 60% 49% 59% 65% 75%

0

10

20

30

40

50

60

2007 2010 2020 2030 2040 2050

MG

D

Total Available Supply (MGD)

Total Demand (MGD)



Figure 19: Projected supply and demand for the City of Raleigh

Figure 20: Municipalities serviced by the Raleigh Water Utility

For more information on projected water demand:

0

20

40

60

80

100

120

140

160

180

2007 2010 2020 2030 2040 2050

MG

D

Total Available Supply (MGD)

Total Demand (MGD)



Neuse River Basin Water Resources Plan (2010). N.C. Division of Water Resources. URL: http://www.ncwater.org/Reports_and_Publications/Basin_Plans/Neuse_RB_WR_Plan_20100720.pdf

3.2 Point Source (Municipal Wastewater Discharge in the UNRB)

Wastewater systems that have sanitary overflow from pipes located within the UNRB during rain events contribute to water pollution in the UNRB. As a result, we explore the revenue potential for watershed protection of wastewater utilities serving customers in the UNRB except for Franklin County since such a small portion of customers are served in the UNRB. This section will examine centralized, municipal-owned wastewater treatment plants. We acknowledge that decentralized wastewater, such as septic tanks, are located throughout the UNRB; however, due to lack of sufficient data we have not addressed these systems from a revenueshed standpoint and they are not currently included in this analysis. There are three municipal wastewater treatment plants (WWTP) that discharge into the UNRB (Table 12). Orange Alamance is a water only utility, Raleigh discharges downstream of the UNRB, and the wastewater services for Creedmoor are handled by South Granville Water and Sewer Authority (SGWASA). Durham County has a WWTP separate from the municipality that services the Research Triangle area. The Durham County WWTP treats approximately 5.07 MGD that is discharged into the Cape Fear River Basin and will not be further discussed. Figure 21 traces the water downstream from the municipal wastewater treatment plant discharge location. All wastewater treatment plants are located downstream of the water supply reservoirs, except Falls Lake, which is located downstream of all three WWTP. Unlike stormwater and other non-point pollution sources, point discharge is concentrated and remains within the confines of a receiving water body. The influence of land use decisions via stormwater runoff and non-point source pollution will be examined by tracing those watersheds downstream of each jurisdiction.

http://www.ncwater.org/Reports_and_Publications/Basin_Plans/Neuse_RB_WR_Plan_20100720.pdf



Figure 21: Receiving water bodies for municipal wastewater systems in the UNRB.

Table 12: Attributes of municipal wastewater treatment plants discharging to Falls Lake

WWTP Design Capacity

(MGD) Average Annual Daily

Discharge (MGD) Receiving

Stream

Hillsborough 3 0.70 Eno River

Durham 20 7.91 Ellerbe Creek

SGWASA 5.5 2.10 Knapp of Reed

Wastewater utilities depend on their customers to fund their pollution control services. While there are still some sources of subsidized state and federal wastewater funding, the vast majority of revenues for point source control are collected in the form of user fees and rates from wastewater customers. In some parts of the country, communities have begun turning towards alternative wastewater revenues such as sales taxes or property taxes, but this practice has not been adopted by North Carolina utilities. To put the scale of wastewater revenue in context, we have analyzed revenue trends for utilities that discharge into the UNRB (see Table 13). The wastewater utilities that discharge all or part of their wastewater into the UNRB (Durham, Hillsborough, SGWASA) collected $20,145,720 from their customers in 2010. Durham’s revenue includes only the portion of Durham’s wastewater revenue



collected from customers whose waste is discharged into the UNRB, 44% of the City’s total revenue (2007 LWSP average discharge of 7.91 MGD to the Neuse and 9.87 MGD to the Cape Fear). The City of Durham discharges to both the Cape Fear and Neuse River Basin. The combined system has a capacity to treat 40 MGD and its average use is 20.38 MGD. The WWTP in the Upper Neuse River Basin is currently undergoing upgrades to improve efficiency and meet water quality regulations. While there are only three wastewater utilities that discharge into the UNRB, there are six local municipal wastewater utilities that service customers within the UNRB (Figure 22). Raleigh, Franklin, and Roxboro discharge into other basins. Similar to water utilities, wastewater utilities charge different rates for their services (Table 13). All utilities have updated rates within the last year. Data were obtained from the local water supply plan (LWSP), annual financial data report (AFIR), and an EFC rate survey. Wastewater utilities have a monthly fixed base charge and a rate charge per unit of water consumed (based on water consumption). All of these wastewater utilities charge a uniform rate. The data in this table were incorporated into the dashboard for the UNRB to produce scenarios for the average impact on a household and the total revenue generated with an increase in the base or rate charge.

Table 13: Wastewater utility rates for customers inside the city limits. All units shown in kgal for comparison.

Residential Accounts

Non-Residential Accounts

Wastewater Utility

Base Charge

($)

In Base Charge (kgal)

Current Rate ($ / kgal)

Ave Water Use (kgal /

Month)

FY 2010 #

Accounts

Ave Water Use (kgal /

Month)

FY 2010 #

Accounts

Use Data

Creedmoor $38.99 2 $11.33 3.5 1,744 13.0 130 AFIR

Durham**† $6.24 0 $4.39 3.7 70,858 40.4 7,550 AFIR

Hillsborough $22.74 3 $7.58 4.5 3,217 26.4 382 LWPS

Raleigh*†† $4.16 0 $3.24 4.4 144,900 23.6 10,282 LWPS

Roxboro* $8.40 0 $4.79 3.3 2,934 29.4 598 AFIR

SGWASA $31.63 2 $3.90 2.5 3,228 43.6 252 LWPS

* Utility discharges outside of the UNRB ** Utility discharges inside and outside of the UNRB † Durham rates in CCF = $3.28 / ccf, Average Residential Water Use = 5 ccf/month, Average Non-residential Water Use = 54 ccf/month †† Raleigh rates in CCF = $2.42 / ccf, Average Residential Water Use = 5.9 ccf/month, Average Non-residential water use = 31.49 cff/ month



Figure 22: Wastewater utilities in the Upper Neuse River Basin

Average Customer Bill The monthly bill for residential and non-residential customers was calculated for each utility based on reported average use (Table 14). The average monthly bill is not directly comparable since each utility has a different average monthly water use. To incorporate the fixed and rate charges and use into a comparable value we divided the average monthly bill by the average use to get a dollars paid per kgal of water consumed (Figure 23). This also enables comparison between residential and non-residential customers.

Table 14: Monthly residential and non-residential bill given average wastewater use. The average monthly bill divided by the average use provides the amount paid (fixed and rate included) per kgal of consumption.


Wastewater Utility Ave Use kgal (ccf)

Average Bill ($)

Bill / Use ($/kgal)

Ave Use kgal (ccf)

Average Bill ($)

Bill / Use ($/kgal)

Creedmoor 3.5 (4.7) $55.65 $15.90 13.0 (17.4) $163.17 $12.55

Durham** 3.7 (5.0) $22.64 $6.12 40.4 (54.0) $183.36 $4.54

Hillsborough 4.5 (6.0) $35.82 $7.96 26.4 (35.3) $210.14 $7.96

Raleigh* 4.4 (5.9) $18.44 $4.19 23.6 (31.5) $80.36 $3.41

Roxboro* 3.3 (4.4) $24.06 $7.29 29.4 (39.3) $149.13 $5.07

SGWASA 2.5 (3.3) $33.66 $13.46 43.6 (58.3) $193.87 $4.45 *Utility discharges outside of the UNRB **Utility discharges inside and outside of the UNRB



Comparing the bill/use we find that Creedmoor, Hillsborough and SGWASA pay more money per unit of water consumed. Raleigh and Durham pay the least per kgal. Raleigh is the only utility that charges more for water than wastewater services. Hillsborough is the only utility that has an equal amount paid for kgal by both residential and non-residential customers. All other utilities have residents paying a higher amount per kgal than non-residential customers.

Figure 23: Monthly residential and non-residential bill divided by the average use. This value accounts for both fixed and rate charges to enable comparison between wastewater utilities.

Annual Revenue Generated by the Wastewater Utility The same calculations were done for the wastewater utilities as for water utilities above (Table 15). Our estimated annual revenue was much closer to the AFIR reported revenues (1 to 9 percent difference), which is likely due to the uniform rate structure for wastewater utilities. As with the water utilities, the City of Durham and Raleigh have a much higher revenue stream due to larger customer service.

Table 15: Estimated and reported 2010 revenue by wastewater utility. Orange-Alamance does not have a wastewater utility. SGWASA does not have AFIR data.


Wastewater Utility

Ave Bill ($)

Number Accounts

Ave Bill ($)

Number Accounts


Revenue


Percent Difference

Creedmoor $55.65 1,744 $163.17 130 $1,419,188 $1,332,659 6%

Durham** $22.64 70,858 $183.36 7,550 $35,863,117 $36,897,204 -3%

Hillsborough $35.82 3,217 $210.14 382 $2,346,077 $2,578,288 -9%

Raleigh* $18.44 144,900 $80.36 10,282 $41,978,610 $41,888,532 0%

Roxboro* $24.06 2,934 $149.13 598 $1,917,261 $1,931,433 -1%

SGWASA $33.66 3,228 $193.87 252 $1,890,039 No Data No Data *Utility discharges outside of the UNRB **Utility discharges inside and outside of the UNRB

$15.90

$6.12 $7.96

$4.19 $7.29

$13.46

$12.55

$4.54

$7.96

$3.41

$5.07

$4.45

$0

$5

$10

$15

$20

$25

$30

Creedmoor Durham Hillsborough Raleigh Roxboro SGWASA

Mo

nth

ly B

ill D

ivid

ed b

y A

vera

ge U

se (

$/k

gal)

Non-Residential

Residential



3.3 Non-point Discharge – Catchment Basins and Stormwater Management

Precipitation events place water on the landscape, resulting in surface runoff that may either flow directly into a stream, or it may be channeled to storm sewers and wastewater treatment plants prior to entering the stream. Surface runoff as a result of precipitation is stormwater. Urbanization increases impervious surface area, preventing precipitation from soaking into the ground and thereby generating more stormwater, and consequently, more erosion and flooding. A significant problem resulting from flooding is the overflow of wastewater systems, which discharges untreated water and its pollutants directly into the receiving water body (Prahalad et al. 2007). These are known as sanitary sewer overflows, with the untreated water becoming a component of the stormwater flow. Since it is impossible to control precipitation, the next best solution is to manage the amount of stormwater generated to reduce flooding.

