Counties in North Carolina are taking a more direct role in providing water and sewer service than they did in the past. Historically, counties relied on municipalities or independent authorities to deliver these services, focusing instead on public health oversight through well and septic regulation. That approach is changing as development spreads beyond municipal boundaries, infrastructure funding increasingly flows directly to counties, and water and sewer service becomes more closely tied to public health and economic development. Today, counties are more actively planning, financing, and managing utility infrastructure themselves, or working with utilities and neighboring governments, to ensure reliable service and support growth.

Like municipalities, counties may own and operate water and sewer systems as public enterprises under G.S. 153A-274. Counties also have a tool that municipalities do not: the ability to create county water and sewer districts under G.S. Chapter 162A, Article 6. Districts allow counties to provide or expand water and sewer service in defined areas while keeping costs and revenues tied to the people who benefit.

County water and sewer districts are somewhat unusual entities. They resemble special taxing districts in that they may levy property taxes, collect fees, and issue debt within a limited geographic area, but they are also separate municipal corporations with their own governance structure, legal authority, budget, and finances. By statute, the county commissioners serve as the district’s governing board, which offers flexibility and local control while also adding an extra layer of legal and administrative complexity.

This post explains how county water and sewer districts are formed, governed, and financed, why a county might choose this model, and some of the practical challenges that come with using districts to provide utility service.

How County Water and Sewer Districts Are Formed

The formal process to create a county water and sewer district begins with a public hearing. The county board of commissioners must publish and post notice describing the proposed district boundaries and hold a hearing at which residents may comment. G.S. 162A-86. In most cases, notice must be published once a week for three successive weeks and posted at least 20 days before the hearing. However, if the local or State Health Director certifies that a failing low-pressure pipe sewer system is causing a present or imminent serious public health hazard, the board may use an expedited process. In that case, notice must be published only once and posted in at least three public places not more than 30 nor less than 14 days before the hearing, and a single notice and hearing may cover multiple districts. G.S. 162A-86(b1).

After the hearing, the board may adopt a resolution creating the district if it finds three things: (1) there is a demonstrable need for water or sewer service, (2) residents in the area will benefit, and (3) the service can be provided without unreasonable or burdensome tax levies. G.S. 162A-87. If any part of the proposed district lies within a municipality, the municipality’s governing board must approve its inclusion by resolution. G.S. 162A-87. Once created, the county’s governing board must publish the resolution. Any legal challenge must be filed within 30 days (or within 21 days if the district was formed in response to a certified public health hazard). G.S. 162A-86(b1).

Districts may later be expanded through annexation, G.S. 162A-87.1, or abolished, but only if they have no outstanding debt. G.S. 162A-87.2.

Governance and Administrative Structure

The board of county commissioners also serves as the district’s governing board. G.S. 162A-89. Because the district is a separate municipal corporation, however, it must be treated as an independent unit of government. This means:

• The board must meet separately when acting as the district’s board, with its own minutes and records.
• The district board must adopt its own budget ordinance each year. G.S. 159-8. The district cannot be budgeted as an enterprise fund of the county.
• The district board must appoint a budget officer, G.S. 159-9, and a finance officer. G.S. 159-24.
• The district must keep separate bank accounts and may not commingle monies with the county. G.S. 159-31.

County commissioners therefore wear two hats and must be careful to separate county business from district business.

Revenue and Financing Tools

County water and sewer districts have a wide range of financing powers:

Property Taxes. Districts may levy property taxes within their boundaries to pay for operations or debt service. No voter referendum is required. G.S. 162A-91.

Special Assessments. Districts may levy assessments on properties that directly benefit from new infrastructure, spreading project costs among those who gain the most. G.S. 162A-92.

Rates, Fees, and Charges. Districts may set rates, tap fees, and availability charges. They may also charge higher rates to customers outside district boundaries. G.S. 162A-88; G.S. 162A-87.3(b).

System Development Fees. Districts may adopt system development fees, which are one-time charges on new development to recover the proportional share of the capacity costs attributable to that development. G.S. 162A-88(b); Article 8 of Chapter 162A.

Bonds and Notes. Districts may issue general obligation (GO) bonds backed by the full faith and credit of the district and secured by district property taxes. G.S. 162A-91. They may issue revenue bonds backed solely by system revenues such as water and sewer rates or availability charges. In addition, districts may issue bond anticipation notes or other forms of short-term borrowing to manage project cash flow or provide bridge financing needs. G.S. 162A-90. All bonds and notes must be approved by the Local Government Commission before issuance.

