Monthly Archives: March 2013

The Governor’s Budget: A Low Priority for Water and Wastewater Infrastructure?

The infrastructure needed to provide wastewater disposal and safe drinking water (treatment plants, pipelines, pump stations and intakes) may not be glamorous, but it is critical to public health, environmental protection and economic development. Since 2008-2009, state grants to help local governments pay for environmental infrastructure have fallen off a cliff. In Governor McCrory’s proposed budget, infrastructure grant funding hits bottom.

In 2008, the N.C. Rural Economic Development Center and the Clean Water Management Trust Fund (CWMTF) issued a total of approximately $160 million in grants to rural and economically distressed communities for water and sewer infrastructure. In the 2011-2012 fiscal year (July 1-2011-June 30 2012), state budget cuts had reduced the amount granted by the two programs to just over $20 million. (Note: Most CWMTF grant awards go to stream/wetland restoration, stormwater management and riparian buffer protection. The state law creating the CWMTF only allows grants for wastewater infrastructure needed to address a specific water quality problem.)

It isn’t clear that the two programs will have any water and wastewater infrastructure grants to give in FY 2013-2014. Governor Pat McCrory’s proposed budget makes significant cuts to both agencies — reducing total appropriations for the CWMTF to $6.75 million in the first year of the biennium ($0 in the second year) and cutting the total Rural Center Budget from $16.6 million to $6 million. Given the other demands on those agencies, the budgeted amounts do not allow for much — if any — future infrastructure funding.

The state has not issued bonds for water and sewer infrastructure since an $800 million bond issue in 1999; all of those funds had been committed by 2004. Once the bond funds had been exhausted, direct appropriations to CWMTF and the Rural Center became the only source of state grant funding for water and wastewater system improvements. The other major sources of infrastructure funding have been the Drinking Water and Clean Water revolving loan funds managed by the Department of Environment and Natural Resources (DENR). A much smaller amount of federal funding for infrastructure comes through community development programs in the Department of Commerce.

Grants provided through the Rural Center and CWMTF have filled needs that cannot be met by the DENR revolving loan funds alone. Congress created the state revolving funds (SRFs) to help local governments meet the cost of complying with Clean Water Act and Safe Drinking Water Act requirements — not to meet all local infrastructure needs. Both the Drinking Water SRF and the Clean Water SRF (which funds wastewater projects) are largely capitalized by federal grants to the state. ( Each federal grant requires a 20% state match.) There are at least two major gaps in SRF funding:

1. Under federal rules, the SRFs must be used to meet drinking water and water quality standards; generally, SRF loans cannot be used for projects (such as water and sewer line extensions) to serve new development projects.

2. All of the SRF awards are made in the form of loans and some low income communities have a very limited ability to take on more debt. In the last few years (starting with federal stimulus funding for water and sewer projects in 2009), many SRF loans have included some amount of principal forgiveness — but the local government still has to qualify for the loan.

Grant funds provided through the CWMTF and the Rural Center fill those gaps. Rural and economically distressed communities can reduce their debt burden by using a grant as part of a larger project funding package that also includes loan funds. There has been debate in recent years about how much state infrastructure funding should be made available as grants versus loans, but the mix needs to include some amount of grant funding for economically distressed communities and emergency projects.

The CWMTF and Rural Center grant programs also make funds available for infrastructure projects that are not eligible for SRF loans. The Rural Center’s Economic Infrastructure Program funds infrastructure needed to serve new economic development projects — such as extension of water and sewer lines to an industrial park. Many of those projects would not qualify for an SRF loan. The Rural Center has also provided grants for extension of water lines to homes with contaminated drinking water wells. Making those projects happen can be very difficult since a water line extension to serve a small number of homes far from an existing line can be prohibitively expensive to the local government. In several cases, grant funds from the Rural Center helped make those projects possible.

The state’s population continues to grow. Existing water and sewer infrastructure continues to age. Water and sewer service continues to be a necessary condition for much economic development. A 2004 report issued as part of the Rural Center’s Water 2030 Initiative estimated that North Carolina communities would need $15 billion to cover water and wastewater infrastructure needs between 2005 and 2030. The most recent needs survey of North Carolina water and wastewater systems (used by Congress to predict demand on the state revolving loan funds) reached a similar estimate — $16 billion over the next 20 years. Although 70% of the water and sewer projects in the state are funded by private borrowing, a significant number of communities rely on a combination of low interest loans and state grants to upgrade aging infrastructure and plan for growth.

