As discussed in a previous post, local governments in North Carolina have a range of options for working together to provide water and wastewater services. At one end of this spectrum is the ability to create a separate legal entity whose sole purpose is to operate these services, often on a regional scale. Several statutory structures allow for the creation of such entities.

This post takes a closer look at one of those options: the water and sewer authority, authorized by Chapter 162A, Article 1 of the North Carolina General Statutes. It explains what a water and sewer authority is, the benefits and challenges these entities present, who can create or join them, how they are governed, and the scope of their legal powers. The post also reviews how authorities are financed, how they interact with their member governments, and the key considerations in establishing one.

What Is a Water and Sewer Authority?

A water and sewer authority is a special purpose local government that provides water, wastewater, and stormwater services. Unlike a public enterprise department of a municipality or county, an authority stands on its own, with its own governing board, powers, and finances. 

A water and sewer authority may own and operate water systems, sewer systems, or both. The statutory definition of a “water system” is broad: it includes not only drinking water supply and distribution, but also stormwater management and drainage programs. That means an authority can be structured to oversee drinking water, wastewater, and stormwater. G.S. 162A-2(12).

Benefits and Challenges of the Regional Model

Experience in North Carolina suggests that water and sewer authorities, like other regional entities, can bring both opportunities and challenges. On the positive side, authorities may achieve economies of scale by reducing duplication in staffing and equipment, spreading costs across a larger customer base, and improving access to capital markets through stronger balance sheets. Their independence also allows for more professional management: the governing board’s sole responsibility is to act in the best interests of the utility systems and their customers, without competing demands from other local government priorities. That focus can encourage consistent policies, long-term planning, and investment in projects that meet system needs. Smaller or rural communities in particular may gain access to expertise, financing tools, and service improvements that would otherwise be out of reach.

At the same time, authorities often face hurdles. Once a system is transferred, the forming governments give up direct control not only over operations and rates but also over how utility service decisions influence local growth management. Governance requires balancing the priorities of multiple jurisdictions, which can lead to disagreements over rates, project priorities, or service areas. Debt and infrastructure transfers are frequently sensitive, especially when communities differ in size, financial capacity, or growth prospects. The start-up process can also be costly and time-consuming, with legal, financial, and organizational steps that may take years. Building public trust requires clear communication, particularly where residents are concerned about higher rates or the loss of local control.

These benefits and challenges often recur, but they are not universal. Much depends on local context and the goals of the governments involved. Recognizing this, the North Carolina General Assembly has directed the UNC School of Government’s Environmental Finance Center to conduct a statewide study of regionalization, including whether these (or other) advantages and difficulties are borne out in practice.

Who Can Create or Join an Authority?

An authority may be created by resolution of either the governing body of a single county, or the governing bodies of two or more political subdivisions. G.S. 162A-3(a). A “political subdivision” includes counties, cities, towns, incorporated villages, sanitary districts, and other public corporations of North Carolina. G.S. 162A-2(7).

Local governments have a choice of procedures when forming an authority. Organizing under G.S. 162A-3creates an authority whose board may expand if additional governments join later. By contrast, G.S. 162A-3.1 requires articles of incorporation that limit board membership to appointees of the original organizing governments, so later joiners do not gain seats on the board. Both paths create the same type of authority with the same statutory powers, but this choice has lasting implications for representation and governance.

Under either option formation requires a public hearing with at least ten days’ published notice. The resolution must include articles of incorporation setting out the name of the authority, a statement that it is organized under the Act, the names of the organizing subdivisions, and the names and addresses of the initial board members. Once the resolutions and proof of publication are filed with the Secretary of State, the Secretary issues a certificate of incorporation, which is conclusive evidence that the authority exists. G.S. 162A-3; 162A-3.1.

Additional types of participants

• Nonprofit water corporations may join formation, but only if three or more political subdivisions are participating. G.S. 162A-3(a1); 162A-3.1(a1).
• The State of North Carolina, represented by the Council of State, may join only if three or more political subdivisions are participating. G.S. 162A-3(a2); 162A-3.1(a2).
• Local governments from adjoining states may participate whenever at least one forming North Carolina county borders the adjoining state (or contains a subdivision that borders it) and the adjoining state’s law permits participation. G.S. 162A-3(a3); 162A-3.1(a3).

Withdrawal and joinder

Any participating government may withdraw before the authority incurs obligations. Others may join later by resolution, hearing, and certification, usually with the authority’s consent. G.S. 162A-4. 

