July 17, 2016
Ms. Patricia Randolph
Town of Whiteville
158 Main Street
P.O. Box 324
Whiteville, Tennessee 38075
Dear Ms. Randolph:
This letter is regarding our discussion of your proposed sewer extension and the appropriate
means to service the debt incurred to complete the extension.
As I understand the situation, the Town has annexed three (+/-) businesses near the Highway
64/100 intersection. One of these, a Amoco/ Café combination, has a failed septic system and
is currently spending in the neighborhood of $400 a month for sewage pumping and hauling.
The Town hopes that after sewer has been made available in this area, other development will
occur, to the benefit of the Town and the sewer system. The Town’s engineering firm has
plans and specifications ready to submit and then go out for bids. The only item that must be
resolved first is how the capital costs of this sewer extension will be recovered.
There are a variety of options available to you in this matter. We will explore a few that
readily come to mind for your particular situation.
First, there is the question of who pays. This is a policy decision.
I understand that you have an ordinance that requires the beneficiary of a sewer extension to
pay the cost of the extension, rather than the existing customers bearing the expense (18-110.
Water and sewer main extensions. Persons desiring water and/or sewer main extensions must
pay all of the cost of making such extensions.). This is a good way to keep existing customers
from bearing the expense of the system subsidizing a developer’s profit margin. However,
when an existing, established property owner is annexed into the city limits, that property
owner is entitled to the same services as properties previously in the city limits. This
requirement is called the plan of service, and it is a legal annexation requirement in Tennessee.
The system that the current customers are using, in many cases, was not paid for by the current
customer. This is something to consider. Your ordinances would also allow the Town to pay
to provide sewer service to these customers, since the Town annexed them and is obligated to
provide Town services (18-111. Variances from and effect of preceding section as to
extensions. Whenever the board of mayor and aldermen is of the opinion that it is to the best
interest of the town and its inhabitants to construct a water and/or sewer main extension
without requiring strict compliance with the preceding section, such extension may be
constructed upon such terms and conditions as shall be approved by the board of mayor and
aldermen.). If this is not palatable, there are other options.
I understand that you have considered charging these customers a special rate, a rate would
equal the existing in-town rate plus finance the system extension principal, interest, and
depreciation. I would recommend against this. A rate does not guarantee payment. If these
customers were to vacate, they would no longer being paying this special rate. On the other
hand, if a special “tap fee” were set up for the area covered by the extension, this would be an
entirely different scenario.
This is the alternative that I would recommend to you.The tap fee could be assessed with an
equitable formula to the new customers, and be calculated to cover the principle and interest of
the extension. An ordinance would be adopted requiring property owners within the corporate
limits to connect to sewer where sewer service is available. The tap fee could either be
collected lump sum, or, if this presents a difficulty to the customer, and the Town is agreeable,
the tap fee could be financed and added to the utility bill. However, then in the event that the
customer, for whatever reason, relocates, the remainder of the tap fee would remain a legal
debt that they would have to satisfy.
A municipality can have any number of different tap fees depending on project areas. When I
was City Engineer for Paducah, Kentucky, I believe we had somewhere in the neighborhood
of ten different tap fees, all calculated to recoup the sewer extension project expenses for the
specific area that project served.
Another alternative is to have a uniform Town-wide tap fee, and name the recovery cost per
customer in the project area something else, such as: a customer “buy-in fee”, “special
assessment”, “capital recovery fee”, or some other name.
I do not think it is equitable for the three businesses involved to bear the entire project
expense. As other, undeveloped, propert will be served by this project, I would recommend
that the appropriate formula be used and that future development share in the cost of the sewer
project in a manner consistant with the three current businesses.
I am attaching examples of similar tap fee policies from other locations and an extensive
MTAS legal opinion that covers this issue as well as your question about requiring property
owners to connect to sewers, and several other related issues as well.
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I hope this will be of assistance to you.
Please let me know if I can provide further information on this or another topic.
Sincerely,
University of Tennessee
Municipal Technical Advisory Service
John C. Chlarson, P.E.
PublicWorks/EngineeringConsultant
Attachments:3
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Town of Bedford By-law 24236 -Recovery of Capital Costs - Water and Sewer - Halifax
Regional Municipality
Town of BedfordBy-law 24236 -Recovery of Capital Costs - Water and Sewer
Town of Bedford by-Laws
HRM By-Laws
City of Halifax Ordinances
City of Dartmouth By-Laws
Halifax County Municipality By-Laws
Administrative Orders
BE IT RESOLVED that the following By-Law be, and the same is hereby, adopted and
enacted by the Town of Bedford, pursuant to its authority under Section 221 of the Towns
Act, R.S.N.S. 1967, c.309, and amendments thereto, when and if the same receives the
approval of the Minister of Municipal Affairs, and that the Town Clerk forward this ByLaw to the Minister and request his approval thereof.
TOWN OF BEDFORD
BY-LAW NO.24236
A By-Law Providing for the Recovery of Capital Costs of Extensions to Sewer and Water
Services in the Town of Bedford
1. This By-Law shall be known as By-Law No.24236 and may be cited as the “Sewer and
Water Extension By-Law”.
2. In this By-Law all words shall take their meaning as described in accepted dictionaries
of the English language, except for the following specifically-defined words:
(a) “Clerk” means the Clerk of the Town of Bedford;
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(b) “cost of project” means the total cost of an extension of services project including
laterals to the street boundary and including not only the costs of construction, installation
and administration but also any expenses relating to engineering, surveying and other
incidental expenses and including the cost of raising funds to finance the project and the
costs of financing throughout the amortization period of the project, and “services” refers
to either water or sewer or both;
(c) “Council” means the Council of the Town of Bedford;
(d) “designated serviced public street” means any public street listed in a Schedule
attached to this By-Law;
(e) “designated service charge” means the charge resulting from the application of this ByLaw and relating to any property with frontage on a designated serviced public street;
(f) “Engineer” means the Director of Engineering and Works for the Town of Bedford;
(g) “frontage” means the linear measurement of the property line which abuts a public
street;
(h) “owner” means prima facie the assessed owner of any property, in whole or in part, as
listed on the assessment rolls prepared by the Assessment Division of the Nova Scotia
Department of Municipal Affairs;
(i) “public street” means any public street, road, lane or
thoroughfare which is vested absolutely in the Town;
(j) “Town” means the Town of Bedford.
3. Council may consider and may undertake either a sewer extension project or a water
extension project, or both, after receipt of a report and recommendation from the Engineer
and according to the then current policy of Council relating to such project.
4. (1) Water services, and extensions thereof, within the Town of Bedford are the
responsibility of the Halifax County Water Utility. Any resident wishing an extension of
water services shall so notify the Clerk of the Town in writing and such request shall be
taken up between the Town and the said Water Utility.
(2) In the event that the Town takes over responsibility for its own water services, this Bylaw shall be amended to reflect that change of circumstances.
OWNER LIABLE:
5. Every owner of property which has frontage on a designated serviced public street shall
pay the designated service charge applicable to that property.
DESIGNATED SERVICE CHARGE:
*6. The designated service charge applicable to any particular property shall be
determined by using one of the following formulas:
T.C. - F.C. x P.P.F. = D.S.C. T.P.F.
Where:
T.C. = total cost of project or projects;
F.C. = total financial contributions of Federal, Provincial or municipal governments;
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
T.P.F. = total property frontages to be taken into account;
P.P.F. = the particular property frontage;
D.S.C. = the designated service charge for that particular property.
By Property:
T.C. - F.C. = D.S.C. T.P.
Where:
T.C. = total cost of project or projects;
F.C. = total financial contributions of federal, provincial or municipal governments;
T.P. = total number of properties involved in the project;
D.S.C. = the designated service charge for each property within the project area.