The Governor’s budget provides state match money needed for the next round of federal SRF awards, but eliminating funding for state water and sewer infrastructure grants should not be an unintended casualty of the budget process.

The Highway and the Sea

Highway 12 extends from mainland Dare County south across Oregon Inlet (by way of the Bonner Bridge) to Hatteras Island. The road travels through Cape Hatteras National Seashore and Pea Island National Wildlife Refuse before reaching the Village of Rodanthe at the southern end of the island. At several points, the island narrows to a ribbon between the Atlantic Ocean and brackish ponds in the wildlife refuge.

Photo credit: County of Dare / Foter.com / CC BY-NC-SA

For decades, the state has cleared, relocated, rebuilt and repalred storm-damaged sections of the Hatteras Island highway. On March 19 2013, N.C. Gov. Pat McCrory issued an executive order again declaring a state of emergency for N.C. Highway 12 to allow use of state and federal emergency funds to repair Hurricane Sandy damage on Hatteras. Repair costs for the most recent damage have been estimated at $8-10 million.

In 2010, the state made a commitment to perpetually maintain Highway 12 as the main transportation link to Hatteras Island — without assurance that it is technically possible and without knowing the cost. The commitment was sealed when the N.C. Department of Transportation (NCDOT) decided to replace the aging Bonner Bridge over Oregon Inlet with a new bridge built in a parallel location. Bonner Bridge carries Highway 12 from mainland Dare County across Oregon Inlet to Hatteras Island; unless Highway 12 continues south on Hatteras Island, traffic coming off the new Bonner Bridge will have nowhere to go.

In making the Bonner Bridge replacement decision, NCDOT looked at a number of other alternatives — including a sound-side bridge that would connect to Hatteras Island at the island’s midpoint (rather than bringing traffic directly south from Nags Head) and expanded ferry service in place of a bridge. NCDOT cited a number of reasons for choosing a new Oregon Inlet bridge and maintenance of Highway 12 as the preferred transportation access to Hatteras Island — including the high cost of a sound-side bridge. But it is also clear that Dare County citizens and local government officials pushed for continued road access from mainland Dare County to Hatteras Island.

As the state was deciding to go all in to continue the historic road access to Hatteras Island, a combination of storm damage and shoreline erosion was making it increasingly difficult — and expensive — to keep Highway 12 open. In 2003, Hurricane Isabel breached Hatteras Island – creating a small inlet connecting the Atlantic Ocean to the waters of Pamlico Sound behind the island. NCDOT filled the Hurricane Isabel breach, but when the area breached again in 2011 NCDOT built a temporary bridge over the new inlet. The storm that reopened the Isabel breach, Hurricane Irene, also opened a second breach to the south. The most recent damage occurred in October of 2012 when Hurricane Sandy overwashed the temporary bridge and caused the highway to buckle and overwash in several places south of the temporary bridge.

Highway 12 at Mirlo Beach (October 2012). Photo: The Virginian Pilot.

The Cost

In the last 25 years, the state has spent over $23 million (in state and federal funds) to repair the most threatened sections of Highway 12 on Hatteras Island. That figure does not include the additional $8-10 million needed to repair the October 2012 Hurricane Sandy damage. (WRAL News has compiled a 25-year history of repair costs for the Hatteras Island sections of Highway 12 from information provided by NCDOT.) The raw numbers don’t tell the whole story – the highway has experienced catastrophic storm damage at an accelerating pace in the last few years. Of the $23 million spent since 1987, 75% was spent in the last 10 years.

5-year costs in thousands of dollars.