3.3.1 Stormwater at the Federal and State Scale

The 1972 Clean Water Act (CWA) set water quality standards for industrial point source discharges with the goal of restoring surface waters to their “fishable and swimmable” conditions (CWA, 1972). While this is a federal law, it was the first environmental law to place the responsibility and cost of implementation predominantly on local governments (Gerlak, 2006). Despite the CWA, surface water quality throughout the U.S. continued to decline. In 1987, Congress responded by broadening the definition of polluting discharges to include stormwater discharges from municipal storm sewer systems (MS4). This new legislation requires MS4 municipalities to obtain and meet the standards of the National Pollution Discharge Elimination System (NPDES) permits for stormwater and wastewater discharge. The implementation of NPDES permits has been divided into two phases. Phase I was initiated in 1990 and required all municipalities serving more than 100,000 persons to obtain an NPDES permit (CWA 1987). North Carolina has six Phase I municipalities: Raleigh, Durham, Fayetteville, Charlotte, Winston-Salem, and Greensboro. NPDES permits require municipalities to implement the following measures: (1) public education, (2) public involvement, (3) detect and eliminate illicit discharge, (4) control construction stormwater runoff, (5) manage post-construction stormwater runoff, and (6) pollution prevention of municipal operations. Legislation providing for Phase II stormwater management requirements for North Carolina were established in 2006 and its effective implementation by municipalities began in 2007 (NCDENR 2009). In the UNRB, Hillsborough was designated as a Phase II municipality in 2006, but Roxboro, Creedmoor, and Butner were designated in 2010. Phase II municipalities must apply for the Phase II MS4 permit within 18 months and implement post-construction stormwater requirements within one or two years (Georgoulias, 2010). Only the Phase 1 municipalities in the UNRB have a stormwater utility that is funded through residential and non-residential fees. Hillsborough has a stormwater management program that is operated as a division in their Public Works Department and it is coordinated by Orange County. Roxboro, Creedmoor, and Butner are in the process of developing either a stormwater program or utility.

3.3.2 Stormwater at the Local Government Scale

Stormwater management programs are often created and funded by local governments who generate revenue through: taxes, public enterprise fees (utility and impact fees), regulatory fees, fines and penalties, contractual agreements, and assessments (Hughes 2008). The State of North Carolina has



several additional stormwater programs in addition to NPDES Phase I and Phase II Stormwater Management requirements. These programs include the aforementioned Nutrient Sensitive Waters, Water Supply Watersheds, High Quality Waters, Outstanding Resource Waters, Coastal Stormwater, and a voluntary Universal Stormwater Management Program. We will not go into detail regarding each type of stormwater program, but want to highlight that it is a complicated and complex compilation of programs. Georgoulias (2010) does an excellent job demonstrating how local, state, and federal stormwater programs intersect (Figure 24). As the diagram illustrates, local governments are responsible for administering the majority of stormwater programs.

Figure 24: Diagram illustrating the responsibilities of local and state governments to administer stormwater programs in North Carolina. Figure is from Georgoulias (2010).

In this report we focused on stormwater utilities because these utilities are responsible for generating a dedicated revenue stream for stormwater management. Stormwater programs that are not included in a utility are mostly funded out of property tax revenues and administered through another branch of City or County government. While the stormwater programs spend money for stormwater protection, the revenue stream is embedded within other funds and it is difficult to get accurate quantitative data for stormwater revenue. In North Carolina there were 38 stormwater utilities in 2006 (defined as a separate fee for the explicit purpose of stormwater management) and 47 stormwater utilities in 2009 (EFC 2010). Statewide, the median monthly fee increased from $3.27 to $3.75 for residential buildings during this time period. The rate structure for residential buildings is typically a uniform fee. The median non-residential monthly fee increased from $28.71 to $33.34 from 2006 to 2009 (EFC 2010). Non-residential stormwater rate structures tend to be directly related to the amount of impervious area. The total annual revenue generated by stormwater utilities in 2009 was around $132 million (EFC 2010).



However, the geographic distribution of stormwater utilities is not uniform (Figure 25). The Catawba River Basin has all its stormwater utilities located in the lower portion of the basin. On the other hand, the majority of the Neuse River Basin stormwater utilities are located in the Piedmont. Several basins have no stormwater utilities

Figure 25: Revenue generated by stormwater utilities in 2008 for each river basin in North Carolina

A stormwater utility is responsible for finding the most cost effective way to comply with water quality standards; thereby, protecting the quality of the receiving water body. The Cities of Raleigh and Durham currently have the only stormwater utilities located in the Upper Neuse River Basin. Several stormwater utilities in the Upper Cape Fear formed around the time the Jordan Rules were passed. It is possible that additional stormwater utilities will form as a result of the Falls Lake Rules, and in fact we see that occurring as Roxboro, Creedmoor, and Butner became Phase II designated municipalities in 2010.

3.3.3 Municipal Non-Point Source Impacts in the UNRB

Roxboro Roxboro, located at the top of the UNRB, discharges downstream in the North Flat River. The North Flat merges with the South Flat to form the Flat River which flows unimpeded into Lake Michie, one of Durham’s drinking water reservoirs. Lake Michie flows downstream directly into Falls Lake. Roxboro can negatively impact the water quality in Falls Lake through stormwater runoff and non-point source pollution (Figure 26). The water supply for Roxboro is located in the Roanoke River Basin. All catchments that directly intersect the municipality are highlighted and the intersecting streams are traced downstream to Falls Lake. Roxboro currently does not have a designated watershed protection fee or stormwater fee. The City was designated as a Phase II municipality in 2010 and is in the process of developing a stormwater management utility or program.



Figure 26: Stormwater and non-point discharge impacts from Roxboro to Falls Lake.

Hillsborough Hillsborough is located in the Eno River sub-watershed, where it withdraws water from, and discharges wastewater back into, the Eno River (Figure 21). Falls Lake is the only water supply reservoir located downstream of Hillsborough. Figure 27 shows which catchments drain directly from the municipality and traces the flow of stormwater downstream. The City of Hillsborough was designated as a Phase II municipality in 2006. Hillsborough does not have a stormwater utility or dedicated watershed protection fee. The City of Hillsborough obtains revenue for its stormwater program through property tax revenues from their General Fund and they administer their program jointly with Orange County.



Figure 27: Stormwater and non-point discharge impacts from Hillsborough to Falls Lake.

Durham The City of Durham is located within the Little River, Eno River, Ellerbe Creek, and Falls Lake sub-watersheds. Durham has two water supply reservoirs located upstream of Falls Lake and one wastewater discharge into Ellerbe Creek (Figure 21). In 2009, the City of Durham had a municipal area of 106 square miles, 47 miles (45%) are located in the UNRB, while the remaining 55% are located in the Cape Fear River Basin. This is the largest municipality located within the UNRB. There is a relatively short distance between Durham and Falls Lake, and there are six streams that drain from the municipality directly into Falls Lake (Figure 28). Durham’s impact to Falls Lake is largely through land use decisions and increased wastewater discharge. Durham’s policy is to protect the region’s water supply sources from water quality degradation by maintaining low intensity land uses near reservoirs (DCP 2010). The City of Durham and the City of Raleigh have separate stormwater utilities; whereby the utility is supported through fees paid by residential and non-residential customers (Table 16). The fee is a rate charged per Equivalent Residential Unit (ERU), which is often the average impervious surface (ft2) of residential households within the municipality. For example, in the City of Durham 1 ERU is equivalent to 2,400 ft2 of impervious surface. While water and wastewater service areas for both cities extend beyond the municipal boundary (Figure 9 and Figure 22), stormwater fees are limited to those accounts located within the municipality.



Comparing the wastewater service areas with the municipal boundary, approximately 64% of the wastewater service in Durham was located inside city limits; therefore, we assume that the number of stormwater accounts is 64% of the wastewater accounts. Seventy-six percent of the wastewater service area was attributed to the City of Raleigh; resulting in 76% of their accounts being included within the stormwater utility.

Table 16: Stormwater utility rates in the UNRB

Stormwater Utility Fees ERU (ft2) # Resident Accounts # Non-Residential Accounts

Durham $4.92 2,400 45,349 4,832

Raleigh $4.00 2,260 110,124 7,814

Figure 28: Stormwater and non-point discharge impacts from Durham to Falls Lake.

Both stormwater utilities have a tier rate structure for residential units, while non-residential units are charged a flat rate per ERU. Assuming an ERU of 1.25 for residential and an ERU of 20 for non-residential units – a monthly (and then annual) fee per account was calculated). This number was multiplied by the number of accounts to estimate the total annual revenue. Our estimate was less than 5% different from the 2010 AFIR reported stormwater revenues (Table 17).



Table 17: Estimated and reported 2010 revenue by stormwater utility.


Stormwater Utility

Fee Per ERU

Average ERU

Number Accounts

Average ERU

Number Accounts


Revenue


Percent Difference

Durham $4.92 1.25 45,349 20 4,832 $9,052,391 $9,531,517 -5%

Raleigh $4.00 1.25 110,124 20 7,814 $14,109,187 $13,906,902 1%

Butner and Creedmoor Butner and Creedmoor are located north of Falls Lake in the Knapp of Reeds Creek, Beaverdam and Falls Lake sub-watersheds. Similar to Hillsborough, these municipalities withdraw water from upstream reservoirs and discharge downstream of the municipality (Figure 21). The stormwater/non-point discharge draining catchments in Butner are directly adjacent to Falls Lake, and have several streams that drain directly into Falls Lake (Figure 29). Butner and Creedmoor were both designated as Phase II municipalities in 2010 and are in the process of developing a stormwater management utility or program.

Figure 29: Stormwater and non-point discharge impacts from Butner and Creedmoor to Falls Lake.

Raleigh Raleigh and Wake Forest have grown into the UNRB and impact some of the most downstream catchments in the Falls Lake sub-watershed (Figure 30). The City of Raleigh has one of the largest stormwater utilities in the State with almost $14 million collected in revenue in 2010 from 110,124



residential and 7,814 non-residential accounts (Table 16 and Table 17). Most of the revenue generated by the City of Raleigh is spent on stormwater management downstream of the UNRB.

Figure 30: Stormwater and non-point discharge impacts from Raleigh and Wake Forest to Falls Lake.

3.3.4 County Non-Point Source Impacts in the UNRB

Person County Person County drains into two rivers that run downstream into Falls Lake. Runoff from Person County also impacts Durham water supply (Lake Michie) and Butner’s water supply (Lake Holt; see Figure 31). Granville County Figure 32 shows the streams impacted by Granville County. Note that Granville County is directly adjacent to portions of Falls Lake (direct runoff into the Lake). In addition, runoff from Granville impacts the water supply reservoirs for Butner and Creedmoor (Figure 32). Franklin County Franklin County is located in the most SE corner of the UNRB; however, the county intersects three streams that drain into Falls Lake (Figure 33). No other water supply reservoirs in the UNRB are impacted by Franklin County. Orange County Non-point source discharge from Orange County impacts seven of the nine reservoirs in the UNRB (4 in Orange County, both of Durham’s reservoirs, and Falls Lake; Figure 34).