EXEMPTION:
7. Any property which would otherwise be subject to a designated service charge but
which already has frontage on a public street serviced by sewer and water is exempt
from the application of this By-Law.
EXCEPTIONS:
8. Any property which has more than one (1) frontage on a designated serviced public
street, shall be charged for only one (1) frontage, that being the longest frontage
involved.
9. In the case of a project, or a portion thereof, which services a cul-de-sac, the
formula in Section 6 shall not apply but the percentage that the cost of servicing the
cul-de-sac represents of the total cost of the extension project shall be calculated and
that percentage shall be applied to the subsidized portion of the total cost of the project
(T.C. minus F.C. from Section 6 above) with the resulting cost figure then being
divided by the number of properties which have both frontage on the cul-de-sac and
have the cul-de-sac as their civic address and the owner of each such property shall be
liable to pay the resulting cost which shall be known as the designated service charge
for that particular property.
LIEN:
10. Every designated service charge shall form a lien on the real property affected in
the same manner and with the same effect as rates and taxes under the Assessment Act
and shall be collectable in the same manner as rates and taxes on real property are
collected under the Assessment Act and, at the option of the Clerk, be so collectable at
the same time and by the same proceedings as are other rates and taxes.
11. The lien provided for in this By-Law shall become effective on the date on which
the Engineer files with the Clerk a certificate that the project has been completed.
12. The designated service charge shall become due and payable on the date that the
bill therefore is mailed, by ordinary mail, to the property owner.
PAYMENT:
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13. The designated service charge shall be paid by equal annual payments, each
payable on the anniversary of the date of which the amount becomes due and payable,
extended over a period of twenty (20) years, with interest payable thereon annually at
a rate of two percent (2%) higher than the Royal Bank of Canada’s prime lending rate,
such interest rate to be set as of the date the Engineer’s certificate is filed with the
Clerk, pursuant to Clause 11, with power to prepay the whole or any part of the
designated service charge, or the balance outstanding, plus interest accumulated to the
date of payment, at any time without notice.
14. If default is made in any annual payment of principal or interest when it falls due,
then the entire balance of principal and interest becomes due and payable immediately,
without notice or demand.
SCHEDULES:
15. Any Schedule attached to this By-Law shall form part of this By-Law.
APPROVED BY TOWN COUNCIL ON APRIL 17, 1989.
APPROVED BY MINISTER OF MUNICIPAL AFFAIRS ON JULY 20, 1989.
*AMENDMENT(S) APPROVED BY TOWN COUNCIL ON MARCH 9, 1993.
*AMENDMENTS APPROVED BY MINISTER OF MUNICIPAL AFFAIRS ON
APRIL 13, 1993.
SEWER AND WATER EXTENSION BY-LAW SCHEDULE “A”
(Peerless Subdivision Extension)
Public Streets:
1. Lewis Drive
2. Bernard Street
3. Olive Avenue
4. Hammonds Plains Road
Council / Community / Legislation / Notices / Services
Halifax Regional Municipality
Last Revision: February 28, 2000
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Water and Sewer Extensions Policy
CITY OF MONROE, NORTH CAROLINA
WATER AND SEWER EXTENSIONS POLICY
I. Purpose of Policy and Definitions
The City of Monroe desires to provide an equitable means of financing the
orderly extension of water and sewer mains and system facilities to serve the
growing needs and orderly development of the community. This purpose of this
policy is to provide the methods to accomplish this objective .
Except as the context specifically indicates otherwise, the following terms and
phrases, as used in this policy, shall have the meanings hereinafter designated:
“Small subdivision” shall mean a subdivision of property in which the average
size of each lot in the subdivision is one acre or less.
II. Financing and Responsibility for Extensions of Water and/or Sewer Mains
Extensions of water and/or sewer mains to the City of Monroe systems may be made
as follows:
A. Extensions for which a private property owner or developer is responsible for
all financing, engineering, permitting, construction, record drawings, and
warranty as required to complete the extensions, except where City financial
participation qualifies as defined by Section V and/or VII of this policy. For
property outside the City limits, such requests are subject to the approval of
City Council and such approval may be denied or subject to further conditions.
1. By a property owner or developer who desires to serve one or more lots of an
existing subdivision and/or undivided tract(s) of land greater than one acre in
size.
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2. In accordance with the City of Monroe Subdivision Ordinance for extensions
within proposed new subdivisions.
3. By a contract approved by the City of Monroe between two or more owners
and/or developers who desire to serve two or more lots of a new or existing
subdivision and/or undivided tracts greater than one acre in size, with the
contract clearly delineating the shared responsibilities between the parties for
financing, engineering, permitting, construction, record drawings, and warranty
as required to complete the extensions. The City’s approval of the contract is
as to appropriate legal form and compliance with all provisions of this policy,
and is not intended to dictate the financial sharing of costs and
responsibilities reasonably negotiated and agreed between the owners or
developers. For purposes of defining City participation under Section V of this
policy, each tract or lot shall be considered a separate project.
B. Extensions for which the City of Monroe is responsible for all financing,
engineering, permitting, construction, record drawings, and warranty as required
to complete the extensions.
1. By the City of Monroe when required by Section III of this policy.
2. Within the corporate limits of the City, by written petition of a minimum of
25% of the property owners owning a minimum of 25% of the front footage along a
public street in an approved developed or developing small subdivision when the
requests are by owners who have purchased individual lots in the subdivision and
not the developer of the subdivision or the developer’s successors. As part of
the request, each petitioning Owner shall commit in writing to pay all tap fees
and cost recovery fees required by the City’s Fee Schedule in advance of the
design and construction of the extensions (except when financing is permitted
under Section IX.C of this policy). The City’s commitment to install water and
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sewer mains under this paragraph may be limited annually based on funding
appropriated, and may be limited to subdivisions where the respective existing
water and/or sewer main is adjacent to or within 400 feet of the outer boundary
of the particular subdivision. Unless defined otherwise by City Council under
Section VI, the City’s commitment shall also be limited to qualified (25% of
owners and frontage as defined above) sections with a minimum length of 1000
feet along the public street, except where the street length from the existing
main to the end of the subdivision or end of a cul-de-sac is less than 1000
feet, or in the case of sewer, if topographic or geographic conditions limit
extensions of a single main along the public street to less than 1000 feet from
the existing main. If a subdivision crosses the same public street in two or
more separate locations with a gap between which is outside the subdivision and
measures greater than 400 feet in length along the street, the City is not
obligated to extend a main across this area outside the subdivision to serve the
further sections of the subdivision until such time as the further sections come
within 400 feet of the existing main as measured along the street. In some
cases, as determined by the Director of Water Resources, where lots in an
approved small subdivision are lower than the public street, a sewer collector
main may be installed in a dedicated easement along the rear of the lots instead
of within the street, and are considered the same as mains in a public street
for the purposes of this policy provided that they serve the same purpose.
Owners of lots outside the City limits are not eligible to petition for water or
sewer mains under this provision.
3. By declaration of the City Council that an extension of water and/or sewer is
in the overall best interest of the City and the public, as defined in Section
VI of this policy.
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III. Extensions and Facilities Provided by the City of Monroe
The City of Monroe will provide the basic facilities for the water and sewer
system necessary to provide service within the corporate limits of the City of
Monroe. These basic facilities include water and wastewater treatment plants,
elevated and ground water storage tanks, high service and booster water pump
stations, water mains sufficient to transport water to elevated tanks, water
pump stations, and to provide hydrants for fire protection within existing
publicly-dedicated streets in accordance with the City’s water system design
standards, sewer interceptors and outfalls which are necessary to connect sewer
collector mains serving adjoining property from public streets (or in an
easement along the rear lot lines which serve the same purpose as service from
the public street) to the major trunk sewer lines transporting wastewater to a
treatment plant, including wastewater lift stations and force mains which serve
the same purpose as an interceptor or outfall. The City of Monroe will make the
necessary improvements to these basic facilities as provided in a Capital
Improvement Plan, consistent with budgeted resources and legal requirements.