Governance Structure

Authorities are designed to give participating governments influence but not direct control. Each forming government agrees on how many seats it will have on the authority’s board and appoints members to fill them. Terms are staggered at first and then set at three years. Appointing governments also retain the power to remove their members at any time, with or without cause. G.S. 162A-5(a).

Once appointed, though, board members are not delegates. They serve as officers of the authority itself and take an oath of office to that effect. See G.S. 162A-5(c). Their duty is to act in the best interests of the authority and its customers, even though they will naturally reflect the perspectives of the governments that appointed them. In this way, local governments keep a voice at the table but no longer exercise direct control over operations, rates, or the way utility service decisions intersect with their growth management priorities.

The board organizes by electing a chair and vice-chair, appointing a secretary and treasurer (which may be the same person), and adopting bylaws. A majority of members constitutes a quorum, and decisions require approval of a majority of the full board. Members may receive up to $4,000 annually in per diem compensation plus reimbursement of expenses. G.S. 162A-5(c).

At the time of formation, participating governments must also determine how board membership will work if additional governments join later. For authorities created under G.S. 162A-3, the default rule is that a new member government may appoint board members, with staggered initial terms and three-year terms thereafter. However, subsection (a1) limits this flexibility: if the authority was formed under G.S. 162A-3(a1),or under G.S. 162A-3.1, a government joining later does not gain the right to appoint any members. In those cases, the governing board remains fixed at the membership structure established at the authority’s creation.

Powers of the Governing Board

The governing board of an authority is granted broad powers to finance, construct, and operate systems, including:

System ownership and operation. The board may acquire, construct, extend, improve, and operate water and sewer systems within or outside member jurisdictions. G.S. 162A-6(a)(5). It may also combine systems for efficiency. G.S. 162A-6(a)(8).

Property acquisition. The board may acquire property through purchase, lease, gift, dedication, or eminent domain, to the same extent as counties and municipalities. G.S. 162A-6(a)(10). Certain authorities with past certificates from the Environmental Management Commission have even broader condemnation authority. G.S. 162A-6(c).

Contracts. The board may contract with local governments, the state or federal government, or private entities for water supply, sewage treatment, or related services. G.S. 162A-6(a)(12).

Debt assumption. The board may assume the principal and interest payments on indebtedness of a political subdivision. G.S. 162A-6(a)(14). This allows a county or city to transfer its utility system, and its outstanding debt, to the authority. Transfers require Local Government Commission approval. G.S. 162A-14(1).

Ordinance power. The board may adopt ordinances regulating discharges, water systems, stormwater, and drainage, but only after submitting a declaration of intent to member governments at least 60 days in advance. G.S. 162A-6(a)(14c). Ordinances can be enforced with civil penalties or injunctions. G.S. 162A-9.1.

Mandating connections. Only authorities that include all or part of a county with at least 40,000 people (as certified by the State Budget Officer) may require property owners to connect to their lines. G.S. 162A-6(a)(14d). Even then, this power cannot be used if another local government or state-regulated utility already provides service to the property, or if the property has a valid well permit. Property owners who connect to an authority water line may still use private wells for non-drinking purposes, so long as the wells are not cross-connected. 

Rate-Setting and Revenue

Like cities and counties that operate public enterprises, a water and sewer authority has broad power to set and collect rates and fees for the services it provides. G.S. 162A-9(a); G.S. 162A-6(a)(9). These charges are not subject to Utilities Commission review, giving the governing board flexibility to design revenue structures that meet local needs. Rates must be set at levels sufficient to cover operating costs, debt service, and reserves. G.S. 162A-9(a)(1)–(2).

Within that framework, authorities have access to a range of specific revenue tools:

General rate authority. The board may “establish and revise a schedule of rates, fees, and other charges for the use of and for the services furnished or to be furnished by any water system or sewer system or parts thereof owned or operated by the authority.” G.S. 162A-9(a). These revenues are the backbone of utility funding and can be enforced through deposits, service shutoffs, and other measures. G.S. 162A-9(c).

System development fees. Authorities may impose system development fees on new development, but only by following the detailed procedures in Article 8 of Chapter 162A. That process requires a professional cost analysis, public notice and hearing, and formal board adoption. G.S. 162A-6(a)(9a); 162A-9(a5).

Availability fees. If a water and sewer authority includes a county with a population of at least 40,000, the authority may charge an availability fee under certain circumstances. This helps the authority recoup some of the costs in making the infrastructure available. G.S. 162A-6(a)(14d).