Strategic Uses and Operating Models

Counties use the water and sewer district model in different ways, depending on local goals, service needs, and financing considerations.

• District-owned and operated. The district owns the infrastructure and operates the utility with its own staff.
• District-owned; county-operated. The district owns the assets and county staff operate the system under an interlocal agreement. In McNeill v. Harnett County, 327 N.C. 552 (1990), the North Carolina Supreme Court upheld this arrangement and confirmed that a county, through an interlocal agreement, may lawfully exercise “all rights, powers, and functions” granted to a water and sewer district under G.S. 162A-88 when operating the district’s system. In this structure, the county may rely on both its public enterprise authority, see G.S. 153A-274 et seq., and the district’s statutory authority.
• County-owned; district-operated. The county owns the infrastructure and contracts with the district to provide service. Legally, this arrangement operates similarly to one in which the district owns the assets and the county operates the system.
• District-owned; contracted operation. The district owns the infrastructure and contracts with a municipality, authority, or private operator to provide service.
• Multiple districts. A county may create more than one district, each with its own boundaries, governance structure, budget, and rates, when service needs differ across the county.

In practice, counties often use districts as service-area and/or financing tools. A district allows costs, revenues, and debt to be tied to a defined area rather than spread countywide. It can support district-specific revenues (such as property taxes limited to the district, special assessments, or system development fees), and helps keep utility finances and debt separate from the county’s general operations.

Counties should also be aware that under G.S. 136-27.1, the North Carolina Department of Transportation must pay 100 percent of the nonbetterment cost of relocating water and sewer lines owned by qualifying local government entities, if the line is within the existing state transportation right-of-way, the relocation is necessary for the project, and the owner is a qualifying entity. County water and sewer districts are explicitly included among those qualifying entities eligible for this reimbursement. 

Counties use districts in a range of practical situations. For example, one county might form a district to address failing septic systems certified as a public health hazard; the district finances improvements and the county operates the system, keeping costs and responsibility concentrated in the affected area. In another case, a county might form a district in a growth corridor and structure revenues so that development helps pay for extensions over time. A district can also be used primarily as a financing vehicle: a county might issue debt through a district for a regional facility and contract with another entity to operate it, limiting financial responsibility to the service area that benefits. In larger or more diverse counties, multiple districts can reflect different needs across suburban, rural, and environmentally sensitive areas, with each district using financing tools and rate structures suited to its circumstances.

Challenges and Limitations

County water and sewer districts give counties a great deal of flexibility, but that flexibility comes with important limits. Their hybrid structure, legally separate from the county but governed by the same board, creates both administrative and strategic complications that counties must manage carefully.

One significant limitation is that a district cannot be dissolved while it still has outstanding debt. G.S. 162A-87.2. Once bonds are issued, the county is committed to maintaining the district until all obligations are repaid. This means districts work best when they are created with a clear long-term plan for financing, operations, and any eventual transition or restructuring.

Governance can also be cumbersome. County commissioners must meet separately when acting as the district board, keep distinct minutes and records, and adopt a separate annual budget ordinance. G.S. 162A-89; G.S. 159-8. The district must have its own budget officer and finance officer and maintain separate bank accounts. G.S. 159-9; G.S. 159-24; G.S. 159-31. These requirements ensure legal separation but can create confusion or administrative burden if staff or the board do not clearly distinguish between county and district business.

Financial reporting adds another layer of complexity. Even though a county water and sewer district is a separate legal entity, accounting rules usually require its finances to be included in the county’s financial statements under Generally Accepted Accounting Principles (GAAP) and Governmental Accounting Standards Board (GASB) standards. Under GASB Statements 14, 39, and 61, a district is typically treated as a “component unit” because the county commissioners serve as its governing board and the district’s finances are closely tied to the county. Excluding the district would make the county’s financial reports incomplete. As a result, the district’s financial information appears in the county’s annual audit, either blended with the county’s accounts or presented in a separate column, depending on how independently the district operates from the county’s general activities. This approach provides a more complete picture of public finances, but it can be confusing to residents who see district debt reflected in the county’s financial statements and assume that debt applies countywide. The district appears in the county’s audit for transparency and completeness, not because the county as a whole is responsible for the district’s obligations.

Geography and intergovernmental relations can also present challenges. A district may not extend service into a municipality or across county lines without consent. G.S. 162A-87.3. Likewise, a municipality may not duplicate district service within district boundaries without agreement, but annexation and planning issues can still cause friction. G.S. 162A-93.

Overall, county water and sewer districts are flexible but complex tools. They can provide targeted service and financing options, but they also require careful attention to governance, accounting, and coordination with other local governments.