In-city, out-of-city water rates at heart of debate

Hank Hayes • Jun 22, 2013 at 7:21 PM

PINEY FLATS — Should rural water customers be forced to pay twice the amount city residents pay for water service?

That question is at the heart of a contentious issue debated this year by unincorporated Piney Flats residents and the city of Johnson City.

The Tennessee Advisory Commission on Intergovernmental Relations (TACIR) has been directed by state lawmakers to help figure out what to do about the matter.

A water customer living in the Piney Flats area outside Johnson City pays about $40 a month for using an average of 5,000 gallons, while the city resident pays $20, according to the state’s Fiscal Review Office.

In contrast, Kingsport charges its out-of-city water customers more than twice the city rate. City water customers pay nearly $15.50 a month for using an average of 5,000 gallons compared to out-of-city customers paying a little more than $43, according to Kingsport Public Works Director Ryan McReynolds.

“Kingsport has a very low in-city water rate,” McReynolds explained. “The intention of the municipality’s water system was to support business and residences within the city. ... Our out-of-city rates are comparable to the (rural) utility districts.”

But Johnson City native Thomas Hubbard II, who lives in the Piney Flats area, has taken exception to paying twice the city rate for water.

“I was completely thrown back,” Hubbard said of Johnson City’s outside water rate structure.

Hubbard initially thought he had a water leak. He didn’t and what he perceived as high water bills kept coming.

He then visited the Johnson City water department and discovered he was being charged a “100 percent markup” for what he calls “the most abundant resource on earth.”

Hubbard called Johnson City’s rate structure “a rape and pillage process” to induce unincorporated residents to request annexation.

He sought recourse with freshman state Rep. Timothy Hill, R-Blountville, who filed legislation capping Johnson City’s outside water rate at a 50 percent increase of the rate charged to city customers.

The bill, which Hill said involved about 475 water taps, met Johnson City’s opposition head on in a House Local Government Committee meeting last March.

Committee lawmakers saw the legislation would cost Johnson City close to a half-million dollars in uncollected revenue.

“Is this going to cause a tax increase to anybody?” state Rep. Sherry Jones, D-Nashville, asked Hill.

“I can’t answer that,” Hill responded. “...The intent is to provide some rate relief for the folks receiving both of these (water and sewer) services from the municipality.”

City Manager Pete Peterson then testified Johnson City has taken over rural utility districts in past decades by request and assumed their liabilities.

“The main reason they asked us to come in was they were not financially viable to have an operation, their capital needs exceeded revenues, and (people) were having challenges with finding good drinking water sources,” Peterson told the committee. “When we issue debt for our water and sewer services, we issue double barrel bonds, primarily revenue bonds. ... If our revenues become insufficient to support our operating (cost) and debt in the water system, we will be forced per the bond covenants to raise property taxes on city residents to ensure the entire system remains functional and financially solvent.”

Peterson noted that if outside water customers paid only half again as much as the city rate, the negative annual financial impact would be about $1.8 million.

The city manager called the double rate “a very common practice” and challenged Hill’s assertion that his 3rd House District has no Johnson City residents.

“With all due respect, you do represent 300 Johnson Citians who live in Sullivan County,” Peterson told Hill.

Peterson also pointed out Johnson City extends utilities to help with economic development.

Hubbard, however, stressed Johnson City has strip annexed in the Piney Flats area to take in retail businesses and hasn’t reinvested that tax revenue in the community.

“That’s not fair to people living a block over the city line,” Hubbard insisted.

Hubbard also took issue with a perception Hill is catering to GOP campaign donor Joseph Gregory, a former King Pharmaceuticals executive and anti-annexation advocate who lives in the Piney Flats area.

“I never met the man until after he was elected. ... I never gave his campaign a dime,” Hubbard said of Hill. “All the allegations that Mr. Hill has millionaires behind him on this bill is absolutely ridiculous.”

Hill reminded the committee he took up the legislation because residents felt gouged.

The legislation did not pass but was referred by the committee to TACIR for a study. The bill’s Senate sponsor made no move to advance it.

Hill’s brother, Jonesborough GOP state Rep. Matthew Hill, chairs the House Local Government Committee and his 7th House District includes much of Johnson City.

Before the motion to send the bill to TACIR, Matthew Hill told his brother: “I love ya, but I’m not going to be able to vote for your legislation.”

For more, go to www.capitol.tn.gov. The bill’s number is HB 600.

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