Merger

Introduction

The Town of Pittsboro is a rapidly growing community with a population of approximately 5,000 residents as of 2023. The town is known for its rich history, vibrant community, and strategic location, which makes it an attractive place for both residents and businesses. However, this rapid growth has brought with it a number of challenges, particularly in the areas of infrastructure and development. Water and wastewater management is a critical aspect of any town's infrastructure. In small towns like Pittsboro, North Carolina, these systems can face various challenges. As populations grow and industries develop, the demand for water and wastewater services increases. This can strain existing water supply and treatment facilities, leading to capacity issues.

Background

In many cases, including ours, the infrastructure for water and wastewater treatment was built decades ago and wasn't designed to handle current population levels or industrial water needs. This leads to various problems, including water and wastewater capacity shortages, problems with water quality, and issues with wastewater treatment.

Wastewater capacity issues can be particularly problematic. Wastewater treatment plants remove harmful pollutants from water before it is discharged back into the environment. If these plants are over capacity, they may not be able to effectively treat all of the wastewater they receive. This can lead to the discharge of untreated or partially treated wastewater, which can harm local ecosystems and pose a risk to public health. As such, there are legal and regulatory limits on the amount of wastewater each treatment plant is able to receive, treat, and discharge. The Wastewater Treatment Plant for the Town of Pittsboro has been at capacity for some time.

Because the Town's Wastewater Treatment Plant is at capacity, the Town has been unable to allow growth or development outside of the area served by the Chatham Park Water Reclamation Center, meaning that growth and development outside of Chatham Park have not been possible.  The current customer base and water/wastewater rates cannot cover the costs of these improvements, so there is a substantial financial challenge for a town of Pittsboro's size and resources. In response to these factors, the town has implemented a series of moratoriums on certain types of development. These moratoriums have been designed to give the town time to plan for and manage its growth in a sustainable way.

Moratoriums

The town has implemented over 15 moratoriums or extensions of the moratoriums over the past 20+ years. These include moratoriums on new residential subdivisions, a moratorium on new commercial developments, and a moratorium on new industrial developments. Each of these moratoriums has been implemented for a specific reason and for a specific period of time. The impact of these moratoriums has been significant. On the one hand, they have allowed the town to take a step back and plan for its future growth in a more thoughtful and strategic way. On the other hand, they have also impacted the town's economy, particularly regarding new development and job creation.

As a result of these moratoriums and the capacity issues faced by the Town, discussions began in earnest in 2009 about upgrading existing or building new facilities to increase capacity. Some of these milestones include:

• 2009 - Discussions and Study on a Public/Private Partnership between the Town, Chatham County, and Private Developers to build a regional wastewater treatment center.
• 2011 - Discussed exploring a connection between the Town's Wastewater Treatment Plant and the City of Sanford to increase capacity.
• 2014 - The Town requested qualifications for firms to upgrade the Wastewater Treatment Plant and to provide a Preliminary Engineering Report on building a wastewater force main to Sanford.
• 2020 - The Town explored an Interlocal Agreement between the Town and the City of Sanford on a regional water and wastewater utility system.
• 2021 - The Town entered into an Interlocal Agreement between the Town, the City of Sanford, Chatham County, the Town of Holly Springs, and the Town of Fuquay-Varina to study, design, and complete the construction of an 18 Million Gallon / Day wastewater treatment facility upgrade in Sanford to meet the needs of all the partners.

Discussions with Sanford

As a result of the studies, it was determined that a merger of the Town's and City of Sanford's water and wastewater systems was an economically and operationally viable option. As such, staff and elected officials from the Town and the City of Sanford began meeting in January of 2023 to discuss how a merger would work and to discuss the Interlocal Agreement. Final revisions to the Draft Interlocal Agreement are being made. The Board of Commissioners will hold a public hearing and discussion on the proposed merger on Monday, June 26th, 2023.

NOTE - See the chart contained in the next Tab for a simple explanation of the benefits of merging.

Capital Costs for Improvements are Unachievable by the Town

The financial implications of the merger between the Town of Pittsboro and the City of Sanford are a crucial aspect of the decision-making process. The cost of maintaining and upgrading the current utility system in Pittsboro, in the face of rapid population growth and aging infrastructure, is a significant burden. The estimated expenditure for water and wastewater improvements alone stands at over $210 million over the next 20 years.

