No. 4: Judge's ending water contract spurs crisis


By Jon Hawley
Staff Writer

Wednesday, December 28, 2016

Editor’s note: Our lookback at the top stories of 2016 continues.

Today, customers along Halstead Boulevard Extended get water without excitement or controversy.

That wasn’t so, however, during one week in April.

On April 12, a Superior Court judge nullified the contract allowing Elizabeth City to buy water from Pasquotank County to supply the busy commercial corridor. City and county officials scrambled to resolve the ensuing crisis. They went through emergency negotiations while weighing actions if the talks failed.

The county threatened to cut off water to the corridor. The city warned that anyone trying to do that would be arrested.

The crisis ended when city and county reached a deal. Exactly a week after Judge Quentin Sumner’s ruling, the city signed up for commercial service and agreed to help pay for installing waters meters so the county could bill it more easily.

The water dispute between the city and county was years in the making.

In 2010, Elizabeth City signed a 20-year water purchase contract to support the county’s then-under-construction reverse osmosis water plant. City and county officials envisioned the plant would ensure plenty of water for commercial growth on Halstead Extended. The agreement did provide water to other areas, but the city mostly needed it for Halstead Boulevard Extended because the city’s water system can’t cover the entire area.

The “take or pay” agreement cost the city hundreds of thousands of dollars a year once the plant opened in 2012. Costs for the plant proved to be higher than expected and Halstead’s growth was slower than expected.

That prompted Pasquotank County commissioners to raise the city’s water rate in mid-2014. Though commissioners settled on a slightly lower amount than first proposed, City Manager Rich Olson adamantly protested the rate of $6 per 1,000 gallons. That rate left the city paying more than its share of the RO plant’s debt of $16.5 million, he claimed.

City officials never agreed to pay that bulk rate for water. They instead paid what they considered a “fair” rate of about $4.70 per 1,000 gallons.

As a result, the county sued the city in late 2014. Attempts at mediation failed, and the case finally went before Judge Sumner this April.

After two days of arguments, Sumner struck down the contract. He made no judgments about the contract’s fairness. Instead, he ruled the city had failed to properly “preaudit” the contract before the city executed it in August 2010. State law requires local governments preaudit contracts with financial commitments, meaning their finance officers must certify the government can afford the contracts before entering into them. Greg Crumpler, special counsel for the city, said the city didn’t preaudit its copy of the agreement before approval, and so it was void under state law.

John Morrison, Pasquotank’s counsel, countered that Crumpler’s interpretation of the law was both wrong and potentially a bad precedent. The preaudit statute is vague and doesn’t say when a preaudit stamp must go on a contract, he argued. The statute is also tied to preauditing contracts that carry a cost during a fiscal year, he said, noting the contract cost the city nothing in the fiscal year it was approved.

Moreover, he argued Crumpler’s interpretation of the preaudit statute could easily be abused by any contractor or local government in North Carolina to get out of a contract.

Sumner did not find Morrison convincing, however.

“There is no contract,” he told him.

While Sumner’s ruling favored the city, which wanted out of the water contract, it also presented a problem. State law required the county to have a written contract for water sales.

Without a legal means to supply Halstead Boulevard Extended, Morrison said the county had to shut off water to the corridor, despite the harm that would cause to its residents and businesses.

Both city and county officials met separately in emergency sessions to hammer out a new deal and avoid any water cutoffs. As the talks continued, county officials extended the cutoff deadline.

That proved to be a good thing. Olson had ordered city police to guard the shutoff valves for Halstead Boulevard Extended. He never explicitly threatened arrests, but the message was clear. Before commissioners extended the cutoff deadline, the city arresting county personnel, and even a confrontation between city and county law enforcement, were real possibilities.

To resolve the crisis, Elizabeth City officials sought to sign up as a commercial water customer and county officials agreed.

In a small irony, the city currently pays the county $6 per 1,000 gallons as a commercial water customer. Though that’s the same rate city officials rejected in 2014, the city has no long-term commitment to buy county water, and it only buys the water it needs for the Halstead corridor. By becoming a commercial customer, the city will save hundreds of thousands of dollars a year, city officials reported.

The city’s gain is Pasquotank’s loss, however, and county officials estimated in April the dispute had cost the county nearly $300,000 in both lost water revenues and legal fees. Nevertheless, county commissioners didn’t raise other water rates to make up the lost money. The reverse-osmosis plant is seeing more use and becoming cheaper to operate, county staff reported.

The dispute also caused a chill in city-county relations that’s only recently started thawing. County officials openly expressed distrust toward the city during the dispute, and city officials sharply criticized the county as uncompromising. City Council and county commissioners also held no joint meetings while the lawsuit was active.

They met again in September, their first meeting in three years.