Durham County Non-point source discharge from Durham County impacts both of Durham’s reservoirs, Butner’s reservoir, and Falls Lake (Figure 35). Durham County is directly adjacent to the Western half of the upper Fall’s Lake Reservoir. Wake County Lastly, the lower portion of Falls Lake is located entirely inside Wake County. This means runoff from Wake County can flow directly into Falls Lake (Figure 36).

Figure 31: Non-point source runoff for Person County



Figure 32: Non-point source runoff from Granville County

Figure 33: Non-point source runoff from Franklin County



Figure 34: Non-point source runoff for Orange County

Figure 35: Non-point source runoff for Durham County



Figure 36: Non-point source runoff for Wake County

3.4 Comparing Annual Revenue Trends for Water, Wastewater and Stormwater Utilities

How does the annual revenue generated by different utilities and utility types compare? We gathered data on the total revenues for water (Table 18), wastewater (Table 19), and stormwater (Table 20) utilities over the last three years to assess short-term revenue trends since major economic changes have occurred. AFIR data are only available for local government utilities. Orange-Alamance is a non-profit system and data is not collected on annual revenues. SGWASA has audit information available on total operating revenues and expenses (not broken up by water and sewer sales). We report SGWASA total revenues in Table 18, but do not plot them on the figure since the revenue consists of both water and wastewater sales. Durham, Creedmoor, and Hillsborough have had an increase in water and wastewater revenue over the last three years, especially Durham (Figure 37 and Figure 38). Raleigh and Roxboro have fluctuated in water and wastewater revenues with a noticeable decrease in 2009. Durham and Raleigh stormwater utilities have shown a slight increase in revenues during this time. It is evident that the size of Durham and Raleigh enables them to generate far more revenue through sales than the other utilities in the UNRB.



Table 18: Three years of AFIR total revenue by water sales

Water Utility 2010 AFIR 2009 AFIR 2008 AFIR

Creedmoor $1,025,728 $760,000 $677,844

Durham $38,044,534 $29,998,148 $23,710,890

Hillsborough $3,531,295 $3,444,560 $3,337,612

Raleigh $52,061,800 $44,992,359 $53,072,271

Roxboro $2,339,325 $2,479,705 $2,395,748

SGWASA* $7,760,171 $6,889,254 $6,293,023

* Combined water and wastewater sales

Table 19: Three years of AFIR total revenue by wastewater sales

Wastewater Utility 2010 AFIR 2009 AFIR 2008 AFIR

Creedmoor $1,332,659 $925,000 $734,868

Durham $36,897,204 $36,219,748 $34,125,084

Hillsborough $2,578,288 $2,500,585 $2,365,439

Raleigh $41,888,532 $37,425,800 $41,039,649

Roxboro $1,931,433 $1,861,762 $2,095,422

See Table 18 for SGWASA combined water / wastewater revenues

Table 20: Three years of AFIR total revenue by stormwater fees

Stormwater Utility 2010 AFIR 2009 AFIR 2008 AFIR

Durham $9,531,517 $8,686,226 $8,381,887

Raleigh $13,906,902 $13,690,215 $13,317,835



Figure 37: Total water sales for utilities from 2008 to 2010

Figure 38: Total wastewater sales for utilities from 2008 to 2010

$0

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2010 AFIR2009 AFIR2008 AFIR

An

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Hillsborough Raleigh

Roxboro

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2010 AFIR2009 AFIR2008 AFIR

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Creedmoor DurhamHillsborough RaleighRoxboro Durham StormwaterRaleigh Stormwater



4 Watershed Protection Fees on water bills There are not many examples of utilities advertising a watershed protection fee on the customer bill. Most utilities that dedicate funding to watershed protection include it as a hidden fee on the bill. An on bill “watershed protection fee” has been implemented in a few jurisdictions to raise funds for educational programs, land acquisition, and restoration efforts. Below are case studies of four water utilities that currently have, or have had watershed protection fees specifically labeled on the customer’s bill. These water utilities are: Central Arkansas Water (AR), Salt Lake City (UT), Gastonia (NC), and Dennis Water District (MA). Utilities in the UNRB may consider advertising the portion of a customer’s bill that is dedicated to watershed protection. The dashboard tool described later in this report can model the revenues that a dedicated watershed protection fees could generate for watershed protection in the UNRB. Central Arkansas Water: Central Arkansas Water (CAW) serves a population of nearly 400,000. In February 2009, CAW approved

a “Watershed Protection Fee,” which began to appear on customer bills in May 2009 (CAW 2009). An

average residential customer will pay $5.40 annually.

In a press release, CAW stated:

“Monthly Watershed Protection Fee… will go toward funding the utility’s Watershed Protection Program

for the two supply lakes, particularly Lake Maumelle. The fee primarily will fund land purchases in the

watershed. However, the fee may fund other activities, such as water quality monitoring, mapping,

administration of the Lake Maumelle Watershed Plan, and other measures necessary to protect water

supply lakes from potential pollution sources. The monthly fee schedule is by meter size, with the fee for

the average household being 45 cents per month.” (Table 21).

Table 21: Central Arkansas Water Watershed Protection Fees

Meter Size Monthly Watershed Protection Fee

5/8” $0.45

3/4” $0.45

1” $0.68

1 1/2” $1.13

2” $2.25

3” $3.60

4” $6.75

6” $11.25

8” $22.50

10” $36.00

Salt Lake City: Salt Lake City began having an on-bill watershed protection fee in 1991 when the City Council approved

a $0.25 fee on all water bills (EPA, 2010). The fee funds the “Water Rights and Watershed Purchase

Fund” created by the 1988 Watershed Master Plan. In 1999, the City updated the Plan and increased the

fee to $0.50 (Bear West Consulting Team, 1999). The average resident contributes $6.00 annually for

watershed protection. In 2010, 224 acres of “critical watershed lands” were purchased (Salt Lake City,



2010). As of 2010, the Department of Public Utilities has purchased 1,905 acres of watershed property in

the Wasatch Canyons at a cost of $9.2 million (Hooton, 2010). Land purchases have included: 125 acres

in 1994 for $324,272 and a 154-acres in 2001 for $1.3 million in fund monies and a $700,000 grant from

the State of Utah. In 2005, Salt Lake City received the Utah Quality Growth Commission Award for

Critical Land Conservation for its land acquisition program (Salt Lake City, 2005).

Conservation easements are a major focus for the revenues generated by watershed protection fees.

The City’s Capital and Operating Budget – Fiscal Year 2010-2011

(http://www.slcgov.com/finance/2011budget/FY11book.pdf) stated:

“The Water Quality Division manages watershed areas to protect the City’s source of drinking water, and to control long term costs for treatment… Additional activities in the watershed include efforts to control invasive weed species, fire management and mitigation, and trail maintenance.” (D-171)

Gastonia: Beginning in 1999, the City of Gastonia charged its water users a “Protection Fee” to repay the debt

incurred when the city purchased 429-acres of land around Mountain Island Lake. The land protected

was scheduled to be developed into 400 homes and 80 boat docks. Gastonia residents paid $1.20 per

month (or $14.40 per year).

NCDENR stated (http://swap.deh.enr.state.nc.us/swap/pages/moremountainisle.htm): The City of Gastonia committed to sell revenue bonds to secure the $9.4 million needed for the purchase

price, and this debt is being repaid with a $1.20 Mountain Island Lake Protection Fee on the water bills of

Gastonia residents. Funding from the Clean Water Management Trust Fund was instrumental in

completing the protection of the Waters Edge shoreline. In 2000, a $1 million grant to the City of Gastonia

funded a conservation easement valued at $3 million to the state of North Carolina.

In the early 2000’s, the City of Gastonia upgraded their billing software and determined it was too complicated to have a separate watershed protection fee. As a result, the fee no longer appears on the bill and was dissolved back into the overall rate structure. Dennis Water District (Massachusetts): The Dennis Water District charges its consumers a $10 fee semi-annually to pay for land acquisition to protect water quality ($20 annually). From 2001 to 2007, the fee was a “Land Acquisition Fee” created to pay for the purchase of 22 acres for watershed protection for a cost of $1,492,500 (DWD, 2006). The voters approved the $10 semi-annual fee until the total cost was recovered. After the retiring of this debt, Dennis Water District created a Watershed Protection Fee in 2007 to pay for the purchase of more land. The fee remains at $10 and is paid semi-annually (DWD, 2008).

WATERSHED PROTECTION FEE— At the Annual District Meeting, held April 25, 2007, the voters, under Article 12, approved the purchase of 6.5 acres of land for wellhead and watershed protection and the purchase of water conservation restrictions on 59(+/-) acres of land in the Town of Brewster. The article approved the cost at $2,500,000. In order to pay for the bond issuance costs, debt service and other ancillary costs, the voters also approved a new fee. The fee was set at $10 per customer every six months until the total cost is recovered. The fee was first assessed in August 2007 and is expected to continue for approximately 13 years.

http://www.slcgov.com/finance/2011budget/FY11book.pdf

http://swap.deh.enr.state.nc.us/swap/pages/moremountainisle.htm



5 UNCWI Dashboard What is a dashboard? A dashboard is a graphical information system with a user interface that is designed to be easy to read. Dashboards are designed to be interactive to allow user to easily develop scenarios and visualize performance metrics (e.g. meeting target goal, changes in rates, source of revenue). The visualization and ease of entering data into the dashboard make it an ideal way to engage with, and interactively communicate with your target audience. The dashboards designed for this project was created using Xcelcius software.

