THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Sunday, June 25, 1995 TAG: 9506250157
SECTION: LOCAL PAGE: B1 EDITION: FINAL
SOURCE: BY KAREN WEINTRAUB, STAFF WRITER
LENGTH: Long : 168 lines
It seems like a simple question: how will the latest Lake Gaston deal affect the pocketbooks of South Hampton Roads' taxpayers.
But the answer, like most of the other aspects of the pipeline saga is filled with wrong turns, contradictions and political spins.
The simplest explanation is that no one really knows how much Virginia Beach taxpayers will have to hand over for the privilege of watering their lawns and washing their cars; or how much such a deal would cost or benefit Norfolk residents who could lose their best water customer if the pipeline is built; or how much Suffolk, Portsmouth and Chesapeake residents would be affected.
A ``who knows?'' response isn't very satisfying, though. With all the money spent to get this pipeline into the ground, it's pretty hard to believe no one is sure how much it will cost.
Part of the problem is that the price of everything keeps changing.
Estimates of the construction cost of the pipeline have fluctuated over time, from a high of $219 million to the current $142 million, because of changes to the project and a drop in construction costs.
``It could go up,'' warned Clarence Warnstaff, director of public utilities for Virginia Beach, should construction costs rise again.
And figures don't include the $100 million Beach residents will have to pay over the next three decades to expand Norfolk's water system to handle Gaston water.
Beach water users already have contributed about $90 million to construction costs through increased rates over the last few years, Warnstaff said.
The fast pace of negotiations between Virginia Beach, Norfolk, North Carolina and Southside Virginia over the last two months has changed the formulas weekly, daily and sometimes hourly.
A few weeks ago, when Norfolk and Virginia Beach were haggling over the value of Norfolk's surplus, Beach residents could have ended up paying several million more a year for the next 35 years - or another $43 a year per household initially. Norfolk residents would have been the beneficiaries of those payments, which would have helped subsidize their city's budget.
Under the latest proposal, which is still being finalized and awaits legislative approval, Virginia Beach residents actually could see their water rates drop when the pipeline comes on line in three years. Norfolk residents, on the other hand, likely would have to pay higher taxes, at least in the short run, because their city no longer might be able to sell all its surplus at the current price.
The rates are intertwined because Virginia Beach has never had a water source of its own. It has always relied entirely on Norfolk for its water and will continue to need Norfolk to process every drop when it gets access to Lake Gaston.
Norfolk also relies on selling water, because it generates $7.2 million for the city budget. To Norfolk, which lost its ability to grow when surrounded by the new cities of Virginia Beach and Chesapeake, water always has been a source of power and much-needed revenue.
Virginia Beach water customers provide about 40 percent of that revenue - or about $2.9 million per year - with the rest generated from Norfolk, the Navy and Chesapeake. To raise the Virginia Beach water money from property taxes instead, for instance, would require a 4-cent real estate tax rate hike.
Norfolk City Manager James B. Oliver Jr. said he isn't worried. Chesapeake has been trying to get more Norfolk water for years, Oliver said, and there are other potential customers who could pick up some of the remaining surplus. The Beach could continue to be a customer as well, Oliver said.
``We have always been fully prepared to handle the day that Gaston water flows,'' Oliver said. ``And we have to face whatever choice the Beach would make - if their choice would be to take zero gallons (from us), we have been prepared to handle that.''
Seven years ago, the two cities began negotiating a long-term contract to address their interdependency. After 4 1/2 years of work, they reached a complicated 500-page compromise that placed a price on the drinking water Beach residents need to survive and the revenue Norfolk residents need to keep their taxes under control.
At the time, all of Norfolk's surplus was locked up by Virginia Beach - which limited Norfolk's flexibility - and rates were set by Norfolk - which upset Virginia Beach.
The hard-won sales agreement met everyone's needs and seemed to resolve forever the cities' differences over water. It worked for a few years, but the compromise and the goodwill unraveled this spring over a settlement mediated between Virginia Beach and North Carolina over Lake Gaston water.
North Carolina agreed to let Virginia Beach take the water it wanted from Lake Gaston, but only if certain conditions were met, including a requirement that Norfolk agree not to sell its surplus water to the Peninsula or Eastern Shore and that Virginia Beach pursue a regional water authority.
