Currituck County is considering setting up a water and sewer district or authority under Chapter 162A so that its water lines on US 168 right-of-way will qualify for the G.S. 136-27.1 exemption that requires the NC Department of Transportation to pay relocation costs (instead of the county paying $1.2 to $2 million). When must the new district or authority actually be in existence to qualify? And does the 1987 encroachment agreement (which said the County pays relocation costs) override the statutory exemption?
Plain-English summary
Currituck County Manager William S. Richardson asked the AG two questions tied to a major DOT widening project on US 168. The Department of Transportation intended to let contracts in 1995 to widen the highway, and about 18.5 miles of county-owned water transmission lines would need to be relocated to make room. A 1987 right-of-way encroachment agreement between the Department and Currituck said the County would bear relocation costs. The estimated cost was $1.2 to $2 million.
G.S. § 136-27.1 carves out an exemption from the general default that utility owners pay to relocate their own facilities on state highway right-of-way. Under the exemption, the Department of Transportation pays the "nonbetterment cost" for relocation of water and sewer lines within existing state highway right-of-way when the lines are owned by:
(i) a municipality with a population of 5,500 or less according to the latest decennial census;
(ii) a nonprofit water or sewer association or corporation; or
(iii) any water or sewer system organized pursuant to Chapter 162A of the General Statutes.
Currituck did not fit category (i) because its population exceeded the cap; it did not fit category (ii) because it was not a nonprofit association; and it did not fit category (iii) yet because the County (not a Chapter 162A authority) was the owner of the water system. The County was contemplating creating a Chapter 162A water and sewer district or authority to take ownership and operations of the county water system. Question one was about timing: when must the new authority exist to qualify for the § 136-27.1 exemption?
Special Deputy AG Grayson G. Kelley, signing for Attorney General Michael F. Easley, said: on the date the Department of Transportation lets the contract for the highway improvement project. The reasoning was textual. The statutory exemption was enacted in 1984 (Chapter 1090, 1983 Sess. Laws, Reg. Sess. 1984) and amended in 1985 (Chapter 479) and 1986 (Chapter 1018). Each time the General Assembly specified the effective date, it tied the application of the exemption to projects "let to contract" after a particular date. That consistent legislative phrasing supplied the moment-in-time test for the substantive exemption as well: the qualifying entity must own the lines on the date DOT lets the contract.
Question two was about contracting around the statute. The 1987 encroachment agreement said the County (which would still be the entity contracting with DOT, even if it later created an authority) would bear relocation costs. The AG concluded the specific statutory exemption supersedes any conflicting provision of the agreement. The encroachment agreement could not enforce a cost allocation that the statute reassigned to DOT.
The AG closed with an important guardrail: the opinion expressly assumed the new authority would be a bona fide entity created for purposes unrelated to the relocation cost shift. The opinion did not address whether it would be proper to create an authority solely to flip the cost burden to the Department of Transportation. That open question signals that a court (or DOT) could potentially challenge an authority that looked like a sham created only to capture the exemption.
Currency note
This opinion was issued in 1994. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.
The text of G.S. § 136-27.1 and the structural setup of Chapter 162A water and sewer authorities have been amended over the years. The "let to contract" trigger remains a recognizable concept in DOT contract administration. Any current question about who pays for a particular utility relocation on state highway right-of-way should be checked against the current version of G.S. § 136-27.1 (including population thresholds, which may have been adjusted), Chapter 162A as currently in force, and any later AG opinions or court decisions on bona fide entity formation. The bona-fide-entity caveat in the 1994 opinion is unresolved as a matter of NC case law as far as the opinion indicates.
Common questions
Q: What does "nonbetterment cost" mean?
A: The portion of the relocation cost that puts the utility back to substantially the same condition it was in before relocation. If a utility owner uses a relocation as an opportunity to upgrade pipe size, add capacity, or otherwise improve the facility (a "betterment"), the upgrade cost is on the utility owner. The "nonbetterment" portion (essentially the like-for-like replacement) is what the statute shifts to DOT under § 136-27.1.