Why design a dashboard? As long as water is abundant and water quality is sufficient to meet a particular need, it is easy to stay unconcerned and unaware about who else may be sharing the same river, lake, or aquifer (Bruns and Meinzen-Dick 2003). As water demand grows or water quality decreases (both often occur with increasing population), those who use water are increasingly impacted by the actions of other water users and upstream impacts. Coordination of water management becomes more complex and crucial. It becomes more complex regarding who has the right to use the water and who is responsible for protecting the water. Water quality protection is also tied to land use and land development policies. Deforestation, cultivation, urbanization, reforestation, and other land-use changes reshape how water flows into and out of aquifers and rivers, as well as the quality of the water (Bruns and Meinzen-Dick, 2003). Climate change also impacts water quantity, quality, and timing. All of these impacts are mediated by institutions that regulate water related activities. Collaboration, rather than cooperation, between these institutions is crucial to efficiently and effectively protect water resources. Conflicts over water have grown between local jurisdictions due to increasing population, changing climate, or degraded water quality. The conflict is often greatest between upstream municipalities and downstream users who are impacted by upstream decisions. There will always be competing desires for how water is managed and some level of cooperation is necessary to ensure the resource is available and adequate for use. Cooperation is further confounded because these conflicts extend beyond the bounds of adjacent communities and requires dealing with jurisdictions that have few links beyond using the same resource (Bruns and Meinzen-Dick, 2003). Several important questions need to be considered when basin-wide planning is undertaken, particularly when the basin is heavily regulated through state legislation and multiple local governments. These questions include: Who will be involved? Who defines the problems to be considered? What resources are available? What time frame for implementation? How will issues and resources be integrated? However, planning can take up much time and expense only to be ignored or rejected, particularly if there is no stakeholder involvement (Bruns and Meinzen-Dick, 2003). Watershed planning can be more effective when it is based on an understanding of existing jurisdictions and the various options available for change. It should be kept in mind that each watershed and each jurisdiction often have different problems to address and priorities for watershed planning. The role of the EFC was to provide accurate and meaningful tools to support CTNC / UNCWI in their ongoing efforts to foster collaboration and implementation of watershed protection strategies among the local jurisdictions in the UNRB. The implementation of watershed protection strategies, whether it is to upgrade a wastewater treatment plant, install stormwater best management practices, or purchase land conservation easements, all require monetary resources. The goal of the interactive financial tool,



or dashboard, is to facilitate communication between jurisdictions and provide a common and transparent tool from which to develop scenarios for how to generate revenue for watershed protection. This tool allows a single jurisdiction, as well as multiple jurisdictions, to collectively assess their potential for generating revenue for a specific project or as a dedicated watershed protection fund. More specifically, the dashboard shows how a single utility, or multiple utilities, can generate watershed protection revenue through cost shares, debt service, and fee increases. The way in which this revenue is used for watershed protection is up to the discretion of the local jurisdiction or watershed partnership. Bruns and Meinzen-Dick (2003) state “the best route to better water management depends on where you are starting from, with many pathways available.” All pathways require financing.

5.1 Calculations:

Key assumption for debt service: the loan is a fixed principle loan with declining interest payments over times. The State Revolving Loan Fund issues most of its debt as fixed principle and declining interest and we assume that most local governments would receive this type of loan. 1. New Average Monthly Bill

a. ( ) [( ) ( )] 1. Units in kgal or CCF 2. BaseO = Original base charge, BaseN = Increase in base charge : ($ per month) 3. RateO = Original rate, RateN = Increase in rate : ($/unit per month) 4. AveUse = Average water or wastewater used in a month 5. Inc = Units of water included the base charge

2. Average Monthly Bill Increase

a. 1. New Bill = The new average monthly bill calculated in part a. 2. Original Bill = Current average monthly bill (in part a. BaseN and RateN =0)

3. Percent Change in Bill

a.

1. Bill Increase = New Bill – Original Bill 4. Annual Revenue Generated by Rate Changes

a. [ ( ) ( ) ] [ (

) ( ) ( ) ]

1. Revenuei =Annual revenue generated in year (i) 2. BaseN = Increase in base charge 3. Accounts = Number of customers (residential or non-residential) 4. Cov% = Percent of accounts to experience rate change (for example if a utility is split

between two river basins – 50% of the revenue generated will go to this basin) 5. Growth = Percent annual change in accounts (is the area growing or shrinking) 6. Year = number of years the new rate has been in place 7. RateN = Increase in rate charge 8. AveUse = Average water or wastewater used in a month 9. Demand = Percent annual change in water demand 10. The formula is multiplied by 12 to get the annual revenue generated. The total revenue

generated sums all utilities / jurisdictions together.



5. Debt Generated Each Year

a. ∑ ( )

[ ( )

]

1. DebtGeni = Debt generated in each year (i) 2. Revenuei = Total annual revenue generated in year (i) by rate changes 3. CostShare = One time and recurring annual cost shares 4. Interest = Interest rate taken out on the loan 5. Term = Duration of the loan

6. Year One Debt Principle or Total Amount Financed

a. If the one-time cost share exceeds the target this value will be zero (no loan needed) b. The one-time cost share is subtracted from the target amount of money needed

1. For example – if you require a $1 million loan and receive a $500,000 cost share, you only need to finance the remaining $500,000.

c. The Year One Debt Principle is the minimum annual debt generated (DebtGeni) for the duration of the loan. This is the total amount of money that can be financed given the annual revenue generated through fee increases and cost shares.

7. Debt Service

a.

[( ( )

) ]

1. DebtServicei =Payment made on debt for year (i) 2. Yr1DebtP = The total amount financed in year one (see part g.) 3. Interest = Interest rate taken out on the loan 4. Term = Duration of the loan

5.

= This is often referred to as the principal payment

6. The debt service is calculated to be fixed principle with decreasing interest.

8. The revenue available for ongoing expense

a. The calculation for this value is conditional: Total Surplus = 1. If Target = 0 (no project goal) then Total Surplus = One-time cost share + Revenuei 2. If Target is not yet reached then Total Surplus = 0 3. If Term = 0 then Total Surplus = One-time + Revenuei – Target (effectively no loan) 4. If the minimum DebtGeni = Target then Total Suprlus = One-time + Revenuei - DebtServicei 5. Else Total Surplus = Yr1DebtP + One-time + Revenuei – DebtServicei - Target

9. Percent Allocated

a. 1. Percent Allocatedi = The of revenue generated through rate changes to be allocated

toward a dedicated fund for watershed protection 2. Revenuei = Total annual revenue generated in year (i) from all utilities / jurisdictions 3. Percent = Percent of the annual revenue generated that will be dedicated for watershed

protection 4. Recurring = Recurring cost share (cost share given annually) 5. Onetime = One-time cost share for year one



5.2 Dashboard Scenarios

1. Raleigh On April 13, 2011 the partners of the Upper Neuse Clean Water Initiative (UNCWI) wrote a letter to the mayors of Raleigh, Durham and Cary, as well as the Chairman of OWASA to advocate a $0.10 per kgal increase in water rates for 2011 to 2012 budget. The increased water rates proposed would raise the monthly water bill by only $0.40 for households that use 4,000 gallons of water a month, but would generate significant revenue for land conservation projects for watershed protection in the Upper Neuse and Upper Cape Fear watersheds. The purpose of generating revenue for conservation is highlighted by an EPA finding that preventing water pollution is 27 times more cost effective than cleaning it up (Nancy Stoner at the March 2011 Environmental Council of the States meeting). Using the Raleigh dashboard, we increased the water rate by $0.08 per CCF (close to the $0.10 per kgal) rate increase advocated. We found that the average monthly residential bill increased by $0.47 per month ($5.66 per year) and the average non-residential bill by $2.52 per month. The rate increase generates approximately $1.3 M annually that can be dedicated toward watershed protection via land conservation or restoration measures for the UNRB (Figure 39).

Figure 39: Raleigh Dashboard showing the proposed rate increase and resulting impact on the individual customer and the overall revenue generated for watershed protection.



2. Durham Durham anticipates paying $20 million over the next decade as a result of the Falls Lake Rules, with the potential of an additional $1 billion if they are required to upgrade their wastewater treatment plant. Let us assume that the city of Durham needs to generate $20 million in the next year to pay the upfront costs for watershed protection projects. How can the City of Durham generate that revenue and what will the impact be to customers? We will look at this question with four scenarios:

1. Scenario 1 – Durham increases wastewater rates only 2. Scenario 2 – Durham increases water rates only 3. Scenario 3 – Durham increases water and wastewater 4. Scenario 4 – Durham increases water and wastewater rates, plus a one-time cost share.

For all scenarios we will assume a 20 year loan at an interest rate of 2.75 percent. The scenario is completed when $20 million is financed ($1.55 million is required to make the year one debt payment – except in the last scenario).

Table 22: Project specific revenue scenarios for the City of Durham. As more sources of revenue were added, the overall impact to residential households decreased. In each scenario at least $20 million was generated through the loan to cover upfront costs.

Scenario Utility Rate Change

($/CCF) Revenue Generated

($ M) Annual Household

Impact

1 Wastewater $0.18 $1.63 $10.72

2 Water $0.16 $1.64 $10.18

3 Water Wastewater

$0.09 $0.08

$1.65 $10.49

4 Water Wastewater Cost Share

$0.08 $0.08

$1 million $1.55 $9.85

3. Upper Neuse River Basin The last scenario pools together the resources of all water, wastewater and stormwater utilities in the Upper Neuse River Basin to create a dedicated funding stream for watershed protection. The rate increase is held constant for all utilities. All values were calculated as $ per kgal (Figure 40).

Table 23: Dedicated revenue stream generated for watershed protection by all utilities participating in a uniform rate increase of $0.05 per kgal.

Scenario Utility Rate Change

($/kgal) Revenue Generated

($ M) Annual Household

Impact

1 Water $0.05 $1.44 $2.88

2 Water Wastewater

$0.05 $0.05

$2.71 $5.52

3 Water Wastewater Stormwater

$0.05 $0.05 $0.05

$2.99 $6.24



Figure 40: Uniform rate increase for all utilities and local jurisdictions in the UNRB. The average bill increase for each utility is displayed, along with the cumulative revenue generated in the watershed.

5.3 Ongoing applications of the revenueshed concept:

The revenueshed concept was developed for the Upper Neuse River Basin with the intention of generating conversations between multiple jurisdictions regarding how to protect the water quality of the nine water supply reservoirs located in Basin and how to generate a sustainable revenue fund dedicated to watershed protection. The revenueshed concept is fulfilling its role to facilitate discussions between jurisdictions by providing information and maps, fostering conversation and accountability, and assisting in the development of scenarios for rate changes and conservation funds using interactive financial tools. A study by Kramer (2002) found that residents in the Catawba River Basin of North and South Carolina was willing to pay an average of $139 per year for a management plan design to protect water quality, which accumulates to a significant monetary value over an entire watershed on an annual and continual basis. The three scenarios developed above had a household impact of less than $11 per year.



6 Appendix I — The Cost of Conservation: Property Tax Revenues and

Land Protection Once a utility or association of utilities has raised funds, decision-makers may spend the funds in a number of ways to protect water quality. It is important to consider the potential impact of certain watershed protection measures on local government revenue sources, in particular land conservation and property taxes. The following case study models how the use of conservation easements to protect ecologically significant lands impact property tax revenues. Private land trusts, conservation groups, and all levels of government are increasingly using conservation easements as a means to protect ecologically important lands from development. In Orange County, NC the number of acres protected by conservation easements increased 980% from 1999 to 2010 (506 to 5,462 acres) (Orange County, 2010; Figure 41). Groups holding conservation easements in Orange County included: OWASA; Triangle Land Conservancy; Orange County; State of North Carolina; and the Town of Chapel Hill.