Special assessments. Authorities may also fund projects through special assessments on benefited properties, using the same process counties follow under Chapter 153A, Article 9. Unlike counties, however, they do not need municipal approval to assess inside city limits. G.S. 162A-6(a)(14a).

Take-or-pay contracts. Authorities created under G.S. 162A-3.1 have explicit statutory authority to enter into long-term wholesale contracts with their member governments, often referred to as “take-or-pay” arrangements. Under these contracts, a city or county commits to paying its allocated share of costs, including debt service, for up to 50 years, regardless of actual water use. G.S. 162A-6(b). These agreements provide significant revenue stability and are often key to financing major projects. Other types of authorities organized under G.S. 162A-3 may contract with their members for water or sewer services, but they do not have the same express take-or-pay authority.

Stormwater fees. Finally, the board may establish fees to support stormwater management programs. These fees require a public hearing with at least seven days’ published notice and must be based on the cost of service. Rates may vary based on property use, impervious surface, or other runoff factors. Overlapping fees are not permitted unless multiple governments jointly operate a single program. G.S. 162A-9(a).

Relationship with Member Governments

Although authorities operate as independent political subdivisions, they remain connected to the counties and municipalities that form or join them. The primary link is through board appointments, which give local governments an ongoing voice in how the authority is run. While board members act as officers of the authority, not as delegates, the power of appointment and removal ensures that forming governments retain some influence over the authority’s overall direction. G.S. 162A-5(a).

Beyond governance, the strongest ties are contractual and financial. Local governments may transfer or lease water and sewer systems to an authority, subject to Local Government Commission approval, and the authority may assume the related debts. G.S. 162A-14(1). Cities and counties may also enter into wholesale water supply or sewage treatment agreements, and they may contract with the authority to perform billing and collection functions, including enforcement measures such as water shutoffs for unpaid sewer charges.G.S. 162A-14(2). These contracts can commit local revenues, and governing boards may pledge rates and fees to meet their obligations. G.S. 162A-14(3). If they choose, they may submit such agreements to referendum for voter approval. G.S. 162A-14(4).

Member governments also provide essential financial support at the outset. Statutes authorize them to make contributions or advances to cover start-up costs, with repayment later from bond proceeds. G.S. 162A-16. And even after formation, cooperation is necessary: authorities may rely on private water companies as billing agents, and they must report daily withdrawals to the Environmental Management Commission, keeping the state and other utilities informed. G.S. 162A-15.

In short, authorities are independent in daily management but remain connected to their forming governments. Appointments, property transfers, contracts, and financial commitments all ensure that the counties and municipalities that create an authority maintain some continuing role in shaping its priorities and sharing responsibility for its success.

Start-Up Costs and Considerations

Launching a water and sewer authority requires careful planning and upfront resources. Typical considerations include:

Legal and organizational costs. Drafting resolutions, publishing notices, holding hearings, and filing incorporation documents. Counsel is usually needed for statutory compliance. 

Governance set-up. Recruiting and appointing board members, administering oaths, adopting bylaws, and covering per diem and reimbursement. 

Administrative infrastructure. Securing office space, adopting financial management systems, arranging insurance coverage, and establishing recordkeeping and personnel policies. 

Technical and financial planning. Conducting engineering and asset studies, preparing rate and revenue analyses, and developing capital improvement plans. Bond counsel and financial advisors are often retained early if borrowing is contemplated. 

Revenue design. Developing water, sewer, and stormwater fee structures. If system development fees are to be imposed, a professional analysis is required. Availability fees and assessments may also be considered. 

Debt assessment. If local governments plan to transfer existing systems, any outstanding debt must be evaluated. The authority may assume that debt by agreement, but transfers require LGC approval. Negotiating how debt service will be allocated among members is often one of the most sensitive start-up issues.

Financing early operations. Participating governments may advance funds to cover start-up costs, which can later be repaid from authority bond proceeds. 

Depending on whether an authority begins with small systems or assumes multiple complex systems, start-up costs may range from modest organizational expenses to substantial legal, engineering, and financial work.

Conclusion

Water and sewer authorities provide one option for North Carolina governments seeking to deliver water, wastewater, or stormwater services on a regional basis. They can offer economies of scale, financial flexibility, and focused management, but they also involve tradeoffs in governance and local control. The extent to which these advantages or challenges arise depends on local circumstances and the goals of the participating governments.