IV. Extensions Initiated by Property Owner or Developer
A. Property owners or their agents may request to the City’s Director of Water
Resources for an extension of water and/or sewer to serve existing development,
a proposed new development, or a proposed new subdivision. Such request shall be
in the form of a written letter and shall include property maps of sufficient
detail to identify the service location(s) for the extensions. Requests to serve
property outside the City limits may be subject to approval by the City Council
and the City Council reserves the right to refuse approval when deemed not in
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the best interest of the City to serve.
B. For extensions under Section II.A. of this policy, the owner/developer shall
provide for all engineering, surveying, preparation of permit applications,
right-of-way acquisition, construction with a one-year warranty, testing,
engineering certification of completed construction in substantial compliance
with approved plans, and record drawings. Engineering plans shall be approved by
the City’s Director of Water Resources and shall be permitted under regulations
of the State of North Carolina prior to beginning construction. All engineering
design and construction shall conform to the City’s design standards and
technical specifications. All other applicable permits or right-of-way
agreements required for construction, including but not limited to sediment and
erosion control permits, Section 401 water quality certification and Section 404
Nationwide Permit, NCDOT and/or CSX Transportation Encroachments, encroachments
in City of Monroe streets from the City Engineer, and utility easements from
adjoining property owners, shall be obtained before construction affected by the
governing requirement begins.
C. To the maximum extent practical, new water and sewer extensions shall be in
public street rights-of-way. However, when not feasible as reviewed and agreed
by the City, extensions may be provided in utility easements assigned to the
City of Monroe.
D. The City of Monroe water and sewer extensions policy approved by City Council
on November 5, 1985 is repealed effective April 1, 1995. This includes the
repealing of all policies providing for one-third financial participation by the
City of Monroe in water or sewer extensions.
V. Request Accepted by City Council in the Public Interest for Commercial and
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Industrial Development of $1.0 Million or Greater Based on Cost Recovery
A. Effective upon City Council adoption of this policy, for proposed commercial
and industrial development generating an increase in taxable property value of
$1.0 million or greater, as verified by the construction cost assessed on the
building permit, the owner may provide the City guaranteed minimum water and/or
sewer use by the customer of the development for the first five years of
operation. The City will calculate from these minimums at current water and/or
sewer rates the minimum revenues from usage charges to be collected (not
including fixed charges by meter size), minus all marginal costs for providing
the service at the minimum use (power, chemicals, sludge disposal costs, etc.,
which increase with increasing water or wastewater treatment, distribution, and
collection). The City will also estimate the construction cost of the extension
required to serve the owner’s request. If the minimum revenues over marginal
costs are sufficient to recover the construction cost of the extension in five
years or less, and the customer of utility service from the development signs a
“take or pay” contract as described in Paragraph V.C. of this policy, the City
Council may appropriate the funds and declare it in the public interest for the
City to reimburse the cost of construction of the extensions. However, in such
case, the owner retains responsibility for providing the engineering, surveying,
preparation of permit applications, right-of-way acquisition, contractor for
construction with a one-year warranty, testing, engineering certification of
completed construction in substantial compliance with approved plans, and record
drawings. The City may provide the reimbursement to the owner in annual
installments effective on the date the customer’s meter is installed and water
service activated and a sufficient amount of the reimbursement may be withheld
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to cover the City’s losses if the customer has failed to meet the conditions of
the “take or pay” contract.
B. When the City determines that the construction cost of a water and/or sewer
main extension for a $1.0 million or greater commercial or industrial
development can not be fully recovered within five years by the method defined
in Paragraph V.A., the City may further consider one-third of the additional
anticipated property tax revenues for five years at the present ad valorem rate
resulting from the development’s value as determined from the building permit.
If this additional revenue consideration generates a total payback in five years
or less (payback determined considering both water and sewer utility minimum
revenues over marginal costs and one-third of City ad valorem taxes) , the City
may pay the cost of construction of the extensions and the City Council will
agree to transfer sufficient property tax revenues to the Water and Sewer Fund
over the five years to achieve cost recovery for the fund. If considering
one-third of additional property tax revenues still does not generate a payback
in five years or less, the City may propose a cost sharing percentage of the
total cost of the extensions or a ceiling contribution which will be recovered
by water and sewer revenues and one-third of tax revenues within five years.
C. In order to guarantee the minimum use stated by the owner, the customer which
will use the water and/or sewer service after completion of the extension shall
sign a “take or pay” contract with the City of Monroe which guarantees annual
payment of usage charges up to the minimum quantities specified in the contract
during the recovery period. The contract shall also include the latest date
usage will begin and the recovery period (five years or less, as calculated
under Paragraph V.A.). At the end of each year during the recovery period, the
City of Monroe will review the account and may bill the customer for any
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difference between guaranteed minimum usage and actual metered usage at the
usage rate then in effect.
D. Property otherwise eligible for City participation under this Section but
remaining outside the corporate limits of the City of Monroe shall not be
eligible for any City participation under this Section until the property
becomes incorporated into the City limits. However, if the property on which an
eligible development is constructed should become incorporated into the City
within two years after the water and/or sewer extension is completed, the owner
may receive reimbursements under a “take or pay” contract retroactive to the
date of initial activation of the water and sewer service to the development.
VI. Extensions Directed by City Council in the Public Interest
A. In special circumstances where it is necessary to serve the overall public
interest, as determined by the City Council, extensions may be made by the City
of Monroe. Such circumstances shall be specifically defined in a resolution
adopted by the City Council, including the public interest issues which are
satisfied. Such issues may include, but are not limited to the following: (1)
remedy for a public health emergency; (2) substantial development which will
spur significant growth in the local economy, job market, or both; or (3) when
the service of water and sewer to a property provides substantial or strategic
overall benefit to the City, such as by substantial or strategic growth of other
City utility services or by strategic annexation. The City Council shall
designate in the adopted resolution as part of this approval the source of
funding for the City’s contribution to the cost of these extensions.
B. If determined to be in the best interest of the City of Monroe, the City
Council may authorize the purchase of part of or all of another water and/or
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sewer utility system, whether publicly or privately owned, and authorize the
necessary extensions by the City of Monroe to connect such purchased systems to
the City’s system. Prior to such approval, the City shall investigate the
integrity of such system(s) and appraise the appropriate value of such system(s)
in order to determine a fair price.
VII. Oversizing of Water and Sewer Extensions for System Improvement
During the City’s review of engineering plans submitted by a property owner or
developer under Section II.A of this policy for water and sewer extensions, the
Director of Water Resources shall determine if the sizing of the proposed
extensions is consistent with the City’s plan for growth and development of the
overall water and sewer systems. If the Director determines that larger
facilities are desired for the system than the owner/developer needs for his/her
proposed development, the City may require that the larger facilities be
extended. In such case, the City will reimburse the owner/developer in
accordance with a contract between the City and the owner/developer after
acceptance of the extensions for the difference in fair market construction
costs between the larger facilities installed and the facilities required by the
owner/developer, except that no reimbursement shall be due for a water main or
gravity sewer main by the City of Monroe unless the size required of the main is
greater than 8”. The fair market costs may be mutually agreed by negotiation if
the City confirms by independent estimates that the oversizing cost is
competitive. However, the City of Monroe may, if deemed necessary to achieve
competitive pricing, assume responsibility for construction of the extension
which may be oversized and receive formal competitive bids for both options from
contractors for the work. In such case, the City may award a contract for either
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the oversized alternative or the alternative to serve the
subdivision/development provided that the property owner/developer agrees to pay
the cost for the alternative to serve his/her subdivision/development. If an
owner/developer refuses to pay the competitively determined price, the City of
Monroe may reject all bids.