Figure 41: Acres under conservation easement in Orange County, NC

In September 2010, the UNCWI released a report associated with their U.S. Endowment for Forestry and

Communities grant – Healthy Watersheds through Healthy Forests (HWHF) that identified priority

conservation parcels in the UNRB for watershed protection. Utilizing the parcel prioritization, this study

modeled the tax impact on Orange and Durham Counties if the parcels identified as “high-priority” were

encumbered with conservation easements or secured through fee simple acquisition. This study found

that placing conservation easements on identified “high priority” lands has a minimal impact on the

value of the protected properties and county revenues.

506

3,850

5,463

506

1,116

88

391

574

-

200

400

600

800

1,000

1,200

-

1,000

2,000

3,000

4,000

5,000

6,000

Arc

es p

ut

under

easem

ents

(annual)

Tota

l A

cre

s t

o d

ate

Total to date

Acres



6.1 Introduction

Conservation easements are used to preserve open space and/or limit development to protect public and environmental health, while allowing the landowner to retain title to their property and certain retained rights (such as forestry, recreation, and/or hunting). A conservation easement is a legal agreement between a landowner and a land trust or government agency that limits a landowner’s ability to fully develop the land. These agreements are sometimes called a “purchase of development rights.” Research has found that such agreements may cause property values to decrease because they restrict property use. A potential decrease in a county’s property valuation is a concern for local governments because property tax revenues account for the majority of local government general fund revenues. In fiscal year 2010, Durham County’s property tax levy was $206,324,851 – 57.8% of the county’s General Fund revenues. Orange County’s property tax levy was $132,991,641 – 74.9% of the county’s General Fund revenues. Concerns over the tax impact of land conservation can dominate public discourse and may hinder beneficial protection efforts. The 2010 HWHF study identified 19,157 acres in Durham County and 7,874 acres in Orange County of taxed real property as high priority parcels for watershed protection through conservation easements. These parcels represent 15.05% (3.57%) of the taxed acres in Durham County (Orange County). This study examined what the impact on county tax revenues would be if all these properties were encumbered with conservation easements (Figure 42).

Figure 42: Healthy Forests-identified "high-priority" parcels in UNRB

6.2 State Law and Property Tax Valuation

Real and personal property must be appraised at its “true value in money” (N.C. Gen. Stat. §105-283). Total valuation is the sum of the value of improvements on a property and the value of the land (Valuation = Improvements + Land; N.C. Gen. Stat. §105-317). In land valuation, appraisers consider a property’s natural advantages (e.g., quality of soil, water privileges) and the probability of future



income. A conservation easement limits future income by restricting permissible development opportunities. While North Carolina state law requires revaluation of real property at least every eight years, if a conservation easement is placed on a property, the land and improvements must be revaluated immediately (N.C. Gen. Stat. §105-287).

6.3 Methodology

The HWHF identified parcels were combined with Orange County and Durham County’s geographic information system (GIS) January 1, 2010 parcel data. In Durham County, 14.1% of the identified “high priority” acres (3,154 acres) were tax-exempt (56 of 566 properties); in Orange, 16.3% (1,529 acres) were tax-exempt (30 of 218 properties). Tax exempt lands were not included in the analyses. The data were dissected to understand what portion of a property’s value the conservation easement would be impact based on parcel attributes such as land use, zoning, and building value.

6.4 Results

A. Protection strategies would have relatively minor financial impact because of the properties’ low

valuations

The most extreme land property valuation adjustment would occur if a non-profit land trust, government agency or other non-tax paying organization bought the all the identified land outright. A government agency’s fee simple acquisition – purchase of the land – would remove the parcels from the county tax rolls completely (N.C. Gen. Stat. §105-278.1). Purchase by a non-profit land trust could remove the lands from property tax rolls (N.C. Gen. Stat. §105-275). The purchase of all identified lands is extremely unlikely for a variety of reasons – including staggering purchase costs – but is useful as a method of illustrating the impact to property taxes (Table 24).

Table 24: Real property valuation in Durham and Orange Counties

Durham Orange

Percent of county’s taxed acres identified as “high-priority” 15.05% 3.57%

Total Valuation of “high-priority” parcels as percent of county’s Total Valuation

1.47% 0.45%

Total Current Valuation of “high-priority” properties $345,515,383 $60,498,412

Reduction in property tax revenues if “high priority” parcels were completely removed from tax rolls*

-$2,446,594 -$519,076

*- Using 2010 tax rates of 70.81 cents for Durham County and 85.8 cents for Orange County

Figure 43: Land area vs. valuation

While the spatial extent of these properties are large in Durham and Orange Counties (15.05% and 3.57% of taxed land, respectively), the decreases in county revenues are not proportional to the land

0.45%

1.47%

3.57%

15.05%

0% 2% 4% 6% 8% 10% 12% 14% 16%

Orange

Durham

Acres Valuation



area considered because of the pre-existing low tax valuations for the high-priority properties (Figure 44 and Figure 45). The per-acre tax valuation of high-priority properties in Durham County is $18,036 while the per-acre tax valuation of all other properties is $182,215. In Orange County, high-priority properties per-acre tax valuation is $7,683 and the per-acre tax valuation of all other properties is $61,059.

Figure 44: Valuation, Durham County (January 1, 2010)



Figure 45: Valuation, Orange County (January 1, 2010)

B. The special tax status “Present-Use” already depresses the tax value of most high-priority parcels

– making their removal from the tax rolls less painful.

A dominating factor in the high-priority lands’ low tax valuations is that much of the identified land is in the state’s present-use land program. Through this program, owners of land being actively used for agriculture, horticulture, or forestry may elect to have the land assessed for property tax purposes based on the land’s value for its current use rather than on its fair market value (N.C. Gen. Stat. §105-277.2.5). In other words, instead of being taxed at the land’s “highest and best use”, the standard basis for property tax assessment at the county level (Fair-Market Value, or “true value” as defined in(N.C. Gen. Stat. §105-283), the land is taxed at its value as “working lands” (Present-Use Value). In Durham County, almost 47% of the identified high-priority acres currently have Present-Use tax status. The amount on which this land is taxed is the Improvement Value plus the Present-Use Value. The impact of Present-Use value on the valuation of Orange County high-priority lands is even greater; nearly 80% are in Present-Use. The collective tax value of the high-priority present use lands in both counties is 9.4% of the fair market value (Table 25).

Table 25: Value of high-priority lands in present use

Land Present-Use Value (amount land is taxed)

Land Fair-Market Value (“true value” of the land)

Percent of Fair-Market Value taxed

Durham Forestry $2,606,493 $28,529,581 9.1%

Agricultural $2,897,717 $25,762,958 11.2%

Total $5,504,210 $54,292,539 10.1%



Orange Horticultural $2,770,755 $26,439,272 10.5%

Agricultural $1,355,774 $21,597,323 6.3%

Forestry $89,773 $1,382,017 6.5%

Total $4,216,303 $49,418,612 8.5%

Grand Total $9,720,513 $103,711,151 9.4%

C. Even if properties were encumbered with easements, the majority of high-priority properties’ tax

valuation would remain unchanged.

Conservation easements do not impact the valuation of the improvements of a property – only the land value. The majority of the identified properties’ tax value is improvements. In Durham County, improvements make up 60% of high-priority properties’ value (56% in Orange County). The total value of improvements on high-priority properties in Durham County is $206,225,607 ($33,791,138 in Orange County). These sums will remain unaffected if high-priority parcels are encumbered with easements. Additionally, a conservation easement will not impact the land value of property in Present-Use because the Present-Use Value is based on the land’s value without considering potential future development. If the easement agreement allows for continued “working” use, the Present-Use land values will be unaffected ($5,504,210 in Durham County; Figure 46 and $4,216,303 in Orange County; Figure 47). Thus, only 0.57% of the total valuation of Durham County’s property will be revaluated if all high-priority lands were encumbered with easements (0.19% in Orange County;



Table 26). Furthermore, an encumbered property is unlikely to lose its land value completely. The downward adjustment may be slighter. The impact of conservation easements on land value is variable and highly dependent on how restrictive the easement is and the “rights” or uses the landowner has released. In short, the easement may have no impact on land value, but it may have at least a minor impact to account for the loss in potential land uses (the loss of the land’s unencumbered “highest and best use”; Byers and Ponte 2005).

Figure 46: Land status negatively impacting Durham County tax rolls



Figure 47: Land status negatively impacting Orange County tax rolls



Table 26: What will be impacted -- the land value of high-priority lands not in present-use

Total Valuation Land value of “high-

priority” land not under Present Use

Percent of county’s Total Tax Valuation impacted by conservation easements

Durham $23,539,747,042 $133,785,566 0.57%

Orange $13,520,861,710 $26,318,227 0.19%

D. Conservation easements would only slightly decrease the value of the small portion of the

county’s Total Valuation revaluated if all identified lands were encumbered.

Three studies in the last decade have examined the impact of easements on the sales prices of properties in areas with similar suburban growth as the Triangle region (Table 27). Nickerson & Lynch (2001) found “little statistical evidence that voluntary permanent preservation programs significantly decrease the price of farmland in Maryland.” Scenarios 2 through 5 are based on the Lynch et al. (2007) finding that per-acre prices for preserved parcels are 11% to 17% lower than non-preserved. Scenarios 2 and 3 model such an effect on all property while Scenarios 4 and 5 model the impact on only agricultural lands. Lynch et al. (2007) only examined agricultural land sold. Scenarios 2 and 3 were conducted to model a “worst-case scenario” – that the 11% to 17% decrease would be seen in all land types not in present-use. Using a secondary propensity analysis, Lynch et al. (2007) noted “that unrestricted land located near preserved parcels tends to sell for the same low price as the preserved land” and so any drop in an encumbered property’s land value does represent a worst-case scenario. The initial findings of Anderson & Weinhold (2008) mirrored Nickerson & Lynch (2001). However, after the researchers limited their sample to vacant and vacant agricultural lands with hard easements – those that do not allow any development – their results became significant (Scenarios 6 and 7).