The chart shows Highway 12 repair costs for each five-year period since 1987. It does not include the costs of repairing the 2012 Hurricane Sandy damage; the most conservative estimate of Sandy repair costs ($8 million) would bring total repair costs since August of 2011 to more than $20 million. The costs also don’t include long-term work needed to keep Highway 12 open as the Hatteras Island shoreline continues to change. NCDOT has identified a number of erosion “hotspots” and possible breach locations along the 12.5 mile section of highway between the Bonner Bridge landing and Rodanthe. The options under study include permanently bridging the most threatened sections of the highway within its existing right of way. That approach could put bridged sections of Highway 12 hundreds of feet offshore within a few years as the island itself continues to erode and migrate toward the mainland.

Replacing Bonner Bridge has been estimated to cost between $265 and $315 million (in 2006 dollars). When you add the cost of addressing the erosion hotspots and areas at risk of breaching on Highway 12 south of the Bonner Bridge landing , the total cost of maintaining road access from the Dare County mainland to Rodanthe may be as high as $1.5 billion (also in 2006 dollars). The actual costs are unknown; the final NCDOT/ Federal Highway Administration decision documents for the Bonner Bridge replacement project left specific decisions about how to stabilize Highway 12 on Hatteras Island to be made in the future.

Right now, it all has the feel of decision-making avoided. Inertia will carry the state along a path of maintaining a highway in the sea unless state leaders look again at the most basic questions:

1. What is the purpose of Highway 12 on Hatteras Island — to provide safe access on and off the island or to maintain a road from mainland Dare County to Hatteras Island? The two are not the same.

2. Can the state — at any reasonable cost — maintain Highway 12 between Oregon Inlet and Rodanthe as the Hatteras Island shoreline continues to erode and migrate toward the mainland?

3. Is there another way to provide transportation access on and off the island that can more easily adapt as the Hatteras Island shoreline changes?

The NCDOT decision to replace the Bonner Bridge in a parallel location and permanently maintain Highway 12 on Hatteras Island has been appealed by two wildlife organizations. That appeal is pending in federal district court. NCDOT’s evaluation of options for maintaining Highway 12 on Hatteras Island is ongoing.

Should N.C. Abandon the Renewable Energy Portfolio Standard?

Some members of the N.C. House of Representatives have proposed to do just that. House Bill 298 (the Affordable and Reliable Energy Act) would repeal 2007 legislation developed — with support from the state’s major electric utilities — to increase use of renewable energy sources and energy efficiency measures to meet demand. Abandoning the renewable energy portfolio standard (REPS) would also mean walking away from the state’s commitment to renewable energy and energy efficiency as a source of investment and job creation.

In 2007, North Carolina became the first state in the southeast to adopt a renewable energy portfolio standard. Session Law 2007-397 (or “Senate Bill 3”) set a two-tiered goal for use of clean energy to meet electric power demand. By the end of calendar year 2018, municipal utilities and electric membership corporations must use a combination of renewable energy sources and energy efficiency measures to meet 10% of retail sales. The two major investor-owned electric utilities, Duke Energy and Progress Energy, have a slightly higher REPS goal of 12.5% by 2021. Greater use of clean energy sources reduces air pollution and greenhouse gas emissions, but Senate Bill 3 also identified renewable energy development as a way to improve the state’s energy security and generate private investment.

According to the most recent N.C. Utilities Commission report on implementation of Senate Bill 3, the electric utilities have met the first REPS milestone ( 3% of 2011 retail sales). Aside from the environmental benefits, the REPS requirement also appears to have met the goal of encouraging clean energy investment in the state. A recently released RTI International/La Capra Associates study, The Economic, Utility Portfolio, and Rate Impact of Clean Energy Development in North Carolina, found that North Carolina’s clean energy incentives (including tax credits, investment in energy efficiency and the REPS requirement) spurred $1.4 billion in project investment statewide between 2007 and 2012. Investments in clean energy took a sharp upward turn in 2011-2012 as the first Senate Bill 3 milestone approached. Even after accounting for the “cost” of state renewable energy tax credits, the report found a net economic benefit to the state. A census conducted by the N.C. Sustainable Energy Association identified 15,200 full-time equivalent employees in clean energy jobs as of September, 2012.