VIII. Petitioning for Connection to City System for the Purpose of Extending a
Private Water and Sewer System
A. A property owner or owner’s agent may petition for a connection to the City’s
water and sewer system for the purpose of extending a private water and sewer
system if permitted, operated, and maintained in compliance with all State
regulations, provided that such proposed extension is exempt from all of the
criteria stated in Paragraph VIII.B. . The private system shall be confined to a
single tract of property and development and may not extend beyond the
boundaries of the single tract, nor may connections to serve adjoining property
be made. The City shall install a “master meter” at the connection to the public
system and the owner of the private system shall be solely responsible to the
City of Monroe for the payment of all fixed and usage charges for both water and
sewer based upon metered usage at the “master meter”. The City of Monroe is
never under any obligation to accept as public in the future any private system,
and the City may be permitted to accept private systems only after such systems
are upgraded to meet all City water and sewer design standards in effect at the
time of such request and new water meters are appropriately installed at the
total expense of the private owner.
B. Water and sewer extensions which meet any of the criteria stated below shall
be designed and constructed for dedication to the City as an extension to the
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City’s public system:
1. Extensions in public streets or in public rights-of-way;
2. Extensions which cross property lines, or may serve connections to more than
one property;
3. Extensions which may be further extended in the future to adjoining property
and thereby extend City service to such property; and
4. Extensions which may be further extended in the future to provide a system
benefit, such as the “looping” of a water main.
IX. Water and Sewer Extensions to Areas Annexed into the City Limits
A. Extensions to property annexed into the City of Monroe by voluntary
petitions, including both contiguous and satellite annexations, shall be in
accordance with Section II.A of this policy, except to the extent conditions of
Section V and /or VII of this policy apply or when City Council deems that City
financial participation is in the public interest as defined in Section VI of
this policy. The specific interpretation of these conditions for the particular
site shall be specifically defined in the terms of the annexation on which the
City Council acts to approve the annexation.
B. When the City of Monroe involuntarily annexes new territory into the
corporate limits, the City of Monroe shall extend the basic facilities to serve
the annexed area as defined in Paragraph III.A. of this policy or as otherwise
specifically defined by the requirements of North Carolina Annexation law. These
basic facilities shall be specifically defined in the written Annexation Plan
and approved by City Council. Extensions beyond the requirements of Paragraph
III.A shall be in accordance with applicable provisions of Section II and other
applicable sections of this policy.
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C. The City Council may establish financing plans for the payment of tap fees
and cost recovery fees by petitioning individual property owners of small
subdivisions when extensions are provided by the City of Monroe under Section
II.B.2 of this policy resulting from an involuntary annexation by the City, or
when extensions are provided by the City under Section II.B.3, in the overall
public interest. The Council may authorize a minimum initial payment of at least
10% of the total, specify the financing period not to exceed 5 years, and may
establish an interest rate within limits prescribed by law for the amount
financed. The City of Monroe will bill the installments monthly either as part
of the utility bill or by a separate invoice, and may disconnect utility
services for delinquency in payment of these installments as defined by the
City’s Customer Service Policies. Installment payments beyond the initial
payment and the financing period may be held in abeyance until the water and/or
sewer main extensions are completed by the City and ready for service. The City
Council may also limit the period of time in which individual owners in
developed or developing small subdivisions may apply for service under an
installed payment program.
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UTILITY CONNECTIONS AND EXTENSIONS
Compelling property owners to connect to public sewers and water supply
General
The U.S. Supreme Court in Hutchinson v. City of Valdosta, 33 S.Ct. 290 (1913), held that an
ordinance requiring connection to the public sewer was a valid police power regulation:
It is the commonest exercise of the police power of a State or city to provide for a system
of sewers and to compel property owners to connect therewith. And this duty may be
enforced by criminal penalties...[citations omitted]. It may be that an arbitrary exercise of
power could be restrained, but it would have to be palpably so to justify a court interfering
with so salutary a power and one so necessary to the public health. [At 307]
The Court of Appeals of Kentucky in City of Louisville v. Thompson, 339 S.W.2d 689
(1960), upheld an ordinance that required each dwelling unit to be equipped with an inside
bathroom including toilet, lavatory, basin, required each to be connected to hot and cold water
lines, required water heating facilities, and required connection of those facilities to the public
sewer.
The Montana Supreme Court in Town of Ennis v. Stewart, 807 P.2d. 179 (Mont. 1991), citing
Hutchinson v. City of Valdosta, above, upheld an ordinance requiring property owners to
connect to the town water supply against their challenge that they had a privacy interest in
their well.
Also see 7 McQuillin, Municipal Corporations, § 24.264, and Tennessee Attorney General’s
Opinions 88-133, 87-14, and 92-08.
Compelling connections to the public sewers inside and outside the municipality
Tennessee Code Annotated, § 7-51-401 gives municipalities the authority to construct water
and sewer systems, including physical plants, outside their boundaries, except in areas served
by utility districts, and in sections of roads and streets already occupied by other public service
agencies providing the same service. In addition, Tennessee Code Annotated, § 7-35-101 et
seq. give municipalities broad authority to condemn land and easements outside their
boundaries for the purposes of constructing, laying, repairing, or extending sewers, water
systems or drainage ditches, both within and beyond the corporate limits. The same authority
in identical language is found in the state’s eminent domain statutes, specifically Tennessee
Code Annotated, § 29-17-201.
A challenge to the condemnation of a sewer line easement because it was outside municipal
boundaries and did not serve a public purpose arose in the unpublished opinion of City of Fayetteville
v. Matthews (1977). In upholding the taking the Court of Appeals declared:
But that neither the property taken nor that benefitted is within the city limits of Fayetteville has
no effect on the legality of the taking, for municipalities have authority to condemn land outside
their corporate limits. See §§ 6-604 [now 7-51-401], 6-1401 [now 7-35-101], 23-1504 [now 2917-201].
20
Presumably, such authority extends to the state line. In McLaughlin v. Chattanooga, 180 Tenn. 638,
177 S.W.2d 823 (1944), the Tennessee Supreme Court, interpreting a state statute providing that
municipalities could by condemnation acquire land for airports either within or without their corporate
limits for airport purposes, said that:
The phrase “within and without the geographical limits of such municipalities” is broad as the
universe since every point is either within or without the limits of a municipality. In its broad
sense it includes territory which is within the confines of a municipality and all of that which is not
so situated, including that of another municipality.
However, there is a limitation of that authority found in Tennessee Code Annotated, § 9-21-107,
where the public works facility is constructed with bonds. That statute authorizes local governments:
To engage in the construction of any public works project which may be constructed within or
without the local government, or partially within and partially without the local government.
However, no local government shall engage in the construction of a public works project wholly
or partially within the legal boundaries of another local government except with the consent of the
governing body of the other local government; provided, however, that any county or
metropolitan government may construct a public works project within a municipality within the
county or metropolitan government without the permission of the governing body of the
municipality [Emphasis is mine]
The same statute places a 20 mile limit on the distance beyond its boundaries a municipality can
operate and maintain a public works project.
Two state statutes authorize municipalities to require property owners, tenants or occupants to connect
to the public sewer:
!