Table 27: Scenarios defined

Scenario Article Impact on Land Value

Impact on Improvement Value

Description

- Fee simple purchase

(-100%) total value

Removed from county tax rolls

Total Valuation of all Identified parcels are eliminated from the county rolls

1 Nickerson & Lynch (2001)

No change No change No change in valuation of any Identified parcel

2 Lynch et al

(2007) (-11.4%) No change

Land value falls 11.4% for all Identified parcels that are not in present-use

3 Lynch et al

(2007) (-16.9%) No change

Land value falls 16.9% for all Identified parcels that are not in present-use

4 Lynch et al

(2007) (-11.4%) if agriculture

No change Land value falls 11.4% for all Identified parcels that are not in present-use and are agriculture

5 Lynch et al

(2007) (-16.9%) if agriculture

No change Land value falls 16.9% for all Identified parcels that are not in present-use and are agriculture

6 Anderson & Weinhold

(2008)

(-47.78%) if vacant

No change Land value falls 47.78% for all Identified parcels that do not have any improvements; Premise: hard easements

7 Anderson & Weinhold

(2008)

(-50.14%) if vacant or

agriculture No change

Land value falls 50.14% for all Identified parcels that do not have any improvements and are agriculture; Premise: hard easements



None of these analyses are predictive of what would happen to each county’s land values, because decreases in land value due to conservation easements are highly subject to the individual conditions of the land and agreement. Sicard (1975) and Stockton (1990) noted that decreases in individual parcel’s land values have ranged between 13% and 95%. The intent of this study was to present to county policymakers a range of possibilities based on what has happened to the values of the land sale prices of large samples of properties in areas experiencing similar growth pressures to the Triangle. Anderson & Weinhold (2008) may be the most valuable because of their multi-step restriction of their sample. Table 28 and Table 29 show the results of these models. Placing conservation easements on the “high-priority” properties should have little impact on each county’s total valuation of real property and property tax revenues. Scenario 6 had the highest impact for Durham County and Scenario 3 for Orange County. The total loss in valuation ranged from $2.83 M to $31.7 M in Durham County (equated to actual loss in revenue of $20 K to $224 K). The total loss in valuation for Orange County ranged from $1.33 M to $3.67 M, which equated to a loss in revenue of $11 K to 31 K ( Table 29). Thus, the potential impact of conservations easements will be minor on the total county property valuation and property tax return.

Table 28: Scenario results

Durham Orange

Scenario % Change in High-Priority

Assessed Value

% Change in Total County

Assessed Value

% Change in High-priority

Assessed Value

% Change in Total County

Assessed Value

1 0.00% 0.00% 0.00% 0.00%

2 -4.41% -0.06% -4.00% -0.01%

3 -6.54% -0.10% -6.06% -0.02%

4 -0.82% -0.01% -2.20% -0.01%

5 -1.21% -0.02% -3.26% -0.01%

6 -9.16% -0.13% -4.86% -0.01%

7 -2.01% -0.03% -2.68% -0.01%

Table 29: Changes in county property tax revenues

Scenario Durham Orange

1 $0 $0

2 -$107,996.26 -$20,754.24

3 -$159,967.90 -$31,444.99

4 -$20,030.78 -$11,399.25

5 -$29,694.75 -$16,898.89

6 -$224,193.57 -$25,218.14

7 -$49,246.23 -$13,893.71

*- Using 2010 tax rates of 70.81cents for Durham County and 85.8 cents for Orange County



6.5 Conclusion: Not all land is created equal

While the lands identified as important for watershed protection make up significant portions of the taxed acreage in both counties (15.05% in Durham; 3.57% in Orange), the financial impact of large-scale conservation is not proportional to the acreage targeted (Figure 48). The financial impact of even large-scale acquisition of conservation easements on these high priority lands would be low because: (1) Unlike with fee simple acquisition by a non-profit, the placement of an easement on a property does

not remove it from the tax rolls; (2) Much of the identified land is in the Present-Use program or otherwise already has a low valuation; (3) Easements only would impact the Land Value component of the Valuation equation; and (4) the impact on Land Value is variable.

Figure 48: Impact as percent of county totals

6.6 Potential for “spill-over” impacts

The financial impact that protecting lands with conservation easements has on local government property tax revenues does not end with the loss in local property tax revenues from the protected properties. Using hedonic pricing modeling, many studies demonstrate how properties encumbered by a conservation easement increase the values of a nearby property. The increases in nearby property values could offset or exceed the losses to county coffers modeled in this study. “Spill-over” impacts only would be seen after a full county revaluation.

0.19%

0.57%

0.20%

0.59%

0.45%

1.47%

3.57%

15.05%

0% 2% 4% 6% 8% 10% 12% 14% 16%

Orange

Durham

Acres

Valuation

Land Value

"Impacted" = Land Value - Present Use



7 Appendix II — The Capitalization of Conservation: Land Protection

and Effects on Tax-Assessed Values of Adjacent Properties Codified into North Carolina state law is the supposition that conservation easements are important tools in preservation of the environment (N.C. Gen. Stat §113A-230). As noted in the previous section, a conservation easement is “a legal agreement between a landowner and an eligible organization that restricts future activities on the land to protect its conservation values.” These agreements are sometimes referred to as a purchase of development rights. The relationship between land protection and property tax revenues is complicated. Conservation easements may negatively impact property tax revenues in the short-term but positively impact revenues in the long-term. A conservation easement may reduce a parcel’s tax-assessed value (Anderson & Weinhold, 2008; Lynch et al., 2007; Nickerson & Lynch, 2001). On the other hand, research suggests that increases in assessed values of properties adjacent to easements could offset or exceed any losses to county tax rolls because of a drop in the value of encumbered properties. It remains speculative as to how increases in the assessed value of adjacent and nearby properties occur through capitalization of open space in real estate prices. Since property tax revenues are the largest contributor to a local government’s General Funds, there may be resistance to supporting conservation programs that ultimately decrease their tax revenues or the tax revenues of a neighboring jurisdiction (King & Anderson, 2004). In the previous section we showed how minimal this impact is for the high-priority parcels selected for watershed protection. However, the fear of revenue loss could be further diminished if adjacency effects pushed the values of nearby properties upward.

7.1 Existing Research

It has been fully established that … a local park of suitable size, location and character, and of which the proper public maintenance is reasonably assured, adds more to the value of the remaining land in the residential area which it serves than the value of the land withdrawn to create it.-Frederick Law Olmsted Adherents to Olmsted’s “proximate principle” have sought to document examples of the capitalization of open space into adjacent property values. The proximate principle holds that market values of properties located near a park or open space “frequently are higher than those of comparable properties located elsewhere” (de Brun, 2007). After attempting to control for other variables, studies have shown that property values increased with proximity to greenways, stream corridors, development-restricted wetlands, and permanent open space. Examples include:

Boulder, CO greenbelts: “…other things being equal, there was a $4.20 decrease in the price of residential property for every foot one moved away from the greenbelt” (de Brun 2007).

Pennypack Park in Philadelphia: “The park accounted for 33% of the land value at 12 m (40 ft), 9% at 305 m (1000 ft), and 4% at 762 m (2500 ft)” (Fausold & Lilieholm, 1999).

Rising home values in New England cities: “In Concord, properties in an open space subdivision appreciated 167.9% between 1980 and 1988, compared to 146.8% for the town as a whole” (Fausold & Lilieholm, 1999).



Properties put under easement between 1996 an 2008 in Buncombe County: “[p]rice effects to adjacent property following conservation range from 25% to 87%” (Chamblee et al., 2009).

Other studies have not found these positive impacts or have found them to be variable and not always positive. Fausold & Lilieholm (1999) used the term “enhancement value” to characterize the impact of open space on housing value. The authors allowed that the relationship is highly variable and dependent on development pressures:

The relationship between the market and enhancement values of open space depends upon land scarcity and the perceived risk of development. In rural areas where most land is open space and likely to remain so, both market and enhancement value will be low. However, in urban or urbanizing areas where open space is scarce or diminishing, market and enhancement value will be high.

Geoghegan et al. (2003) also found there to be a variable impact on property values in a study of southern Maryland counties. In that study, preserved open space only increased property values of adjacent parcel in two of three counties. Other studies noted the complexity of valuing adjacency (enhancement value) but concluded that ultimately there tends to be an increase in property values surrounding encumbered properties. However, King & Anderson (2004) cautioned that “the long-run net tax effect of conservation is the result of the complex interplay of supply and demand effects caused by the easement, and features of the town tax system and development policies which determine how changing property values affect taxes.” They found that “[w]hile the short-term tax effects of easements (two to three years after conservation) are positive and significant, this effect may moderate, or shift from a positive effect to a negative effect, based on increases in the value of surrounding properties easements may cause” (emphasis added). Fausold & Lilieholm (1999) concluded on a similar note: Enhancement value is important since it can at least partially offset reduced tax revenues from open space lands removed from tax rolls or placed under special reduced-tax designation (emphasis added).

7.2 Research Pertinent to Triangle Region

The Healthy Watersheds through Healthy Forests Initiative (HWHF) identified 19,157 acres in Durham County and 7,874 acres in Orange County of taxed real property that if placed under easement would provide significant watershed protection. The previous chapter outlined how encumbering these properties may negatively – but marginally – impact county property tax revenues. Adjacency effects could help offset these losses. Previous research has shown the adjacency effect may be felt from between 100 meters to 1 mile from the conservation easement (Table 30) and forms the range of adjacent properties we will model. Studies have used metric and English systems of measurement. These models use cut-offs of 100 to 1,600 meters to examine the effect of conservation easements on nearby properties (Table 31). Both Orange and Durham counties have significant property valuations in these buffers, and so increases in the values of these properties likely would offset declines in the value of encumbered properties (Figure 49).

Table 30: The impact on adjacent/nearby properties of encumbering properties with conservation easements

Article Finding

Geoghegan “Our findings show preserved open space does increase property values on adjacent residential



Figure 49: Adjacency effects: Durham and Orange, 2010

Table 31: Valuation of lands within 400 meters and one mile of high-priority lands

Total Valuation

Within 400 m Within 1 mile

Durham $1,853,317,109 $5,277,485,021

et al. (2003) parcels in two of the three examined counties in Maryland… the increased property tax from these agricultural easements could generate enough revenue to purchase a significant portion of the 1% more open space acres” (p. 44) Calvert County: 1% increase in open space = 0.7118 increase in residential property values Howard County: 1% increase in open space = 0.5869 increase in residential property values

Geoghegan et al. (2002)

“permanent open space increases near-by residential land values over three times as much as an equivalent amount of developable open space.”

Irwin (2002)

“surrounding open space significantly influences the residential sales price of houses and that different types of open space have differing effects.” (p. 478) “both the privately owned conservation lands and public, non- military open space… have a positive and significant effect on the value of neighboring residential properties” (p. 472)

Ready & Abdalla (2003)

“…Within 400 meters of a house, open space is the most desirable surrounding land use, followed by large-lot residential use. Commercial and small and multifamily residential use are less desirable. One implication is that conversion of open space to commercial, industrial, small-lot residential, or multi-family residential will have a negative impact on house prices within 400 meters...Within 400 meters, privately-owned open space with conservation easements have a less positive impact on house price than privately-owned open space without easements.”



