Monday, June 27, 2022

Navassa makes progress on relieving its long-term debts with Brunswick County

In essentially a lawsuit that never was, Navassa has begun paying off its longstanding debt to Brunswick County. The town was recently awarded a state grant, which will help it pay off its debt in full.

Brunswick County's Northeast Wastewater Treatment Plant has been funded by Leland, H2GO, Navassa, and Northwest. This year, a financial dispute was finally resolved between Navassa and the county pertaining to the plant's first expansion in 2013. (Port City Daily photo/Courtesy Brunswick County)
Brunswick County’s Northeast Wastewater Treatment Plant has been funded by Leland, H2GO, Navassa, and Northwest. This year, a financial dispute was finally resolved between Navassa and the county pertaining to the plant’s first expansion in 2013. (Port City Daily photo/Courtesy Brunswick County)

BRUNSWICK COUNTY — Last week, the Town of Navassa took a significant step to address long-standing debts it had accumulated with Brunswick County.

Navassa’s recent $82,000 debt payment to Brunswick County signifies a major change for the town which, for years, objected to the argument that it owed the debts in the first place.

Related: H2GO’s sewer plant has the demand, permits, and room needed to expand. So why doesn’t it? It’s complicated

The financial dispute that carried on from 2016 to 2019 between the town of 2,100 and Brunswick County managed to avoid ever reaching a courtroom. Never publicly discussed, hundreds of pages of public records reveal a legal disagreement that amounted to as much as $310,957.44 in late debt payments owed by the town in early 2018.

Finally, the Local Government Commission’s Secretary weighed in on the dispute mid-May, siding with the county. As of Friday, past due debts total $183,609.95, according to Brunswick County’s Finance Director.

(Author’s note: This piece focuses on Navassa’s debts with Brunswick County. A follow-up piece, to publish Sunday, will address the town’s financial issues and its recent steps to get on the right track.)

What happened?

This financial dispute stems back to 2001 Sewer Service Agreements used to back a new northern Brunswick County sewer plant. The county also had a legal dispute with Brunswick Regional Water and Sewer H2GO over the interpretation of this agreement — the county prevailed in court in 2009, resulting in the court capping H2GO’s sewer treatment capacity at a different plant.

The similar agreements cemented cost-sharing allocations for the new sewer plant between Brunswick County and its sewer system participants: the Town of Leland, H2GO, and the Town of Navassa (the City of Northwest joined the system years later, in 2007).

Constructed in 2003, participants agreed to finance the then 1.65 million gallons-per-day (mgd) capacity Northeast Wastewater Treatment Plant (the plant is now under a state-imposed moratorium for exceeding permitted flows in 2018).

The regional plant replaced an older package sewer treatment plant that served the Leland Industrial Park on the same site and a developer-constructed plant on Chappell Loop Road. H2GO replaced and rebuilt the Chappell Loop Road plant the same year.

At some point, Navassa received a North Carolina Department of Environment and Natural Resources (now DEQ) grant. The town elected to pay its share of construction capital costs for the original 2001 project in a $916,325 lump sum payment (rather than monthly charges) using grant funds.

In 2009, the county and its sewer system participants agreed to expand the Northeast Wastewater Treatment Plant, adding on 825,000 gpd additional capacity. So, Navassa and Brunswick County sign an amendment to the original 2001 Sewer Service Agreement in February 2009. Navassa agreed it would pay for its portion of the capital cost of the expansion. This added an additional 65,000 gpd allocation to the town, bringing its total to 170,000 gpd.

Between at least 2001 and 2009, Navassa made payments to the county to finance its share of costs for the original plant project, according to a county letter. In accordance with the 2009 amendment, Northeast Wastewater Treatment Plant expansion was completed in 2013, which brought the plant’s total capacity to 2.475 mgd.

(For a condensed overview of what happened, you can find a timeline at the bottom of this article.)

Navassa stops payments

At some point, Navassa stopped making transmission and debt service payments.

In 2016, the county informed Navassa it had racked up over $66,000 in outstanding payments related to transmission system improvements and nearly $40,000 in outstanding sewer service charges. At this point, a second expansion of the system was being planned.

Navassa presented both a legal and philosophical argument to the county as to why it didn’t owe these debts. Navassa asserted it would not benefit from the planned expansion — H2GO and Leland would.