Tennessee Code Annotated, § 7-35-201 provides that a municipality which has or
shall issue revenue bonds to construct public sewers may by resolution require an
owner, tenant or occupant” of a building sitting on property abutting a street or
public way to connect to the sanitary sewer. The teeth in that statute specify that:
[I]n addition to any other method of enforcing such requirement, a city, town or utility district
also providing water service to such property, may within or without its borders, refuse water
service to such owner or occupant until there has been compliance and may discontinue water
service to an owner, tenant or occupant failing to comply within thirty (30) days after notice to
comply.
The U.S. District Court for the Eastern District of Tennessee in Hodge v. Stout, 377 F.Supp. 131
(1974) upheld the constitutionality of that statute against a challenge of a city resident whose water
service was disconnected by the City of Mountain City after he refused to connect to the public sewer.
The meaning of “any other method” of enforcement of the requirement that a property owner, tenants,
or occupant connect to the public sewer is not clear, but it probably includes enforcement by
injunction.
21
That statute also authorizes various methods for municipalities and utility districts to collect water and
sewer bills, including contracts with each other for the collection of such bills. Those will be
discussed below in connection with another statute that contains similar authorization.
!
Tennessee Code Annotated, § 68-13-208, in language almost identical to that
found in Tennessee Code Annotated, § 7-35-201, authorizes municipalities that
have constructed wastewater treatment systems with state funds to require
property owners, tenants and occupants to connect to the public sewer on penalty
of having their water service disconnected for noncompliance.
Under Tennessee Code Annotated, § 68-13-208, if the municipality receives grant funds under
Tennessee Code Annotated, § 68-13-207 et seq., it apparently may require a property owner, tenant or
occupant who refuses to connect to a public sewer to pay a sewer service charge. That statute
provides that municipalities shall” establish a graduated sewer user’s fee on each user of the sanitary
sewers provided by the municipality.” “ User” as defined by Tennessee Code Annotated§68-13201(8), is:
... the owner, tenant or occupant of any lot or parcel of land connected to a sanitary sewer, or for
which a sanitary sewer line is available if a municipality levies a sewer charge on the basis of such
availability.. [Emphasis is mine]
The term "available sewer" is not defined for the purposes of Tennessee Code Annotated, § 16-13208(8), but Tennessee Code Annotated, § 68-13-208 provides that in order to protect the public health
and in order to assure the payment of bonds issued for sewerage treatment works, a municipality is
authorized by resolution:
To require the power, tenant or occupant of each parcel of land which abuts upon a street or other
public way containing a sanitary sewer and upon which lot or parcel a building exists for
residential, commercial or industrial use, to connect such building with such sanitary sewer and to
cease to use any other means for the disposal of sewerage, waste or other polluting matter.
It is typical for many sewer use ordinances to define the term "available sewer" in terms of distance
from the sewer main to the parcel of property, such as 100 feet.
Generally, then, municipalities having state-financed sewer systems have statutory authority to levy a
sewer service charge in cases where the sewer line is merely available because the property owner,
tenant or occupant is a “user” within the meaning of Tennessee Code Annotated, § 68-13-208.
That result was reached in the unreported case of Phillips v. Metropolitan Government of Nashville
and Davidson County, Ct. App., MS, 16 TAM 45-15, Filed Oct 11, 1991. There Phillips challenged
the demand by Metro. that he pay a sewer service charge between 1987 and 1989, a period in which
he was not connected to the public sewer. Metro. ultimately cut-off his water and sewer bills. The
evidence showed that the public sewer had been available since 1964. In reaching that result, the
Court pointed to the city’s remedies under Tennessee Code Annotated, § 7-35-201 68-13-208, as well
as the city’s rate-making authority under Tennessee Code Annotated, § 9-21-101 et seq., 7-34-101, et
seq., and 7-35-101 et seq. The sewer connection was not a prerequisite to the charge for sewer
service.
22
If the municipal wastewater treatment works is not financed by state funds, there appears to be no state
statutory authority for a municipality to levy a sewer availability charge on a property owner, tenant or
occupant who refuses to connect to the public sewer. The municipality’s remedy in such cases falls
under Tennessee Code Annotated, § 7-35-201, which is to discontinue water service, or presumably,
to seek injunctive relief.
Tennessee Code Annotated, § 7-35-201 and 68-13-208, both contain various methods for
municipalities to collect water and sewer bills. Included is the authority to contract with both public
and private entities providing water for the collection of sewer charges in a unit with water charges.
The entity with whom the municipality contracts has the authority to discontinue water service under
Tennessee Code Annotated, § 7-35-201. However, Tennessee Code Annotated, § 7-35-201 appears to
apply only to cases in which the property owner, tenant or occupant is actually connected to the public
sewer. Tennessee Code Annotated, § 68-13-208, on the other hand, also applies to those cases in
which the public sewer is “available.”
A major problem with the contractual authority contained in both statutes is that many, if not most,
entities with whom a municipality has the authority to enter into a contract for the collection of
municipal sewer bills will be reluctant, for various reasons, to enter into such contracts. For that
reason, municipalities that operate only sewer systems can run into serious trouble in attempting to
collect sewer bills.
Compelling connections to public water supply-Inside and Outside
There are no state laws requiring property owners, tenants and occupants to connect to the public
water supply. Surprisingly, there are no cases in Tennessee involving the question of whether such a
municipal ordinance requiring such connections is valid. However, in virtually every state in which
that question has arisen, the ordinance has been upheld. [Town of Ennis v. Stewart, 807 P2d 182
(Mont. 1991), McMahon v. City of Virginia Beach, 267 S.E.2d 130 (1980), Stern v. Halligan, 158
F.3d 729 (3rd Cir. 1998), Lepre v. D’Iberville Water and Sewer District, 376 S.W.2d 191 (1979),
Weber v. City Sanitation Commission v. R.G. Craft, 87 S.E.2d 153 (1955), Herbert v. Com., 632 A.2d
1051 (Pa. Cmwlth. 1993). However, absent legislation that permits a municipality to compel property
owners outside the municipal limits to require property owners, tenants and occupants to connect to
the public water supply, it is questionable whether such an ordinance could be made to apply to that
territory.
In addition, while municipalities that receive sewer grant funds from the state have the authority to
charge sewer availability fees, there is no comparable state legislation with respect to municipal water
systems. However, at least one case in another jurisdiction [Mississippi] supports the charging of a
water availability fee under a municipal ordinance requiring connection to the public water supply.
[Lepre v. D’Iberville Water and Sewer District, above.]
Prohibition on Wells
Related to the question of whether municipalities can compel property owners to connect to the public
water supplies is the question of whether they can prohibit wells. Indeed, most of the above cases
involve that question with respect to wells in addition to other sources of water supply. Most of them
support the prohibition on the use of well-supplied water when the public water supply is reasonably
23
near. [For example, McMahon v. City of Virginia Beach, above.] Others take a very restrictive view
on that prohibition. [For example, see City of Midway Nursing & Convalescent Center, 195 S.E.2d
452 (1973)BGeorgia]
In Town of Bruceton v. Arnold, 818 S.W.2d 347 (Tenn. App. 1991), the town successfully enjoined a
property owner from using a well drilled on his land to supply a swimming pool. The city presented
expert evidence which showed that such a well could be an entry way for pollution of the town water
supply. The well drew from the same aquifer as did the town. That fact appeared critical to the
Court.
Town of Bruceton v. Arnold is probably not authority to absolutely prohibit the use of wells by a
municipality, absent a compelling public health and welfare interest. Such an interest undoubtedly
exists in many municipalities.
Brief regulations on water well diggers, and water-well digging, are found at Tennessee Code
Annotated, § 69-11-101 et seq. Under the authority of that statute the Department of Environment and
Conservation has issued more detailed regulations on water well licensing, found in Rules and
Regulations of the State of Tennessee, Chapter 1200-4-9. That chapter regulates both the licensing of
water well-diggers and the construction of water wells.