Orange $771,524,708 $2,161,961,111

Adjacency effect studies generally assess how open space in capitalized into housing prices. Preserved open space may increase property values because of retained scenic views, less future congestion on local roadways, and an increase in development pressure because of the constriction on developable land. Data supplied by Durham GIS allows for identification of single-family residential properties that may see the greatest benefit from the encumbering of nearby properties. There were 6,616 single family homes within 400 meters at a value of $1.340 billion. When the buffer is extended to 1 mile there are 18,816 single family homes at a value of $3.595 billion.

Figure 50: Adjacency impacts: Durham County, 2010

Applying the findings from Geoghegan et al. (2003) to Durham County shows that if all “high-priority” properties were encumbered with easements the potential increase in the tax value of Durham County single-family residential properties would greatly offset the estimated decreases seen in encumbered property values (Table 32). In the previous chapter we found the maximum loss in valuation to be $224 K (Table 29) and the potential to gain (using a mile buffer) millions of dollars in increased adjacent property value.

Table 32: Geoghegan et al. (2003) elasticity and one mile buffer applied to the properties adjacent to the easement

Elasticity Increase in Assessed Value Change in Total County

Assessed Value

0.5869 $613,724,177 5.5%

0.7118 $744,332,713 4.5%



7.3 Limitations

Under North Carolina state law, a drop in the tax-assessed value of encumbered properties would be felt immediately (N.C. Gen. Stat. §105-287). Elementary math would indicate that decreases in the assessed property value of encumbered properties negatively impact county property tax revenues and could lead to an increase in property tax rates to make up for lost revenue. In their examination of the effect of conservation easements on marginal property tax rates in Vermont, King & Anderson (2004) put the argument succinctly:

Simple accounting suggests that, all else being equal, as a town’s tax base falls, the town must increase marginal tax rates to maintain constant level of services.

The increase in the value of other, non-newly encumbered lands only would be realized after a general revaluation by the county (N.C. Gen. Stat. §105-285). Further, determining the impact of one factor out of many in a property’s value is challenging. Increases in adjacent properties may be the result of a combination of factors – only one of which would be adjacency to an encumbered property. Irwin & Bockstael (2001) noted spatial correlation, correlated unobservable, and the plethora of possible explanatory variables as challenges to hedonic modeling. Other factors used in hedonic modeling studies have included: median household income, distance to major urban centers, structure age, number of structure stories, adjacency to scenic drive, elevation, plot size, and number of conservation donations in another property’s viewshed.



8 Appendix III — Implementation After decision-makers establish a funding mechanism, they must build consensus on how to control and administer funds. Leaders need to create a governance structure to meet stakeholder needs for accountability and a “seat at the table” during agenda-setting. UNRB partners must weigh the costs and benefits of each type of potential governance model detailed below.

8.1 Potential Inter-Institutional Arrangements

As noted previously, because jurisdictional boundaries often do not follow watershed boundaries and a single watershed may provide benefits to multiple jurisdictions, a regional approach may be the most effective strategy for collecting and administering funds for watershed protection. This type of regional approach is typically promoted by planning organizations. Cooperation is also encouraged by regulatory agencies such as the NCDENR:

(i) To further the cooperative nature of the water supply watershed management and protection program provided for herein, local governments with jurisdiction over portions of classified watersheds and local governments which derive their water supply from within such watersheds are encouraged to establish joint water quality monitoring and information sharing programs, by interlocal agreement or otherwise. Such cooperative programs shall be established in consultation with the Division.

Page 6, NC DENR- Division of Water Quality, “Redbook”, Surface Waters and Wetlands Standards, NC Administrative Code 15A NCAC 02B .0100, .0200 & .0300 (May 1, 2007)

Under NC law, NC local governments have multiple options for pooling community financial resources and jointly funding watershed protection and restoration efforts.

8.2 Interlocal Agreements

In many situations, the most appropriate vehicle for regional coordination on watershed protection would be the use of interlocal agreements to structure partnerships. Local governments are authorized under N.C. Gen. Stat. Chapter 160A (“Cities and Towns”), Article 20 (“Interlocal Cooperation”), Section 461 to enter into agreements “in order to execute any undertaking” with other local governments – including those outside the state of North Carolina.

§160A-461. Interlocal cooperation authorized. Any unit of local government in this State and any one or more other units of local government in this State or any other state (to the extent permitted by the laws of the other state) may enter into contracts or agreements with each other in order to execute any undertaking. (1971, c. 698, s. 1.)

N.C. Gen. Stat. §160A-460 defines an “undertaking” as “the joint exercise by two or more units of local government, or the contractual exercise by one unit for one or more other units, of any power, function, public enterprise, right, privilege, or immunity of local government.” In addition to environmental issues, local governments in North Carolina have entered into interlocal agreements on annexation, parks and recreation, and transportation. For a compiled listing of model interlocal agreements visit: Model Interlocal Agreements, UNC School of Government, http://www.sog.unc.edu/programs/interlocalcoop/pdfs/interlocalAgreements.pdf.

http://www.sog.unc.edu/programs/interlocalcoop/pdfs/interlocalAgreements.pdf



N.C. Gen. Stat. §160A-462 through N.C. Gen. Stat. §160A-466 provides further guidance on how participating can develop a “joint agency” created by two or more local units of government would function, specifically:

1. Power conferred on such an agency; §160A-462. Joint agencies.

a) Units agreeing to an undertaking may establish a joint agency charged with any or all of the responsibility for the undertaking. The units may confer on the joint agency any power, duty, right, or function needed for the execution of the undertaking, except that legal title to all real property necessary to the undertaking shall be held by the participating units individually, or jointly as tenants in common, in such manner and proportion as they may determine.

b) The participating units may appropriate funds to the joint agency on the basis of an annual budget recommended by the agency and submitted to the governing board of each unit for approval.

2. Necessary content of enabling agreement;

§160A-464. Provisions of the agreement. (1) The purpose or purposes of the contract or agreement; (2) The duration of the agreement; (3) If a joint agency is established, its composition, organization, and nature, together with the powers

conferred on it; (4) The manner of appointing the personnel necessary to the execution of the undertaking; (5) The method of financing the undertaking, including the apportionment of costs and revenues; (6) The formula for ownership of real property involved in the undertaking, and procedures for the

disposition of such property when the contract or agreement expires or is terminated; (7) Methods for amending the contract or agreement; (8) Methods for terminating the contract or agreement; (9) Any other necessary or proper matter. (1971, c. 698, s. 1.)

3. The financing of a joint agency’s activities.

§160A-466. Revenue and expenditures for joint undertakings. When two or more units of local government are engaged in a joint undertaking, they may enter into agreements regarding financing, expenditures, and revenues related to the joint undertaking. Funds collected by any participating unit of government may be transferred to and expended by any other unit of government in a manner consistent with the agreement. An agreement regarding expenses and revenues may be of reasonable duration not to exceed 99 years. (2003-417, s. 1.)

Note that N.C. Gen. Stat. §160A-462 gives local governments the ability to grant “any power” to a joint agency except legal title. This prohibition would require negotiation between participating governments if land acquisition or new capital facility development were pursued by the joint agency. Capital assets including land must be “held by the participating units individually, or jointly as tenants in common, in such manner and proportion as they may determine.” As stated in N.C. Gen. Stat. §160A-466, the financial contribution of participating governments would be stipulated in the interlocal agreement creating the “undertaking” or joint agency and could come from increased utilities fees earmarked for watershed protection (N.C. Gen. Stat. §162A-92). Examples of Interlocal / Joint Agency Agreements: INTERLOCAL AGREEMENTS:

Orange County and the Town of Hillsborough (2006) – Stormwater Management



o Orange County Board of Commissioners Action Agenda Item 9-d (March 2, 2006), Interlocal Agreement between Town of Hillsborough and Orange County for National Pollutant Discharge Elimination System Phase II Services http://www.co.orange.nc.us/occlerks/0603029d.pdf

“Orange County & Hillsborough Stormwater Partners” (2007) o Terry L. Hackett, Water Resource Officer / Erosion Control Officer II, Erosion Control Division,

Orange County Planning & Inspections Dept. http://www.efc.unc.edu/publications/Presentations/stormwater/Hackett_Stormwater_Partnership_2007.pdf

Orange County and the Town of Chapel Hill (2004) – Stormwater Fee Collection o “Interlocal Agreement for the Administration of Stormwater Management Utility Fee By Orange

County for the Town of Chapel Hill” http://townhall.townofchapelhill.org/agendas/ca040614/6d-

Attachment%201%20Utility%206-14-04.pdf

JOINT AGENCY:

Winston-Salem and Forsyth County (formed in 1976) – Water, Wastewater, Sewage Treatment o City/County Utility Commission (CCUC)

http://www.cityofws.org/Home/Departments/Utilities/UtilitiesComm/Articles/UtilityCommission

o Utility Commission http://www.co.forsyth.nc.us/commissioners/volunteer_boards.aspx?ItemID=37

8.3 “Project” managed by a Regional Planning Entity/Council of Government

In §160A-475, North Carolina’s 17 regional councils of government are given the ability: (1) To apply for, accept, receive, and dispense funds and grants made available to it by the State of North

Carolina or any agency thereof, the United States of America or any agency thereof, any unit of local government (whether or not a member of the council), and any private or civic agency.

(2) … (3) To contract with consultants. (4) To contract with the State of North Carolina, any other state, the United States of America, or any agency

thereof, for services. (5) To study regional governmental problems, including matters affecting health, safety, welfare, education,

recreation, economic conditions, regional planning, and regional development. (6) To promote cooperative arrangements and coordinated action among its member governments. (7) To make recommendations for review and action to its member governments and other public agencies

which perform functions within the region in which its member governments are located. a. For the purpose of meeting the regional council's office space and program needs, to acquire real

property by purchase, gift, or otherwise, and to improve that property. The regional council may pledge real property as security for indebtedness used to finance acquisition of that property or for improvements to that real property, subject to approval by the Local Government Commission as required under G.S. 159-153. A regional council may not exercise the power of eminent domain.

(8) Any other powers that are exercised or capable of exercise by its member governments and desirable for dealing with problems of mutual concern to the extent such powers are specifically delegated to it from time to time by resolution of the governing board of each of its member governments which are affected thereby, provided, that no regional council of governments shall have the authority to construct or purchase buildings, or acquire title to real property, except for the purposes permitted under subdivision (7a) of this section or in order to exercise the authority granted by Chapter 260 of the Session Laws of 1979. (1971, c. 698, s. 1; 1975, c. 517, ss. 1, 2; 1979, c. 902; 2005-290, s. 1; 2006-211, s. 1.)