The primary sponsor of House Bill 298, Rep. Mike Hager (R- Burke,Rutherford), has said that the renewable energy/energy efficiency standard should be repealed in the interest of lowering electricity rates for customers. There is a small add-on fee (a “rider”) that the electric utilities can use to recover the costs of meeting the REPS goal. Senate Bill 3 put caps on the riders, but also required the N.C. Utilities Commission to approve the actual amount as reasonable and necessary to cover the electric utility’s cost. Senate Bill 3 capped the REPS rider for residential customers at $1 per month; the approved riders are now 42 cents per month for Progress Energy’s residential customers and 21 cents per month for Duke Energy’s residential customers. The riders have never reached the maximum of $1 per month and the actual amounts have come down from year to year.

The RTI/ La Capra study concluded that North Carolina’s clean energy incentives (including the REPS requirement) will have little impact on rate-payers — and may be a net benefit in the long term. The benefit largely comes from reduced costs as a result of energy efficiency measures; energy efficiency gains translate into new energy generation costs that can be avoided or delayed.

This will be an interesting bill to watch. Skepticism about renewable energy and energy efficiency seems to have become an article of faith among some conservatives — which may account for the fact that the bill has 27 sponsors in the House. But the bill also has been given four House committee referrals; the long path through the House likely reflects some counter-pressure on the jobs and investment side.

One other note about House Bill 298 — it is difficult to know exactly what to make of this, but the bill changes the definition of “renewable energy resource” to exclude wind energy and include peat and fossil fuels.

Postcards from the Coast: Is that a septic tank on the beach?

The owner of [oceanfront] land loses title to such portions as are so worn or washed away or encroached upon by the water. Thus, the lots of the plaintiff were gradually worn away by the churning of the ocean on the shore and thereby lost. Its title was divested by “the sledge hammering seas, the inscrutable tides of God.” North Carolina Supreme Court (quoting Moby Dick) in Carolina Beach Fishing Pier, Inc. v. Town of Carolina Beach (1970).

A lot in Raleigh or Asheville (or most points in between) can be expected to stay within the lot lines on a survey, but oceanfront property has at least one movable boundary – the Atlantic Ocean. If beach erosion causes the mean high water line to move toward land, the property boundary moves with it. Any area seaward of the new mean high water line becomes state-owned “public trust” land. The idea of the sovereign — in this case the state — holding all lands under navigable waters in trust for the people came to the American colonies from British law and has been adopted in some form by every coastal state. North Carolina public trust law recognizes a public right to use the ocean waters and the beach strand — roughly the area between the daily low tide line and the dunes — for swimming, navigation, fishing and recreation. As the Atlantic Ocean reshapes the North Carolina coast, the moving boundary may cause private property to become public trust property. There are areas of the North Carolina coast where entire rows of undeveloped lots have disappeared into the Atlantic Ocean to become public trust lands.

South Nags Head 2009 (Photo: The Virginian Pilot)

The last two sections of Senate Bill 151 (Coastal Policy Reform Act of 2013) address the problem of damaged structures on the public beach or in public trust waters. Since flood insurance only covers damage by flooding, an oceanfront property owner has an incentive to allow an uninhabitable erosion-damaged house to stay on the beach (or in the water) until it finally collapses during a storm. In the meantime, the damaged structure can be both an obstruction and a safety hazard. Senate Bill 151 responds to a 2012 N.C. Court of Appeals decision, Town of Nags Head v. Cherry, Inc., by giving coastal towns and counties clear authority to take legal action to remove nuisance structures from public trust areas.

The decision in Town of Nags Head v. Cherry, Inc. came out of the town’s efforts to remove an oceanfront house under a local nuisance ordinance specifically written to deal with storm and erosion-damaged structures. The Nags Head ordinance requires removal of a damaged structure if it creates a likelihood of injury to people or property or if the structure (whatever its condition) is located in a public trust area or on public land. The house owned by Cherry, Inc. had some structural damage, but the more significant problem was that erosion had left the house seaward of the high water line. Utility connections had been cut because waves washed under the structure. The septic tank and drain lines had been damaged and were partially exposed on the beach, leaving the house with no sanitation system.

The Court of Appeals concluded that the Town of Nags Head did not provide enough evidence that the house created a risk of injury to people or property and sent that issue back to the trial court for hearing. Having set aside the injury issue, the court then held that the town could not use the nuisance ordinance to order removal of the house just because it obstructed the public trust area. The court held that only the State of North Carolina (through the Attorney General) can enforce public trust rights.