Utility Cut-offs for nonpayment of utility bills
Municipalities have the authority to cut-off water and sewer service for non-payment of water and
sewer bills, under several old, but still good cases, and state statute. In Jones v. Nashville, 109 Tenn.
550, 72 S.W. 895 (1902), a person sued the City of Nashville for failing to supply her with water. The
city defended its action on the ground that it had an ordinance requiring the city to cut off water to any
person indebted to the city for past water service, and that the person refused to pay her water bill.
Citing earlier Tennessee cases and cases from other states, the Tennessee Supreme Court upheld the
ordinance. Quoting from Tacoma Hotel Co. v. Tacoma Light & Water Co., 3 Wash.316 (28 Pac.
516), it declared that:
A rule of the water company which requires rates to be paid quarterly, adds a penalty of vie per
cent. [sic] in case of default of payment in ten days, and provides that after default for fifteen days
the water shall be shut off from the premises is a reasonable regulation.
The Tennessee Supreme Court said essentially the same thing in Patterson v. Chattanooga, 192 Tenn.
267, 241 S.W.2d 291 (1951). There the question was whether a water company could cut-off the
water of a property owner who refused to pay a sewer service charge. The question, said the Court,
was “Does the discontinuance of the water service deprive the property owner of property rights in
violation of Article I, Sec. VIII and XXI, of the Constitution of Tennessee, or the 4th Amendment of
the Constitution of the United States”? No, declared the Court, reasoning that:
The general rule is that those furnishing the public with its water supply either in a private or a
municipal capacity, may adopt, as a reasonable regulation for conducting said business, a rule
providing that the water so furnished may be cut off for nonpayment therefor; and in pursuance of
such regulation the water supply may be discontinued on failure of the customer to pay the water
rate....In so far as we can find every state in the Union, where the question has arisen, has held in
24
accordance with the quotation last above quoted. [Citing a Georgia case, and a long line of cases
from both Tennessee and other states.]
However, the U.S Supreme Court held in Memphis LG&W v. Craft, 436 U.S 1 (1978), that utility
services were property rights that could not be taken away except after certain procedural safeguards
were followed, generally a notice and an opportunity for a hearing.
Tennessee Code Annotated, § 7-35-201(3), provides for water and sewer cuts-off, in the following
language:
If any city, town, or utility district also operates a water system, and can do so without the
impairment of contract rights vested in the holders of any bonds payable from the revenues of
such water system to combine charges for sewer and water systems in one (1) statement and to bill
the beneficiary of such services therefor in such manner as to require the payment of both charges
as a unit, and to enforce the payment of such charges by discontinuing either the water service or
the sewer service, or both;... [Emphasis is mine]
Tennessee Code Annotated, § 7-35-201 et seq., applies to cities that have issued bonds for the
construction of a water and/or sewer system. However, Tennessee Code Annotated, § 7-35-201(3),
appears to apply to cases where the city has both a water and sewer system, and combines water and
sewer charges. Tennessee Code Annotated, § 7-35-201, also contains other provisions for the
collection of water and sewer bills, including, among other things, advance deposits [Subsection (4)],
action ex contractu [Subsection (5)], and discontinuance of water service to sewer users who fail or
refuse to pay sewer service charges. [Subsection (6)(A)(ii)]
Municipalities probably also have the authority under their police powers, and under Tennessee Code
Annotated, § 7-35-401 et seq., to adopt a reasonable policy providing for sewer cuts-off for the failure
or refusal to pay sewer bills. Tennessee Code Annotated, § 7-35-411 provides that:
The governing body of any city or town acquiring and operating a waterworks and/or sewerage
system under the provision of this part has the power, and it is its duty by ordinance, to establish
and maintain just and equitable rates and charges for the use of and the service rendered by such
waterworks and/or sewerage works, to be paid by the beneficiary of the service.
The city probably has a statutory duty to make the users of sewer service pay for such service under
that statute, which implies the city has the right to cut-off service to persons who fail or refuse to pay
for the service. Other statutes under which municipalities are authorized to establish water and sewer
systems contain similar provisions.
Municipalities that operate sewer systems but no water systems obviously are at a disadvantage in
collecting delinquent sewer bills. That problem is compounded by the probability that cutting off
sewer service has public health implications that do not apply to the cutting off of water. For that
reason, the courts might not view the cutting off of sewer service with the same degree of tolerance
they would view the cutting off of water service, particularly where municipalities are authorized to
collect sewer bills through actions in contract and debt, and in the case of some cities, actions on taxes.
[See Tennessee Code Annotated, section 7-35-202] In addition, there is probably no reason a city
could not make it a municipal offense to fail or refuse to pay a sewer bill.
25
Water and sewer extensions-Considerations
The treatment of the question of whether and under what conditions a municipality can be required to
extend its water system is covered in attached 48 ALR2d 1222 (including Later Case Service). As
that treatise points out, generally municipalities have considerable discretion in the
provision of utility services, usually based on the cost of providing the service in question. The rule in
Tennessee is similar.
Some Tennessee cases contain broad language that at first glance seem to say that all inhabitants of a
city are entitled to utility service under the same conditions, but those cases involve the question of
whether the municipality could refuse to turn on the water already piped to a particular establishment
for one reason or another, not main extensions. [J.W. Farmer v. Mayor and City Council of Nashville,
127 Tenn. 509 (1912); Watauga Water Co. v. Wolfe, 99 Tenn. 429 (1897) Crumley v. Watauga
Water Co, 99 Tenn.419 (1897). But even those cases permit reasonable classifications of service.
Crumley, citing with approval a Nebraska case, declares that the duty of a private water company “is
to furnish water at reasonable rates to all the inhabitants of the municipal corporation, and to charge
each inhabitant for water furnished the same price it charges every other inhabitant for the same
service, under the same or similar conditions. [At 425] The same rule with respect to a public water
plant was announced in Farmer, citing Wolfe:
... such a water company is charged with the public duty of furnishing water to all the inhabitants
of the city of its location alike, without discrimination, and without denial, except for good and
sufficient cause; but that such a company may adopt reasonable rules for the conduct of its
business, and the operation of its plant.... [At 515]
With respect to the obligation of a public utility to provide main extensions the dispositive case is
probably Chandler Investment Co. v. Whitehaven Utility District, 311 S.W.2d 603 (1958). There the
Court made two important points. First, it agreed with the general proposition that:
a franchise holder may not deprive a potential customer of needed water, power, lights or any
other utility when the holder of the franchise is not in a position to supply that which was
contemplated it should have available under the terms of the franchise. Likewise, we agree with
the insistence of the appellant that the rights under a franchise may be lost by a non-user [citing 42
Am.Jur., Public Utilities, Section 20.]
Second, it outlined the considerations that go into the question of whether a utility is required to make
a main extension where the franchise or charter does not require the provision of utility service to all
potential customers. The Court’s language on this point is worth quoting at length:
In the absence of an express provision in the franchise or charter obligation of a public service
company requiring it to furnish the designated service to every inhabitant of such territory, the
right of an inhabitant of such territory to demand an extension of service for his benefit is not
absolute and unqualified but is to be determined by the reasonableness of the demand therefor
under the circumstances involved. The law on this question seems to be well-stated in 42
Am.Jur. page 602, and we quote from said work as follows: 43 Am.Jur.—Public Utilities and
Services—“Sec. 48. Reasonableness of Demand for Extension.-- [Which is now found in 64
26
AmJur2d, sec. 44] The right of an inhabitant or group of inhabitants of a community or territory
serviced by a public service company to demand an extension of service for their benefit is not
absolute and unqualified, it is to be determined by the reasonableness of the demand therefor
under the circumstances involved. The duty of a public service company to extend its service
facilities, and the reasonableness of a demand for such extension, depends, in general, upon the
need and cost of such extension, and the return in revenue which may be expected as a result of
the extension; the financial condition of the utility; the advantages to the public from such an
extension; and the franchise or charter obligation to make such extension. In this last respect, a
water company may be compelled to extend its mains so as to supply all the inhabitants of the
municipality by which it is franchised, if its charter requires it to do so. Furthermore, although a
franchise ordinance provides that a water company need not extend its water mains along any
ungraded street or alley, if the company has voluntarily extended its main along such a street, it
cannot refuse to supply a customer thereon, on the theory that it was compelled to build along the
street in the first place.