In contrast, the merger with Sanford presents a more economically viable path forward. Sanford, with its larger population and more extensive utility infrastructure, has a greater capacity to absorb and distribute these costs. The merger would allow for the sharing of operational and maintenance expenses across a larger customer base, reducing the per-customer cost. Furthermore, the combined utility system could achieve economies of scale in purchasing and contracting, leading to additional savings.

Basically, while the merger presents a significant undertaking, it also offers a path towards more sustainable and cost-effective water and sewer services for the Town of Pittsboro. The potential for long-term cost savings, combined with the benefits of shared resources and economies of scale, make the merger a financially sound decision. 

Water and Sewer Rates Will Reduce for Town of Pittsboro Customers

Due to increased costs in purchasing equipment, chemicals, and supplies used for water and wastewater treatment and infrastructure repairs and improvements, and the overall costs associated with expanding the water and wastewater utility to allow for new growth and development, the rates for Pittsboro's customers have increased dramatically over the past few years. For example, see the below chart showing how base and usage rates for water and sewer have increased for the average residential customer over just the past five fiscal years:

Sanford's current utility rates, in comparison, are much smaller than those of the Town of Pittsboro. For example, using the FY 22-23 water and wastewater rates, a hypothetical utility bill for a residential customer who uses 3,500 gallons/month and a commercial customer who uses 12,000 gallons/month in the Town and City would be as follows:

If the merger is approved and goes through, over time, the water and wastewater rates paid by those currently being served, or who would be served in the future, by the Pittsboro system would be reduced, until customers living in Sanford and Pittsboro are paying the same rate. This idea, also referred to as "Rate Parity," would become closer as time goes on. The steps towards rate parity would occur at each of the following milestones:

1. When Phase 1 Capital Improvements are operational and funded. Until then, rates can vary due to the difference in operating costs between Pittsboro's and Sanford's Water Treatment Plants. 
2. When the cost of repairing or upgrading the existing Pittsboro Utility System has been brought up to existing standards used by the City of Sanford.
3. When Sanford no longer has debt service attributable to Pittsboro’s capacity in Phase 1 and Phase 2 Capital Improvements.

Note - The City of Sanford will have the authority to set rates and system development fees, but will be required to consult with the Town of Pittsboro at least once per year and anytime before rates are raised.

Note - Information about the Phase 1 & 2 Capital Improvement projects is found in the next section.

What is Timeline for the Capital and Overall Projects?

The timeline for the merger between the Town of Pittsboro and the City of Sanford is a critical component of the overall plan. The process of merging two utility systems is complex and requires careful planning and coordination to ensure a smooth transition. The timeline for the merger needs to consider various factors, including the legal and regulatory requirements, the technical aspects of integrating the two systems, and the need for communication and engagement with stakeholders.

The discussions about the merger began in earnest in January 2023, with a series of workshops and meetings held to explore the feasibility and implications of the merger. These discussions have involved various stakeholders, including town officials, utility staff, and consultants. The goal of these discussions has been to gather input, address concerns, and develop a shared understanding of the merger and its benefits.

The next major milestone in the timeline is the adoption of the merger agreement by the governing boards of both municipalities. This is tentatively scheduled for July 24th, 2023, for the Town of Pittsboro and August 1st, 2023. The adoption of the agreement would represent a formal commitment by the Town to proceed with the merger.

Following the adoption of the agreement, the focus would shift to the transfer of assets from Pittsboro to Sanford. This would involve a detailed inventory and assessment of Pittsboro's water and sewer infrastructure, including pipes, pumps, treatment facilities, and other assets. The transfer of assets is expected to be completed by June 30, 2024. This gives ample time for a thorough and careful transition process, ensuring that all assets are properly accounted for and that any necessary upgrades or repairs are identified and addressed. The timeline for the merger also needs to consider the ongoing operation and maintenance of the utility systems during the transition period. It's crucial to ensure that the quality and reliability of water and sewer services are maintained throughout the merger process. This requires careful coordination and communication between the utility staff in both towns, as well as contingency planning for any potential issues or disruptions.

Finally, effective July 1st, 2024, all of the Town's equipment, staff, infrastructure, and facilities will belong to the City of Sanford, and all Pittsboro customers will become customers of the City of Sanford.