The most basic problem with the Cherry, Inc. decision is that the court lost sight of the fact that an oceanfront structure exists in an environment very different from a house in Raleigh or Asheville. The court interpreted the Nags Head decision to order removal rather than repair of the house as evidence that the town acted only because the house obstructed the public trust area — and not because the house posed an actual risk to people or property. As the court said: ” If the Dwelling was a nuisance because of its location in a public trust area, then the only way to abate the nuisance would be removal of the Dwelling, while conditions such as damage to the Dwelling could likely be repaired.”

By separating the location of the house from the assessment of risk to people and property, the court overlooked the fact that a damaged structure in the surf zone of the Atlantic Ocean may not be repairable in the usual sense. A house buffeted by daily tides and vulnerable to every storm is at risk of collapse — endangering beachgoers and leaving dangerous debris — even if the house itself is intact. The Cherry, Inc. house had also lost its septic system. Replacing a septic system on a lot overwashed by the tides creates a source of contamination in an area used by the public for swimming and sunbathing. Given continuing erosion and the power of the tides, replacement of the septic system would likely also be futile.

As a practical matter, the Cherry, Inc. decision would require the Attorney General to address nuisance conditions on the ocean beach or in the surf zone even though a town or county already has police power jurisdiction over the area. Senate Bill 151 would restore local government authority to consider both condition and location in deciding that a storm or erosion-damaged structure is a public nuisance that must be removed.

Postcards From the Coast: Offshore Drilling

March 6, 2013

First, a postcard from Raleigh to the coast — While fracking has used up most of the oxygen in recent discussions of state energy policy, offshore energy development has taken on new political life. The sections of Senate Bill 76 dealing with shale gas production have gotten more attention, but the bill also revives legislative proposals on offshore energy development that did not survive the 2011-2012 session. These sections of the bill apply to all kinds of offshore energy generation (including ocean wind turbines), but the bill clearly intends to signal support for offshore oil and gas drilling.

In Section 7, Senate Bill 76 proposes a way to divide up state revenue received from offshore energy production. Whatever the merits of the Senate plan — and it seems designed to promise money for every good thing possible — it is not certain that the state will ever receive revenue from offshore energy production. The United States has had no experience with offshore wind turbines and the economics of ocean wind energy make it an unlikely revenue source. Most oil and gas drilling sites are in federal waters outside the limits of state jurisdiction; all revenue from drilling in federal waters goes to the United States treasury unless Congress authorizes revenue sharing with the states. Gulf Coast states benefit from a federal formula for sharing revenue from production in the Gulf of Mexico and something similar would be needed to allow Atlantic coast states to receive revenue from production along the eastern seaboard. Assuming Congress allows revenue sharing for Atlantic coast oil and gas production, the benefit to North Carolina will depend on where drilling occurs and how the revenue sharing formula works.

Note: The U.S. Department of Interior is not currently issuing offshore oil and gas leases in Atlantic coast waters. Under the department’s 5- year lease plan, no Atlantic coast leases will be offered until 2018 at the earliest.

The bill also encourages the Governor to negotiate an interstate offshore energy compact with the governors of Virginia and South Carolina. As described in the bill, the purpose of the compact would largely be to lobby for earlier issuance of oil and gas leases off the east coast of the United States; revenue sharing for Atlantic coast states; and quicker permitting of offshore oil and gas activities.

Although Senate Bill 76 has not yet become law, Governor McCrory has already checked off two items on the bill’s to-do list. Governor McCrory joined the governors of South Carolina and Virginia in sending a letter to the President’s nominee for Secretary of the Interior, Sally Jewell, urging her to open east coast waters for oil and gas drilling sooner. A February 14 press release issued by Gov. McCrory’s office includes excerpts from the letter and a link to the full text of the letter.

The following week, Governor McCrory joined the governors of Alaska, Louisiana, Texas, Virginia, Mississippi, Alabama, and South Carolina as a new member of the Outer Continental Shelf Governor’s coalition. The coalition advocates for more offshore leasing, quicker permitting of offshore oil and gas operations, and revenue sharing for all states with offshore energy production.