The 2013 expansion costs disproportionally burdened Navassa, the town alleged. Brunswick County’s allocation methodology was unfair and arbitrary, the town asserted, and did not represent its share of the system.

Navassa asserted the county took broad authority with the 2009 amendment and failed to follow state law to make the 2001 agreement valid, via the inclusion of pre-audit certificates (the county later provided the pre-audit certificates, thus rendering this argument void).

A sewer transmission system refers to infrastructure that transmits wastewater flow — i.e. pump stations. The collection system represents lines in the ground, which connect an individual user to the greater system, and ultimately, the plant itself.

The 2001 Sewer Service Agreement references the project consists of the plant, collection, and transmission system.

A selected of the 2001 Sewer Service Agreement, bolded for emphasis by Brunswick County attorney Robert Shaver in a letter to Navassa, show transmission costs were included. (Port City Daily screenshot/Courtesy Brunswick County)
A selected of the 2001 Sewer Service Agreement, bolded for emphasis by Brunswick County attorney Robert Shaver in a letter to Navassa, show transmission costs were included. (Port City Daily screenshot/Courtesy Brunswick County)

“It was clear from the start the system was more than just the plant,” Brunswick County attorney, Robert Shaver, wrote in a March 2017 letter to Navassa’s attorney.

After the 2009 amendment, the county began billing participants with costs broken down between transmission costs and plant improvements (before, costs weren’t broken down).

Navassa refused to pay for transmission costs associated with the first expansion and fell behind on sewer service payments and plant improvement payments. And, it wasn’t on the same page regarding the new expansion that was being planned in 2016 (currently needed to address the moratorium).

“In fact, due to growth in H2GO’s service territory and the Town of Leland, the County intends to expand the collection system. However, an expansion of the collection system would benefit the County and not Town of Leland, but would not benefit the Town of Navassa,” Brian Crawford, attorney for Navassa, wrote in an October 2017 letter to Brunswick County.

“For that reason, the Town believes it should not be required to share the cost of expanding the collection system,” Crawford wrote.

LGC gets involved

In January, Brunswick County Manager Ann Hardy looped the Local Government Commission in on the dispute. “The situation with Navassa is becoming of great concern,” she wrote.

In February 2018, county attorney Shaver tells Navassa expansion is needed. “Navassa consistently exceeds its alloted capacity at the plant,” Shaver wrote.

Shaver tallied the town’s total outstanding debt to $310,957.44. “Navassa will also need to address its need for expansion and further capacity and payment for those needs. The time is now,” he wrote.

After months of back-and-forth, Local Government Commission Secretary Greg Gaskins issued a final determination: Navassa did in fact owe what the county had asked for.

Gaskin’s conclusion (read the full letter at the bottom of this article, which summarizes issues pertaining to the dispute):

“Our conclusion is that the Town, having signed the 2001 [Sewer Service Agreement] and the 2009 Amendment and received sewer service, is obligated to promptly pay when due its share of the 2012 Expansion costs which, by definition, include the principal and interest costs to finance both the treatment plant and the transmission components. In addition, the Town is obligated to promptly pay when due the ‘Monthly Service Charges.’ Neither the 2001 Sewer Service Agreement, the 2009 Amendment, nor the Rules make any provision for withholding payments in the event of a disputed charge. 

It will be in all parties’ best interests to cooperate now and for future necessary expansions of the System in order to promote the long-term economic viability of the Town, the County, and the System. We urge the Town and the County to resolve the dispute as expeditiously as possible, so these issues do not impede the Town’s economic development plans.”

What now?

Navassa Mayor Eulis Willis said in an interview in July he did not agree with the debt the town owes the county. Referencing two 2012 bonds issued to fund the first expansion (the payments the town fell behind on), Willis said his town did not benefit.

“I got nothing out of that bond. Nothing,” he said.

Willis shared reservations about trusting the county and the LGC. “If the lions can’t tell their story, then everybody’s going to believe the hunter,” he said.

As of August, Navassa has not yet submitted an interlocal agreement associated with current plant expansion. Willis said the town does not have the means to issue $8 million debt to fund the current planned expansion — an expansion he disagrees with in the first place.

“The same logic that works over there in middle-class America does not work over here in poor rural Navassa, N.C.,” he said.