In regard to the reasonableness of the cost which an extension will entail, it is not necessary that a
particular extension of service shall be immediately profitable, or that there shall be no
unprofitable extensions, the criterion being generally whether the proposed extension will place an
unreasonable burden upon the utility as a whole, or upon existing consumers. As to the costs
involved in making an extension, various elements, such as the type or quality of construction to
be used and the use of any existing equipment or facilities, enter into the determination of this
matter. But while the utility cannot fix the limits of the proposed extension at territory which will
yield an immediate profit, and, on the other hand, cannot be required to make unreasonable
extensions, there is a point midway between these extremes at which the utility may require of the
proposed customer assistance in the necessary outlay in furnishing the service. In this respect,
various methods have been adopted, depending upon the circumstances of the particular cases,
in determining the amount of the contribution or assistance which may be required. It has been
held, however, that the utility cannot compel prospective customers to purchase stock as a
condition precedent to extending its service. [At 611-612]
Tennessee Code Annotated, §7-35-401 et seq. does not require such a scope of service. Indeed,
Tennessee Code Annotated, § 7-35-414 requires that it is the duty of the board of water and sewer
commissioners:
by ordinance, to establish and maintain just and equitable rates and
charges for the use of and the service to be rendered by such waterworks and/or sewage system, to
be paid by the beneficiary of the service. Such rates and charges shall be adjusted so as to provide
funds sufficient to pay all reasonable expenses of operation, repair and maintenance, provide for a
sinking fund for payment of principle and interest on bonds when due, and maintain an adequate
depreciation account, and they may be
readjusted as necessary from time to time by amendment to the ordinance establishing the rates
then in force... [Emphasis is mine.]
Further, Tennessee Code Annotated, § 7-35-416 provides that municipalities may enter into service
contracts “with one or more other cities or towns or with corporations, firms, or
27
individuals to furnish service by such works...but only to the extent of the capacity of the
works....”
Those two provisions collectively suggest that the statute does not require utility service to be
furnished to all residents of the city on demand. They do suggest that the city can require the
recipients of water and sewer service to pay for the main extensions, that the city can
take into consideration the capacity of the utility plant when making extension decisions, and that the
city is required to adopt by ordinance reasonable rules and regulations governing the provision of such
service. In addition, City of Parson v. Perryville Utility District, 594 S.W.2d 401 (Tenn. Ct. App.
1979) holds that a municipality has a continuing duty to revise service rates to insure the utility system
is self-supporting and the rates equitable. The cost of main extensions probably constitute “rates and
charges” within the meaning of Tennessee Code Annotated, §7-35-404.
But it needs to be re-emphasized that Tennessee Code Annotated, § 7-35-414 requires that the criteria
establishing any priority of service be reflected in an ordinance.
Payback arrangements for developer’s utility installation costs
Can the city enter into an agreement with a developer whereby the developer pays for sewer
extensions to his development, and the city either:
1. Imposes a sewer tap fee and pays all or a portion of it to the developer over a period of time until
he has recovered all or a part of the cost of the sewer extensions?
2. Permits the developer to sell tap fees for connections to the extensions he has made until he has
recovered all or a portion of the cost of the sewer extension?
Apparently, the city can enter into an agreement of either kind with the developer.
With respect to the first arrangement, in Chandler Investment Company v. Whitehaven Utility
District, 311 S.W.2d 603 (Tenn. Ct. App. 1957), a utility district determined that it had no funds with
which to make water main extensions to a proposed development. It made an agreement with the
developer to make the water main extensions provided the developer would make an advance on the
construction cost of $88,000, in return for which the developer would receive a refund against the
advance of 50% of the gross charges received against each metered connection for a period of ten
years. The developer made a deposit of $55,000, the city made the extensions, and the developer
began receiving the 50% of the gross charges from each metered connection. Other subdivisions in
the utility district had been financed in the same manner. The developer learned that he could get a
better deal from the City of Memphis for his next development in the utility district. The Court held
that better deal or not, the utility district was the exclusive provider of utility services inside its service
area.
Although the Court did not directly address the question of whether the utility district’s sewer main
extension agreement was legal, it seems that if the Court had questions on that point, it would have
raised them, at least in passing.
28
It appears that in Whitehaven, the developer essentially lent money to the utility district to make the
sewer line extension, and that the utility district repaid the loan from the revenues generated by the
extension. By whatever name that arrangement is called, arrangements of that kind are widespread,
and are reflected in the utility extension policies of several municipalities.
Such arrangements appear to be a form of “capital recovery charge,” or “user contribution.” Arthur
Anderson’s Guide to Water and Wastewater Finance and Pricing, Chapter 4, “Capital Recovery
Charges,” Raftelis, George A., discusses those charges or contribution arrangements at length. There
are no arrangements in the Guide where the developer recovers charges or contributions; however,
there are probably no technical reasons why such arrangement could not provide for cost recovery;
whether they are always financially wise is another matter.
The Guide does not put its legal imprimatur on any of the arrangements, but is useful for showing that
capital recovery charges or user contributions are a generally acceptable financial technique to frontend the cost of utility extensions. In fact, MTAS finance consultants have in the past advised
municipalities to consider such arrangement in financing utility extensions, sometimes without the
cost recovery provision. It appears that the legal challenges in other jurisdictions to such
arrangements have involved charges and contributions that were essentially impact fees.
With respect to the second arrangement, the city in Trull v. City of Lobelville, 554 S.W.2d 638 (Tenn.
App. 1977) entered into an agreement with a contractor for the latter to extend sewer, water and gas
lines from the city’s mains. In return, the contractor could charge tap fees to users of his line
extensions. When he had recovered the cost of the extensions plus reasonable profits, he would
convey the lines to the city. But before the developer had recovered the cost of the extensions, the city
breached the agreement by itself tapping the extensions to provide service to certain customers and by
claiming ownership to the lines. (Disputes over the gas lines were resolved ). Even though the
contract between the developer and the city had not been properly approved by the city commission,
the court held it to be an implied contract enforceable against the city. As in Whitehaven, there is no
hint that the Court thought that the line extension financing arrangement itselfBas opposed to the
manner in which the city had entered into itBmight have been ultra vires.
Johnson City v. Milligan Utility District, 276 S.W.2d 748 (Tenn. App. 1955), is similar to Trull.
There Miller and Williams agreed with the City of Johnson City to extend a waterline through their
proposed subdivision in Carter County, in exchange for which the city agreed to supply water in that
area. The agreement provided that Miller and Williams were to keep the line in repair and could
collect a tap fee from each new customer. The case does not indicate for how long they were to
receive the tap fee. The Court had no negative comments about the agreement. In fact, the city itself
had continued to pay the tap fee to the successors in title of Miller and Williams and recognized their
right to receive them. The financial aspects of the agreement arose only in the context of the questions
of title to the line, and which of the City of Johnson City or the utility district had the right to service
the area.