Senate Bill 76 has passed the Senate; the bill will go through three House committees (Commerce, Environment and Finance) before reaching the House floor.

More on Fracking, Chemical Disclosure and Trade Secrets

The Mining and Energy Commission’s Environmental Standards Committee meets again next Thursday and returns to discussion of draft rules on disclosure of fracking chemicals. As discussed here, the draft rule presented in January did not require disclosure of trade secret information to state regulators except in response to a spill or other environmental harm. Comments in committee suggested that the proposal to allow drilling operators to withhold trade secret information from regulators (at least until there is actual environmental damage) arose out of concern that the MEC does not have authority to prevent public disclosure of trade secrets.

Confidentiality provisions in the N.C. Public Records Act should address that concern. The Public Records Act broadly requires state agencies to allow public access to information received in carrying out the public’s business. But one section of the Public Records Act creates exceptions to the general rule; G.S. 132-1.2 requires state agencies to keep confidential certain types of information including trade secrets, bank account information, and personal identifying data. The section of the law concerning trade secrets appears below:

§ 132‑1.2. Confidential information.

Nothing in this Chapter shall be construed to require or authorize a public agency or its subdivision to disclose any information that:

(1) Meets all of the following conditions:

a. Constitutes a “trade secret” as defined in G.S. 66‑152(3).

b. Is the property of a private “person” as defined in G.S. 66‑152(2).

c. Is disclosed or furnished to the public agency in connection with the owner’s performance of a public contract or in connection with a bid, application, proposal, industrial development project, or in compliance with laws, regulations, rules, or ordinances of the United States, the State, or political subdivisions of the State.

d. Is designated or indicated as “confidential” or as a “trade secret” at the time of its initial disclosure to the public agency.

There are two important things about G.S. 132-1.2 :

— The law applies to all state agencies; it is not necessary for each state board, commission or department to have individual authority to keep information protected by the statute confidential. In fact, many (if not most ) state agencies operate under statutes that do not address these confidentiality requirements at all. State agencies simply apply the criteria in G.S. 132-1.2 to identify information that must be kept confidential and withhold the information from disclosure.

— The law specifically says that the Public Records Act not only does not require release of trade secret information, it does not authorize its release by any state agency.

A 1999 North Carolina Court of Appeals decision interpreting G.S. 132-1.2, concluded that the law requires state agencies to keep information meeting the “trade secret” definition confidential unless the General Assembly has created a specific exception allowing its disclosure. In MCI v. N.C. Utilities Commission, telecommunications companies challenged a decision by the state Utilities Commission to release data that the industry considered to be trade secret information. The N.C. Court of Appeals agreed that the data met the definition of a “trade secret” and ruled that the Utilities Commission did not have authority to disclose the data because the General Assembly had not created an exception to G.S. 132-1.2 allowing its disclosure.

In short, state agencies do not need individual authority to comply with the confidentiality requirements of G.S. 132-1.2. Instead, agencies need specific authority to disclose information that the statute makes confidential. As a result, G.S. 132-1.2 gives DENR and the MIning and Energy Commission all of the authority needed to keep trade secret information confidential. It seems that North Carolina could require disclosure of trade secret information to regulators with the assurance that the state Public Records Act would protect that information from public disclosure.

Note: There are a few state laws that affect how G.S. 132-1.2 applies to individual agencies. For example, the Environmental Management Commission operates under a law, G.S. 143-215.3, that both creates exceptions to the confidentiality requirements of G.S. 132-1.2 and provides a specific process for resolving conflicts over disclosure. G.S. 143-215.3(b) allows the EMC to disclose air emissions data and effluent data even if the data meets the definition of a trade secret under the Public Records Act — because federal law requires public disclosure of that information. The statute also allows the EMC to disclose trade secret information to other state and federal agencies if necessary to carry out the EMC’s responsibilities. G.S. 143-215.3(d) creates a process for resolving disputes about disclosure of information by declaratory ruling. The statute wasn’t needed, however, to give the EMC and DENR authority to comply with the basic confidentiality requirements of G.S. 132-1.2.

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Environmental Law and Policy from a North Carolina Point of View