Q: Why does the population cap of 5,500 exist for municipalities?
A: It targets the exemption to small jurisdictions least able to absorb a sudden relocation bill from a state highway project. Larger municipalities and counties were expected to handle relocation costs from their existing utility revenues; small towns and certain ownership structures (nonprofits, authorities) get the cost shift to keep state highway widening from imposing on small budgets.
Q: What is a Chapter 162A water and sewer authority?
A: A separate public-body entity created by one or more local governments to own and operate water or sewer systems. Chapter 162A provides the structural framework: members are appointed by participating local governments, the authority has independent borrowing and revenue powers, and the authority can own and operate water/sewer infrastructure separately from the participating local governments' general operations. Many NC counties and groups of cities use Chapter 162A authorities to handle water and sewer service regionally.
Q: Why does the encroachment agreement not control?
A: Because a statute supersedes inconsistent contractual provisions. The 1987 agreement reflected the then-existing default cost allocation; G.S. § 136-27.1 (and its later amendments) reassigned that allocation by statute. When the statute and the agreement disagree, the statute wins. The AG signals that DOT cannot enforce the encroachment agreement's cost-shifting clauses where the statute has reassigned the cost to DOT.
Q: What was the AG hinting at with the "bona fide" caveat?
A: That if Currituck created a Chapter 162A authority on paper, did not actually transfer real ownership and operational responsibility, and used the formality only to capture the exemption, a court or DOT could potentially treat that as an evasion. The AG did not analyze the question or commit to a position. The signal is best read as a flag for project planners: build the authority for real operational reasons, then claim the exemption, rather than the reverse.
Q: What is the "let to contract" date in DOT practice?
A: The point at which the Department awards the construction contract to the winning bidder for a highway improvement project. It is a discrete, dated event in DOT's contracting process, which is why the General Assembly used it as the trigger for the exemption and the AG used it as the moment-in-time test for ownership status.
Background and statutory framework
NC's general rule for utility relocations on state highway right-of-way is that the utility owner pays the cost of moving the utility out of the way. That rule rests on the long-standing principle that a utility occupying public right-of-way does so subject to the public's continuing need to use that right-of-way. G.S. § 136-27.1 carves out a narrow exemption for certain politically and fiscally vulnerable utility owners (small municipalities, nonprofits, Chapter 162A authorities).
The 1984, 1985, and 1986 amendments to the exemption show the General Assembly working to fine-tune the boundary between general utility-pays rule and statutory DOT-pays exemption. The consistent use of "let to contract" as the trigger reflects DOT contracting practice: it is the moment when DOT's actual cost obligations crystallize and the cost-allocation issue becomes concrete.
The 1994 opinion is a useful primer on statutory effective-date phrasing and on the interplay between statute and prior contract. Local governments structuring water/sewer ownership decisions in the face of an upcoming state highway project can use the "let to contract" benchmark to plan, but should also pay attention to the bona-fide-entity caveat: the structuring should have legitimate operational purposes beyond cost-shifting.
Citations
- G.S. § 136-27.1 (Department of Transportation pays nonbetterment cost for relocation of water/sewer lines within existing state highway right-of-way for small municipalities, nonprofit water/sewer associations, and Chapter 162A authorities)
- Chapter 162A of the General Statutes (water and sewer authorities)
- 1983 Sess. Laws, ch. 1090 (Reg. Sess. 1984) (original enactment of exemption; "let to contract" trigger)
- 1985 Sess. Laws, ch. 479, § 186(b) (amendment; "let to contract after July 1, 1985")
- 1985 Sess. Laws, ch. 1018, § 11(b) (Reg. Sess. 1986) (amendment; "let to contract on or after June 1, 1986")
Source
Original opinion text
FORMAL OPINION
DATE: 21 June 1994
Subject: Highways; Counties; Water and Sewer Associations; G.S. 136-27.1
Requested by: William S. Richardson, Currituck County Manager
Questions:
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Under G.S. 136-27.1, at what point in time must a water or sewer system organized pursuant to Chapter 162A be in existence to qualify for an exemption from the requirement that water and sewer lines on state highway right of way be relocated at local expense?
