Interactive Tool to Craft and Draft Interlocal Agreements for Water & Wastewater Services
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By Dr. Ahmed Rachid El-Khattabi, Director, SOG Environmental Finance Center
Water and wastewater systems across North Carolina face several significant challenges that complicate their ability to deliver safe, reliable, and affordable services to their customer base. These challenges range from underinvestment in infrastructure to the impacts of severe weather events such as flooding, hurricanes, and droughts. Further complicating matters, shifts in population—whether growth or decline—as well as changes in business activity (i.e., loss of industrial customers), can significantly affect a system’s capacity and long-term financial sustainability.
The consolidation (or regionalization) of water and wastewater systems has increasingly been viewed as a viable solution to many of these issues. I use the term “consolidation” here in a broad sense to capture a variety of arrangements, from full-scale mergers to partnership agreements that involve resource sharing and joint service provision. Proponents of consolidation argue that these arrangements can yield benefits such as economies of scale, cost savings, improved regulatory compliance, and enhanced service quality.
Reflecting this trend, the U.S. Environmental Protection Agency (EPA) passed the Water System Restructuring Assessment Rule in May 2024. This rule provides “a framework for states, public water systems, and the communities they serve to evaluate options for restructuring to help ensure safe, reliable drinking water.” As local governments and systems seek ways to improve operations and work towards financial sustainability, a likely outcome of this rule is an increase in the number of consolidated systems across the country.
In North Carolina, interlocal agreements (ILAs) are the most common tool used to formalize partnerships for water and wastewater service provision. These agreements enable multiple local government units to work together by sharing responsibilities, infrastructure, or expertise, often without the need for a full merger.
In practice, however, ILAs lack clear terms and fail to address key issues that may emerge during the partnership. This can result in misunderstandings, inefficiencies, or even disputes. Often, the problem stems from limited experience—local government officials may not be familiar with the essential components of a strong agreement. Other contributing factors include time pressures, difficulty anticipating future scenarios, and the lack of standardized templates or guidance.
Given the complexity of these arrangements, the UNC School of Government’s Environmental Finance Center (EFC) has developed a variety of resources to support local systems in North Carolina in drafting robust, sustainable agreements. These resources offer practical guidance on key considerations to include, with the goal of minimizing uncertainty and conflict in the future.
Most recently, the EFC launched the Considerations for Drafting Interlocal Agreements resource, an interactive tool to help local governments navigate the process of drafting an ILA. This tool is designed to prompt thoughtful discussions by allowing users to select from a menu of typical water and sewer service arrangements within provider-recipient relationships. Based on these selections, the tool generates a tailored list of questions that should be considered during agreement negotiations.
The questions included in the tool reflect common sticking points that have arisen in previous agreements among local governments in North Carolina. While these questions provide a useful starting point, it is important to note that the tool is not intended to offer an exhaustive list of all relevant considerations. Due to the complexity of utility service provision, many critical aspects of interlocal coordination may fall outside the scope of the tool and therefore not included.
As such, any ILA should be carefully drafted and reviewed by legal counsel. Use of the EFC tool does not replace the need for legal advice. Instead, it should be viewed as a resource to help local officials think through the various dimensions of collaboration and facilitate productive regional conversations. The specifics of any ILA should be clearly identified and thoroughly discussed as part of a broader regional strategy to form—or revise—sustainable, legally sound partnerships.