North Carolina's argument was that South Hampton Roads has all or most of the water it now needs, if it only shared it more equitably. Carolina officials didn't want Virginia Beach to take water from their state only to leave Norfolk with a huge surplus to sell somewhere else.
The settlement infuriated Norfolk officials because it changed the dynamics both cities had accepted years before.
Last week, North Carolina agreed to drop the restrictions on Norfolk, in exchange for a 10-cent surcharge on every 1,000 gallons of Gaston water to be divided equally between residents on either side of the state border near the lake. Carolina also demanded that Virginia Beach be required to buy Norfolk water instead of drawing from Lake Gaston if Norfolk's is available at a comparable or lower price.
Norfolk Mayor Paul D. Fraim said Wednesday that, although some details still need to be worked out, the new compromise is acceptable to his city.
``We are comfortable with the status of the negotiations that have been ongoing in Richmond,'' he said. ``We think great progress has been made. Most all of the issues that concern Norfolk have been resolved. The only caveat I have is that this isn't in final draft yet.''
It's this latest language that could give substantial savings to Beach residents and force Norfolk's to make up a shortfall.
To understand how, requires an examination of that 1992 contract for water between Norfolk and Virginia Beach.
The agreement had two components: 1) a long-term plan to share the cost of treating the water needed by the two cities, and 2) a short-term deal to benefit Norfolk's coffers until the Gaston dispute was resolved. Virginia Beach agreed to pay for the cost of treating and delivering water to its city line - which accounts for about $1.74 per 1,000 gallons of water used for the average water bill payer. The Beach also agreed to pay Norfolk a premium of between 48-cents and 60-cents per 1,000 gallons for purchasing the raw water.
Recent quarrels between Norfolk and Virginia Beach have focused on the value of Norfolk's surplus water.
Under the current interstate compromise, Norfolk's water would be worth far less - at least to Virginia Beach residents - than the 56-cent price established by the sales contract for this year.
When the pipeline is completed, Virginia Beach will be able to pump water the 76 miles from the lake to Norfolk's reservoirs in Isle of Wight County for about 9 cents per 1,000 gallons, according to Beach officials.
When the 10-cent surcharge to be paid to the areas around the lake is added, the actual cost for drawing and pumping each 1,000 gallons from Gaston becomes 19 cents.
Norfolk's director of Public Utilities, Louis Guy, would not talk this week about how a source of water that appears to be nearly 2/3 cheaper than Norfolk's would affect Norfolk residents.
``What you're talking about is what Norfolk is willing to sell and what Virginia Beach is willing to pay, and we have not yet reached agreement on that,'' Guy said Thursday.
Norfolk would be able to sell its water to other thirsty cities in the region, Guy emphasized, and there is no requirement that Norfolk sell to Virginia Beach at any price.
But, Virginia Beach is the only city in the region that needs anywhere near the amount Norfolk has to sell. And Chesapeake, which needs water to cope with growth, is also a partner in the Lake Gaston deal and would be able to buy its water for the same price as Virginia Beach.
So basic economics would suggest that Norfolk would not be able to continue to get 60-cents per 1,000 gallons, at least in the short-term, if Virginia Beach and Chesapeake are buying it for 19 cents per 1,000 gallons.
The agreement, however, limits how much water Hampton Roads can take from Lake Gaston to 60 million gallons a day, so if Virginia Beach outgrows that amount, as is projected to happen around 2010, it's likely to be shopping for Norfolk's water again.
Guy said he believes the real cost to the Beach for Gaston water would be much higher than 19 cents, and he predicted the compromise actually could increase the value of Norfolk's water.
But he declined to say how.
Beach officials said they are pleased with the compromise, although they would not discuss it in detail until finalized.
Warnstaff, the Beach's director of utilities, said he had always predicted that residents' water rates would drop when the pipeline was completed.
How much is unclear, he said, because the savings would depend on Norfolk's water charge and the relative amounts of Norfolk and Gaston water consumed.
``All of this is in a state of flux,'' Warnstaff said. ILLUSTRATION: Graphic
VIRGINIA BEACH WATER RATES
SOURCE: Staff research
[For complete graphic, please see microfilm]
KEYWORDS: WATER SUPPLY PLAN LAKE GASTON by CNB