The various capital projects needed to maintain, improve, and expand the water and wastewater utility system are broken down into two phases.

Phase One (1):

• Completion of the wastewater force main between Pittsboro and Sanford (Q4 of 2025);
• Upgrades to the Sanford Water Treatment Plant (Q1 of 2027); and
• Completion of the water transmission line from Sanford to Pittsboro (Q4 of 2026).

Phase Two (2):

• Upgrades to the wastewater force main between Pittsboro and Sanford; and
• Expansion of the Sanford Wastewater Treatment Plant.

Note - Phase Two projects have not yet been scheduled.

Potential for Grant and Loan Funding

The potential for grant funding is a significant factor in the decision to merge the utility systems of the Town of Pittsboro and the City of Sanford. Grants can provide a valuable source of funding for infrastructure projects, helping to offset the costs and reduce the financial burden on the towns and their residents. The merger could potentially open up new opportunities for grant funding. 

As a larger entity, the merged utility system would be in a stronger position to compete for grants. The combined resources and capabilities of the two towns could make for more compelling grant applications, increasing the chances of success. There are various sources of grant funding that are only available to merged utility systems. These include federal and state grants for infrastructure projects, as well as grants from foundations and other organizations. The specific grants that could be pursued would depend on the needs and priorities of the merged utility system.

The Town has already identified a significant difference in potential grant and loan funding if we choose to merge with Sanford. If we do not merge, we have identified around $56 Million as available, with more than $110 Million being available if we are merged.

Quality of Water Sources and Treatment

Water quality is a critical factor in providing water and sewer services. Residents rely on the utility system to provide clean, safe water for drinking, cooking, bathing, and other uses. The quality of the water source is, therefore, a key consideration in the decision to merge the utility systems of the Town of Pittsboro and the City of Sanford.

The Town of Pittsboro currently relies on the Haw River as its water source. However, there have been concerns about the quality of this water source due to pollution and other environmental factors. The town has been grappling with issues such as high levels of 1,4-dioxane, a potentially carcinogenic compound, in its water supply. The costs and infrastructure needs to address these water quality issues pose a significant challenge for the Town and have been a major factor in the decision to consider a merger with Sanford. Examples of these costs include the installation and maintenance of the Granular Activated Carbon (GAC) system, planned future expansion of the GAC system, and future investments in advanced water filtration methods.

The City of Sanford, on the other hand, has a more diverse water supply, including the Cape Fear River. The merger would provide Pittsboro with access to this infrastructure, potentially improving the quality of its water supply.

Note - While the City of Sanford does not currently treat its water through GAC filters, they are expected to begin in Q1 of 2027. The water transmission line that will provide water from Sanford to Pittsboro is not expected to be complete until Q4 of 2026, meaning that Pittsboro customers will continue to have their water treated with the GAC system in place at our water treatment plant.

How will the Merger increase our Water and Sewer Capacity?

The capacity of the water and sewer systems is a major factor in the decision to merge the utility systems of the Town of Pittsboro and the City of Sanford. Capacity refers to the ability of the utility system to meet the demand for water and sewer services. This includes not only the physical capacity of the infrastructure, such as the size and capacity of pipes and treatment facilities but also the operational capacity, such as the ability to manage and maintain the system.

The Town of Pittsboro has been facing capacity issues with its water and sewer systems due to its rapid growth. The Town's population is expected to grow by more than 1,000% over the next two decades, putting significant pressure on the utility system. The current system, while functional, is not equipped to handle this level of growth. The City of Sanford, on the other hand, has a larger and more robust utility system, with greater capacity to handle growth. Sanford's utility system serves a larger population and has been designed and built to accommodate growth. The merger would provide Pittsboro with access to this larger and more robust system, significantly increasing its capacity. However, increasing capacity is not just about adding more pipes or building larger treatment facilities. It also involves improving the efficiency and effectiveness of the system, such as by reducing water loss, improving the management and maintenance of the infrastructure, and implementing advanced technologies and practices.

As such, the merger with Sanford could significantly increase the capacity of Pittsboro's water and sewer systems, helping to meet the current and future demands of its growing population. However, increasing capacity is a complex and ongoing task, requiring continued investment, innovation, and management. The Town of Pittsboro and the City of Sanford will need to continue to work together to ensure that the merged utility system has the capacity to provide reliable and high-quality water and sewer services to all residents.