[emphasis added]

These statutory powers – including the ability to enter into contracts with consultants and dispense funds received from local, state and federal sources and the charge to study regional matters - make the Councils of Government (COG) an already established vehicle for interlocal cooperation. However, COGs

http://www.co.orange.nc.us/occlerks/0603029d.pdf

http://www.efc.unc.edu/publications/Presentations/stormwater/Hackett_Stormwater_Partnership_2007.pdf

http://townhall.townofchapelhill.org/agendas/ca040614/6d-Attachment%201%20Utility%206-14-04.pdf

http://townhall.townofchapelhill.org/agendas/ca040614/6d-Attachment%201%20Utility%206-14-04.pdf

http://www.cityofws.org/Home/Departments/Utilities/UtilitiesComm/Articles/UtilityCommission

http://www.co.forsyth.nc.us/commissioners/volunteer_boards.aspx?ItemID=37



are prohibited in subdivision 7a from acquiring real property other than that necessary for “the regional council’s office space and program needs.” As described in subdivision 8, member governments can give greater agency to a Council beyond the enumerated, more passive powers to “study,” “promote” and “make recommendations.” A COG – empowered through resolutions by its membership – could create a sub-organization to coordinate watershed protection efforts for a defined spatial area with specified funding. Funding for a regional/COG-led effort could come from charges from “affected” governments who pass resolution to participate in watershed protection efforts (N.C. Gen. Stat. §160A-475.8). Not all member governments must pass resolutions – only those choosing to participate. Additional local government revenues for such efforts could be generated by increased utility fees for watershed protection (N.C. Gen. Stat. §162A-92). Examples of COG / Regional Planning The involvement of the Triangle J Council of Governments, http://www.tjcog.dst.nc.us/ in the: Upper Neuse River Basin Association (UNRBA), http://www.unrba.org/aunrba.htm

Triangle Area Water Supply Monitoring Project (http://nc.water.usgs.gov/projects/triangle/index.html)

Clean Water Partnership (http://www.nccwep.org/)

8.4 Not-for Profit

Local governments also may enter into contracts with not-for profits corporations that may provide a spectrum of services. Such an organization could be a vehicle for watershed protection efforts because of its ability to enter into contracts with government and private entities and hold legal title.

“Non-profit corporations play an increasingly greater role in the lives of all North Carolina residents. Many necessary public services that might have been undertaken by local, county or state governments in past years – or never undertaken at all – are now provided by non-profit entities. Non-profit corporations have become an important force in shaping public policy at all levels of government in North Carolina on issues such as the environment, business regulation and social services.”

-p. ii, Secretary of State Ellen Marshall in “Incorporating Your Nonprofit in North Carolina.” Retrieved from: http://www.secretary.state.nc.us/corporations/

Chapter 55A (“North Carolina Nonprofit Corporation Act”) of the North Carolina General Statutes governs the creation of a non-profit organization and its powers and conduct. http://www.ncga.state.nc.us/gascripts/Statutes/StatutesTOC.pl?Chapter=0055A §55A-3-02. General powers. (a) Unless its articles of incorporation or this Chapter provides otherwise, every corporation has perpetual duration

and succession in its corporate name and has the same powers as an individual to do all things necessary or convenient to carry out its affairs, including without limitation, power:…

(4) To purchase, receive, lease, or otherwise acquire, and own, hold, improve, use, and otherwise deal with, real or personal property, or any legal or equitable interest in property, wherever located;

(5) To sell, convey, mortgage, pledge, lease, exchange, and otherwise dispose of all or any part of its property; (6) To purchase, receive, subscribe for, or otherwise acquire; own, hold, vote, use, sell, mortgage, lend, pledge, or

otherwise dispose of; and deal in and with shares or other interests in, or obligations of, any other entity; (7) To make contracts and guarantees, incur liabilities, borrow money, issue its notes, bonds, and other obligations,

and secure any of its obligations by mortgage or pledge of any of its property, franchises, or income;

http://www.tjcog.dst.nc.us/

http://www.unrba.org/aunrba.htm

http://nc.water.usgs.gov/projects/triangle/index.html

http://www.nccwep.org/

http://www.secretary.state.nc.us/corporations/

http://www.ncga.state.nc.us/gascripts/Statutes/StatutesTOC.pl?Chapter=0055A



(8) To lend money, invest and reinvest its funds, and receive and hold real and personal property as security for repayment, except as limited by G.S. 55A-8-32;

… (18) To engage in any lawful activity that will aid governmental policy;

Chapter 153A governs counties and Chapter 160A governs cities and towns and stipulates the condition under which local governments may enter into contracts with non-governmental entities. §153A-13 allows counties to enter into continuing contracts and §153A-449 allows counties to contract with “any person association, or corporation, in order to carry out any public purpose that the county is authorized by law to engage in.” N.C. Gen. Stat. §160A-17A (“Continuing contracts”) and N.C. Gen. Stat. §160A-20.1 (“Contracts with private entities”) respectively give the same powers to cities and towns. Suggested reading from the UNC-Chapel Hill School of Government: Bluestein, F.S. & A.R. Brown-Graham. 2001. Local Government Contracts with Nonprofit Organizations:

Questions and Answers. Popular Government. Retrieved from http://www.sog.unc.edu/pubs/electronicversions/pg/pgfal01/article5.pdf

Pg 32: What authority do local governments have to contract with nonprofit organizations, and what are the limitations on the exercise of that authority?

For North Carolina local governments, the authority to contract is directly related to the basic authority to spend money. A local government may contract for any purpose for which it may spend money. The three key legal limitations on the expenditure of funds by a local government are that (1) the expenditure be for a public purpose; (2) the activity supported be one in which the local government has statutory authority to engage; and (3) the expenditure not be inconsistent with the laws or the constitution of the state or federal government.

Pg 35: Contracts for services. As noted, a grant or an appropriation may take the form of a contract. In addition, local governments may contract for services with nonprofit organizations in the same way that they contract with other private entities to provide specific services, such as transportation or day care. These contracts may be made through the unit’s regular contracting process, rather than through a competitive budgeting or grants process, and will have the same terms and conditions as those regularly imposed on the unit’s service providers.

[emphasis added] Funding for a not-for-profit corporation-led effort would come from contracts between the local governments and the not-for-profit. Additional local government revenues could be generated by increased utility fees for the purpose of watershed protection (N.C. Gen. Stat. §162A-92). Additionally, a not-for-profit could have more success than other models examined in securing donations from the public. Other resources: Corporations Division. North Carolina Department of the Secretary of State. Retrieved from


Incorporating Your Nonprofit in North Carolina. North Carolina Department of the Secretary of State. Retrieved from http://www.secretary.state.nc.us/corporations/

Gulati-Partee, G. 2001. A Primer on Nonprofit Organizations. Popular Government. Retrieved from http://www.sog.unc.edu/pubs/electronicversions/pg/pgsum01/article3.pdf

http://www.sog.unc.edu/pubs/electronicversions/pg/pgfal01/article5.pdf



http://www.sog.unc.edu/pubs/electronicversions/pg/pgsum01/article3.pdf



8.5 Soil and Water Conservation Districts

As outlined by the Soil Conservation Districts Law (N.C. Gen. Stat. Chapter 139), Soil and Water Conservation Districts (SWCD) are state-funded entities consisting of elected and appointed members charged with maintaining the health of North Carolina land through technical, financial and education programs. Local District Information: http://www.enr.state.nc.us/DSWC/pages/local_district.html

Chapter 139, Section 8 delineates the powers of the state’s SWCD including:

Entering into agreements with other governmental and non-governmental entities (3) To cooperate, or enter into agreements with, and within the limits or appropriations duly made available to it by law, to furnish financial or other aid to, any agency, governmental or otherwise, or any occupiers of land within the district, in the carrying on of erosion control and prevention operations and works of improvement for flood prevention or the conservation, utilization, and disposal of water and development of water resources within the district, subject to such conditions as the supervisors may deem necessary...

Acquire real property (4) To obtain options upon and to acquire by purchase, exchange, lease, gift, grant, bequest, devise, or otherwise, any property, real or personal, or rights or interests therein; to maintain, administer, and improve any properties acquired, to receive income from such properties and to expend such income in carrying out the purposes and provisions of this Chapter; and to sell, lease, or otherwise dispose of its property or interests therein in furtherance of the purposes and the provisions of this Chapter.

Build and maintain watershed improvement structures (6) To construct, improve, operate, and maintain such structures, works and projects as may be necessary or convenient for the performance of any of the operations authorized in this Chapter, including watershed improvement structures, works, and projects...

http://www.ncga.state.nc.us/EnactedLegislation/Statutes/HTML/BySection/Chapter_139/GS_139-8.html

To finance these efforts, county commissioners may call for a referendum on the levying of a “Watershed Improvement Tax”

§139-39. Alternative method of financing watershed improvement programs by special county tax. The board of county commissioners in any county is authorized to call a special election to determine whether it be the will of the qualified voters of the county that they levy and cause to be collected annually, at the same time and in the same manner as the general county taxes are levied and collected, a special tax at a rate not to exceed twenty-five cents (25¢) on each one hundred dollars ($100) valuation of property in said county, to be known as a "Watershed Improvement Tax," the funds therefrom, if the levy be authorized by the voters of said county, to be used for the prevention of flood water and sediment damages, and for furthering the conservation, utilization and disposal of water and the development of water resources. (1959, c. 781, s. 10; 1967, c. 987, s. 8.)

Further financing for watershed projects can come from contributions from counties and municipalities. §139-48. Participation by cities, counties, industries and others.

(a) Any industry, or private water user, … may participate in watershed improvement works or projects upon mutually agreeable terms relating to such matters as the construction, financing, maintenance and operation thereof.

(b) Any county or municipality may contribute funds toward the construction, maintenance and operation of watershed improvement works or projects, to the extent that such works or projects:

(1) Provide a source of county or municipal water supply; or protect an existing source of such supply, enhance its quality or increase its dependable capacity or quantity; or

(2) Protect against or alleviate the effects of flood-water or sediment damages affecting, or provide drainage benefits for, county or municipally owned property or the property of county or municipal inhabitants located outside the boundaries of such works or projects but within the respective boundaries of such county or municipality.

http://www.enr.state.nc.us/DSWC/pages/local_district.html

http://www.ncga.state.nc.us/EnactedLegislation/Statutes/HTML/BySection/Chapter_139/GS_139-8.html



Each county and city may fund appropriations for the purposes of this section by levy of property taxes pursuant to G.S. 153A-149 and G.S. 160A-209 and by the allocation of other revenues whose use is not otherwise restricted by law. (1959, c. 781, s. 8; 1973, c. 803, s. 33; 1993, c. 391, ss. 22, 32.)

Funding for a SWCD led effort would come from contracts between the local governments and the District. Additional local government revenues for such efforts could be generated by increased utility fees for the purpose of watershed protection (N.C. Gen. Stat. §162A-92). Additionally, the SWCD could request county commissioners hold a vote on a watershed improvement tax.



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