Related: With an $8 million funding gap, there’s confusion over who’s footing Brunswick’s sewer expansion bill

County Manager Hardy said Navassa’s unsigned interocal agreement to fund the current plant expansion is not creating a delay in financing efforts. “The LGC is fully informed,” she said. “The county will issue all the debt for the expansion, complete the construction, and will bill participants for their capacity allocations.”

Navassa’s town planner, Barnes Sutton, said he believes an expansion is needed. He described the LGC as helpful assets.

Navassa received a $375,000 North Carolina Office of Resiliency and Recovery (NCORR) grant, designed to assist financially-distressed local governments, this spring, Sutton said.

Sutton said the town will use this grant to cover its outstanding debts.

According to a memorandum of agreement the state crafted to award Navassa the grant, the town must use $244,520 to cover transmission bond debts to the county and $27,973 to repay the county for operations and maintenance charges.

The grant has not yet been released, Sutton said, but the town anticipates receiving the funds soon. “Our intention with this grant is to cover the debts that are being discussed,” Sutton said. 

On Aug. 14, Navassa paid the county $82,000 to help cover its outstanding debts. On Friday, Navassa’s total past-due debt totals $183,609.95, with future, not-yet-billed payments totalling $605,935.

Asked for the county’s impression on Navassa’s progress since the LGC made its determination, County Manager Hardy referenced the town’s recent payment and grant award.

“I consider that substantial progress,” Hardy said.

Timeline

2001: Sewer system participants H2GO, Leland, and Navassa sign respective Sewer Service Agreements with Brunswick County. The agreements cement a commitment to fund a new plant, transmission and collection system in northern Brunswick County.

2003: Northeast Wastewater Treatment Plant is constructed with an initial treatment capacity of 1.65 million gallons per day on Royster Road in Navassa, on the same site of a previous wastewater treatment plant serving the Leland Industrial Park and developer-constructed plant on Chappell Loop Road. Navassa paid its share of the costs for initial plant construction via a one-time, $916,325 lump sum payment using a state grant.

February 16, 2004: Navassa and County enter a System Sewer Operating Agreement, whereby County agreed to operate Navassa’s collection system. Navassa is required to pay County all expenses of operation and maintenance of the system, plus utility expenses.

December 2011: County staff presents impasse to Brunswick Commissioners, who opt to choose option two of four repayment options. County Public Utilities director informs participants that consensus on payback allocation method is unlikely.

2013: Northeast Wastewater Treatment Plant adds 850,000 gpd treatment capacity, reaching a total treatment capacity of 2.475 mgd.

July 15, 2016: In a letter, County advises Navassa it owes $244,000 in debt liability for cost of transmission system improvements associated with 825,000 gpd plant expansion.

August 22, 2016: County writes follow-up letter to Navassa introducing proposal to resolve alleged $244,000 debt liability. Navassa would be released from debt if: it transferred the Rampage lift station to County; County would transfer Klarbane lift station to Navassa; County construct force main on Old Mill Road to divert H2GO’s flow from Navassa’s lift station; Navassa would operate Klarbane and Pine Valley pump stations.

September 13, 2016: Navassa and County representatives meet privately. Navassa turns down County offer to eliminate its debts owed in exchange for transferring Navassa’s Rampage Pump Station to the county. County asserts it is owed $66,761.53 for transmission system improvements and $39,838.31 in sewer service charges.

February 6, 2017: Navassa asserts portions of the outstanding debt are erroneous and not authorized under the 2001 Sewer Service Agreement.

February 15, 2018: County terminates collection system agreement with Navassa.

March 10, 2017: County letter to Navassa disputes major arguments presented.

January 16, 2019: County writes to Navassa. Navassa owes $213K.

January 28, 2019: County writes to LGC. Navassa recently stopped paying debt service interest on 2012 expansion (interest charged by bondholders — not the county).

April 18, 2019: County email to LGC describes that in regional wastewater participant meetings, there had been limited discussion of Navassa nonpayment.

May 9, 2019: County to LGC: Total amount billed and past due: $237,618.47. Total issued debt service to be reimbursed by town (future not yet billed): $634,517.

May 16, 2019: LGC weighs in. Town is obligated to promptly pay.

Aug. 14, 2019: Navassa pays County $82,000.

LGC determination letter on Brunswick v. Navassa dispute by Johanna Ferebee on Scribd

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