How Will the Merger Impact Our Growth and Development In and Near the Town?

Currently, the Town of Pittsboro has no capacity to grow, either through new development or redevelopment, in any area outside of Chatham Park. If the utility systems are merged between Pittsboro and Sanford, it will be possible to resume new development and redevelopment of existing properties within the Town. 

While the City of Sanford will have full control of the improvements and expansion of the water and wastewater system if the merger is approved, they will be required to improve and expand the utility system within the Town of Pittsboro to the capacity that is gained from the five capital projects. Following these improvements and expansions, the City of Sanford will be required to continue to improve and expand our system at a reasonable growth rate following the same growth rate utilized within the City.

Comparing Options - No Merge vs. Merge

General

1. How will the merger impact future infrastructure upgrades?
   1. The merger will make the overall utility system larger, meaning there are more resources for future infrastructure upgrades. For instance, instead of each town separately replacing aging pipes or pumps, the single system will improve financial efficiency, achieving cost savings and minimizing disruptions to service. Future utility system upgrades will be prioritized across the entire system and not individually, giving improvements in Pittsboro equal weight. 
2. How will the merger affect the environmental sustainability of our utilities?
   1. The merger will enhance our shared environmental sustainability. For instance, by consolidating our water and wastewater treatment facilities, we could reduce energy use and greenhouse gas emissions.
3. How long will the merger process take?
   1. The merger process is complex, and will take time to ensure it is done correctly. On our current track, the merger agreement (if approved) will be August 1, 2023. The Town and City will then have until June 2024 to complete the merger.

Finances

1. Q: Will the merger result in higher utility bills?
   1. No. The goal of the merger is to reduce costs through economies of scale. For example, instead of both towns maintaining separate water treatment facilities, a single, larger facility could serve both towns, reducing overall costs and lowering utility bills in the long run.
2. Q: Will the merger lead to any changes in our water or wastewater rates?
   1. Yes, rate parity will be achieved incrementally over a period of several years. Rates for consumers will experience a general decrease over this incremental period while system development fees may be adjusted higher to pay down the high capital cost of the planned projects. The goal of the merger is to achieve cost savings, which could potentially stabilize or even reduce rates in the long run. For example, by consolidating our water treatment facilities, we could reduce operational costs and pass these savings on to residents through lower rates.
3. Will the merger lead to any changes in our billing cycle?
   1. Any changes to the billing cycle will be communicated well in advance.
4. Will there be job losses because of the merger?
   1. No, the merger will not result in job losses. Every Pittsboro utility worker who wants a job with the City of Sanford will be offered one. Employees who go to work for Sanford will start employment with all their accrued leave and longevity.
5. Are there any upfront costs of the merger, and how will they be financed?
   1. There are no direct upfront costs to the Town for this merger. The Town has, and will continue, to pay for our portion of any studies and a specialized lawyer handling the legal side of the merger. We will also pay off any remaining debt prior to transferring utility revenues to Sanford.
6. What will happen if the merger does not go through?
   1. If the merger does not go through, we will continue to operate our utilities independently. However, we may miss out on the potential benefits of consolidation, such as cost savings, improved service reliability, and enhanced environmental sustainability. Utility rates will increase annually and potentially be accelerated to pay for needed capital improvements.
7. Q: What options does Pittsboro have if there is an issue with the utility rates charged by Sanford?
   1. The City of Sanford has agreed to consult with the Town about rates at least annually, and before any increase in rates, fees, penalties, or charges. During that consultation period, the Town of Pittsboro will have the option to pay the City of Sanford any costs associated with capital improvements, maintenance, operations, or other utility needs that would otherwise require an increase to rates, charges, and fees.
8. How will the merger affect Chapel Ridge/Aqua NC? Will their water rates go down?
   1. The Town currently sells water at a bulk rate to Chapel Ridge’s utility provider, Aqua NC. The consumer rate for Chapel Ridge is subsequently set by Aqua. The proposed merger agreement maintains the bulk water sales contract with Aqua. The Town has no control over the rates charged by Aqua; therefore, no changes or impacts can be predicted by the Town.