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Is the conclusion in question 1 affected by the existence of an encroachment agreement under which the county agreed to pay all relocation costs?
Conclusions:
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On the date the Department of Transportation lets a contract for the highway improvement project.
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No
The North Carolina Department of Transportation intends to let contracts in 1995 to widen US 168 in Currituck County. In connection with this widening project, approximately 18.5 miles of county-owned water transmission lines will require relocation. Under the terms of a 1987 right of way encroachment agreement between the Department and Currituck County, the County is responsible for the costs of relocating water transmission lines on highway right of way as required in connection with improvement projects.
G.S. 136-27.1 states:
The Department of Transportation shall pay the nonbetterment cost for the relocation of water and sewer lines, located within the existing State highway right-of-way, that are necessary to be relocated for a State highway improvement project and that are owned by: (i) a municipality with a population of 5,500 or less according to the latest decennial census; (ii) a nonprofit water or sewer association or corporation; or (iii) any water or sewer system organized pursuant to Chapter 162A of the General Statutes.
The water transmission lines along US 168 do not currently qualify for the exemption in G.S. 136-27.1, inasmuch as Currituck County is not a municipality with a population of 5,500 or less. Nor is it a water or sewer association, corporation or system organized pursuant to Chapter 162A responsible for ownership and operation of the county water system.
You indicate the County is contemplating the establishment of a water and sewer district or authority for purposes of ownership and operation of the county water and sewer systems. Your first question is at what point in time must the new water and sewer district or authority be in existence in order to qualify for the exemption in G.S. 136-27.1.
The statutory exemption was enacted pursuant to Chapter 1090 of the 1983 Session Laws (Reg. Sess., 1984). Section 2 of Chapter 1090 states:
This act shall apply to State highway improvement projects let to contract after the effective date of this act.
This provision was subsequently amended by Chapter 479 of the 1985 Session Laws. Section 186(b) of Chapter 479 states:
This section applies only to State highway improvement projects let to contract after July 1, 1985.
Chapter 1018, Section 11, of the 1985 Session Laws (Reg. Sess., 1986), further amended the statutory provision and stated, in Section 11(b):
This section shall become effective June 1, 1986, and applies only to State highway improvement projects let to contract on or after that date.
The General Assembly therefore used the phrase "let to contract" in each version of the legislation when specifying the effective date of the exemption.
In view of the legislative reliance on the phrase "let to contract" and the absence of other specific guidance as to the application of the exemption, it is our opinion that this phrase should be relied upon in this case in determining the point in time when a water or sewer association, corporation or system must be in existence to qualify for the exemption. As such, if the water transmission lines along US 168 are owned by an association, corporation or system specified under G.S. 136-27.1 on the date the Department lets a contract for the highway improvement project, it will be the responsibility of the Department to pay for the nonbetterment cost of relocating the water transmission lines.
Your second question is whether the existence of the right of way encroachment agreement executed by the Department and Currituck County affects the application of the G.S. 136-27.1 exemption. It is our opinion that the specific exemption contained in the statute supersedes any conflicting provision of the agreement and would not be enforceable.
The utility relocation costs involved in this project are estimated to be between 1.2 and 2 million dollars. The General Assembly did not provide an exemption under G.S. 136-27.1 for counties as it did for municipalities under 5500 population, except for those counties that operate their water or sewer facilities through authorities or districts set up pursuant to G.S. 162A. This opinion assumes a bona fide authority or district will be established pursuant to G.S. 162A for purposes unrelated to the costs of relocating the water transmission lines in question. The opinion does not address the propriety of establishing an authority or district solely for the purpose of transferring the burden of relocation costs to the Department of Transportation.
Michael F. Easley
Attorney General
Grayson G. Kelley
Special Deputy Attorney General