Water Quality

1. Will the quality of our water and wastewater services be affected?
   1. The merger aims to improve service reliability and quality. For instance, with a larger, unified system, the City of     Sanford would have more resources to invest in state-of-the-art water treatment technologies, ensuring the continued safety and quality of your drinking water.
2. Will the merger result in any changes to our water or wastewater regulations?
   1. Any changes to regulations will be made in accordance with state and federal laws. For example, if new federal regulations are introduced for wastewater treatment, we would update our processes accordingly and communicate these changes to the public.
3. Will the merger lead to any changes in our water or wastewater testing procedures?
   1. Any changes to testing procedures will be made in accordance with state and federal regulations. For example, if new testing methods are developed that can detect more types of contaminants in drinking water, we would update our procedures to include these tests, ensuring the continued safety and quality of our water.
4. Isn't the water intake for the City of Sanford downstream from their wastewater discharge?
   1. Yes. The water intake for the City is approximately 15 miles downstream from the wastewater discharge. The Town has verified that the City's water and wastewater plants have active, valid operating permits and that any wastewater discharged or water going into the treatment plant meets all applicable state and federal standards for water quality.
5. Does the water source for the City of Sanford have a lower/worse water quality than the Town's?
   1. No. For an analysis of raw water sources for each system, please review file 2023 07 13 Merger Work Session Presentation (Raw Water Analysis).

System Ownership and Management

1. How will the merger affect our local control over utilities?
   1. While the City of Sanford will own and control the utility system, the Town of Pittsboro will continue to have a say in decisions that affect our community. For example, Sanford will be required to consult with our Board of Commissioners before any changes in utility rates and at least once a year.
2. Will the merger lead to differences in quality between Pittsboro and Sanford?
   1. No. The goal of the merger is to ensure equitable access to high-quality water and wastewater services for all residents in both municipalities. Because the merged system will be owned and operated as a single unit, the same standards for water and sewer in Sanford will be met in Pittsboro.
3. Q: Will the merger affect the taste or quality of our drinking water?
   1. No, the merger should not affect the taste or quality of your drinking water. The City of Sanford is held to the same standards for water quality, which meet or exceed all state and federal water quality standards.
4. Are there any separation provisions in the agreement, or will the City of Sanford own the utility perpetually?
   1. No. Once the agreement has been executed, the agreement is perpetual.

Operations

1. How will the merger affect our wastewater treatment capacity?
   1. The merger will enhance our wastewater treatment capacity. For instance, by consolidating our wastewater treatment facilities, we could handle larger volumes of wastewater, ensuring that we can meet the needs of our growing population.
2. How will the merger affect our ability to meet future water or wastewater needs?
   1. The merger should enhance our ability to meet future needs. For instance, with a larger, unified system, we could take a more strategic, long-term approach to planning and investment, ensuring that we have the infrastructure and resources to meet the water and wastewater needs of our growing population.
3. How will the merger affect our response to utility emergencies?
   1. With a larger, unified system, there will be more resources to respond to emergencies. For example, if there's a water main break in Pittsboro, the increased personnel and equipment from Sanford will be able to respond more quickly and effectively.
4. Will the merger result in any changes to our water or wastewater infrastructure?
   1. The merger may result in some changes to infrastructure as we integrate the two systems, but these changes are intended to enhance efficiency and service quality. For example, we might upgrade some pipes or pumps to ensure they can handle the increased volume of water or wastewater from the combined service area.
5. Will there be any changes to our billing or customer service processes?
   1. Any changes to billing or customer service will be communicated well in advance. Because Sanford will own the Utility, current water customers will become customers of Sanford. You will still be able to pay your bill in person in Pittsboro or online.
6. Will there be any interruptions to our water or wastewater services during the merger process?
   1. No. There will be no interruptions in water or sewer services.
7. Q: Will there be a single line to Pittsboro from Sanford's Water Treatment Plant, or will there be redundancies?
   1. Initially, only a single line will be installed, and additional or redundant connections may be installed in the future to meet needs. The City of Sanford will also have the option of continuing to operate our existing water treatment plant on the Haw River as an additional water source.

Keeping You Informed

1. How will the public be kept informed about the merger process?
   1. We are committed to transparency and will keep the public informed through regular updates on our website, public meetings, and opportunities for feedback. For example, we might hold town hall meetings or provide online forums where residents can ask questions and express their views.
2. How can residents provide feedback on the merger?
   1. We welcome feedback from residents and will provide multiple avenues for public input. For instance, we will hold public meetings and provide an online platform where residents can submit questions.