It has also been held that cities in Tennessee operate their utilities in their proprietary, rather than their
governmental, capacities. The significance of that doctrine is seen in Bybees Branch Water
Association v. Town of McMinnville, 333 S.W.2d 815 (Tenn. 1960):
29
‘A municipal corporation engaged in the business of supplying public utilities and facilities is
regarded as a public corporation transacting private business for hire, and, in that respect and to
that extent, as a public or quasiprivate corporation.’ 62 C.J.S. Municipal Corporations, Sec. 3,
p.73.
‘The city in its operation of utilities herein does so in its proprietary or individual capacity rather
than in its legislative or governmental capacity. It is thus governed, for the most part, by the same
rules that control a private, individual or business corporation. [206 Tenn. 375] City of Knoxville
v. Heth, 186 Tenn. 321, 210 S.W.2d 326, 329.
[Also see City of Shelbyville v. State ex rel Bedford County,, 220 Tenn. 197, 415 S.W.2d 139 (Tenn.
1967); Batson v. Pleasant View Utility District, 592 S.W.2d 578 (Tenn. App. 1980); Maury County
Board of Public Utilities v. City of Columbia, 854 S.W.2d 890 (Tenn. App. 1993)]
Batson is particularly instructive on the proprietary capacity issue. In that case a developer and the
utility district entered into a contract under which the developer would entirely at his cost extend water
lines from the utility districts mains to his new subdivision. The contract provided that the city would
be entitled to charge a meter deposit for each meter it installed, and that after the lines had been
installed and inspected, their ownership would vest in the utility district. After a majority of the lines
had been installed and inspected the utility district imposed a $500 tap fee per residence. The
developer argued that its contract with the utility district prohibited the latter from charging a tap fee,
and the utility district argued that under Tennessee Code Annotated, sections 6-2610(f) [now 7-82304(6)] and 6-2625 [now 7-82-403], the utility district had not only the authority but the duty to fix
and revise rates and charges so that they would always be adequate to insure that the utility was selfsupporting. In holding for the developer, the Court declared that the statutes cited by the utility
district did not dispose of the question because, “A city operates its utilities in a proprietary or
individual capacity and not in its legislative or governmental capacity. [Citation omitted] A contract
made by a city in the course of its operation of a utility is in its proprietary capacity.” [Citations
omitted] It was true, continued the Court, that generally a city could not contract away its legislative
or governmental functions, but:
T.C.A. section 6-2607 [now 7-82-301] states that an incorporated district shall be a municipality
or public corporation. T.C.A. 6-2610(d) [now 7-82-304(4)] grants any district the power to make
and enter into contracts.
As a ‘municipality’ operating its utility in a proprietary or individual capacity, the rules that
control private individual or corporate business generally apply. [Citation omitted]
It has been held that state laws permitting a municipality to contract in its proprietary capacity
suspend the municipality’s power to regulate rates during the contract period. St. Cloud Public
Service Co. v. City of St. Cloud, 265 U.S. 352, 44 S. Ct. 492, 68 L.Ed. 1050 (1924).
By acting in its proprietary capacity, the defendant has obligated itself by contract to provide
‘tapping on’ without charge. This is not in abrogation of its statutory authority to fix or revise
rates or charges in its legislative or governmental capacity.
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The addition of ‘tapping on’ charge constitutes a unilateral modification of the contracts.
Modification requires the mutual assent and meeting of the minds required by contract. [Citation
omitted] [At 582]
Private corporations can enter into arrangements like or similar to those contemplated by your
questions. For that reason, apparently so can public utilities, even to the extent of contracting away
their rate-making powers with respect to tap fees.
The statutes under which utilities in Tennessee can be established and operated are replete with rules
governing utility revenues and expenditures. But as far as I can determine, none of them operate to
prohibit utility extension policies under which the developer front-ends the cost of the extension and is
reimbursed, in whole or in part, that cost. Tennessee Code Annotated, section 7-34-115, provides that
“Any municipality shall devote all revenues derived from a public works to or for”
(1) The payment of all operating expenses;
(2) Bond interest and retirement and/or sinking fund payments;
(3) The acquisition and improvement of public works;
(4) Contingencies;
(5) The payment of other obligations incurred in the operation and maintenance of public works
and the furnishing of service;
(6) The redemption and purchase of bonds....
(7) The creation and maintenance of a cash working fund;
(8) The payment of an amount to the general fund of the municipality [of a certain percentage of
equity invested from the general fund]
The city’s payment of the developer’s front end costs should fit under (5), if not (1) and (3).
Tennessee Code Annotated, section 7-34-115 is a part of the Revenue Bond Law, and arguably
applies only to municipalities operating utilities under that Law [See Nashville Electric Service v.
Luna, 204 S.W.2d 529 (Tenn. 1947)]. However, that statute was probably intended by the Legislature
to apply to all utility systems.
Tennessee Attorney General’s Opinion 94-105 asks three questions relative to the cost of installing a
sewer system infrastructure in a subdivision proposed for annexation. Question 1 was AWhether a
municipality may subsidize the cost of installing a sewer system infrastructure in the rights-of-way
and public easement areas of a subdivision proposed for annexation ? Neither Question 1 nor its
answer seem pertinent to the question because the former involves using tax revenues to subsidize the
utility system, while the latter involves using sewer utility revenues to essentially pay for sewer
extensions initially paid for by the developer. Utility rates and charges are fees and not taxes.
Question 2 is more relevant: “Whether the Knoxville Utilities Board may refund or forgive
obligations for contributions in aid of construction or similar fee agreements that have been paid or are
to be paid to the Board by residential customers for sewer infrastructure extension into the public
rights-of-way and public easement areas of the residential areas.” Unfortunately, the opinion does not
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answer the question, raising only the possibility that such refunds may run afoul of the city’s charter,
noting that the utility system’s rates are set by the city council.
Utility systems in Tennessee can operate under various statutes, including their charters. However,
Tennessee Code Annotated, §7-34-115 probably applies to all utility systems in Tennessee.
But a cautionary note is warranted here. In Johnson City v. Milligan Utility System the court
answered the question of which of the City of Johnson City and the utility district had the right to
provide utility service in Carter County in favor of the utility district. It did so by concluding that the
city never had a franchise to provide water service in Carter County, which led it into a distinction
between the public and private undertakings of public utilities:
Whether a business operation may be classed as that of a public utility is controlled by the facts of
a particular case. Generally, the question depends upon whether the service is in fact of a public
character and whether it may be demanded on a basis of equality and without discrimination by all
members of the public or obtained by permission only. [Citations omitted.]
A franchise may be defined as the grant of a right or of a privilege by the sovereign power usually
with respect to streets or highways primarily to enable the grantee to perform a public service or
benefit. It is not associated in meaning with a strictly private undertaking.
The fact that a business or enterprise is, generally speaking, a public utility does not make
every service performed or rendered by it a public service, with the consequent duties and
burdens, but it may act in a private capacity, and in so doing is subject to the same rules as
a private person. [Citation omitted.] [At 753]
That distinction itself points to a fundamental principle governing the provision of all utilities
in Tennessee: they must be provided without discrimination to all applicants in the same
class, and that class distinctions must generally be reasonable, generally based on the cost of
providing service. [See J.W. Farmer v. Mayor and City Council of Nashville, 127 Tenn. 509
(1912); Watauga Water Co. v. Wolfe, 99 Tenn. 429 (1897); Crumley v. Watauga Water Co.,
99 Tenn. 419 (1897); City of Parsons v. Perryville Utility District, 594 S.W.2d 401 (Tenn.
App. 1979)] In fact, the courts have said that such is the law even where it is not stated in the
utility’s enabling or governing legislation.
Municipalities generally have considerable discretion in the decision to extend utility services.
[See 48 ALR222] In Tennessee, the dispositive case on the question of whether a utility must
extend its service is Chandler Investment Co. v. Whitehaven Utility District, above. In that
case the Court outlined the considerations that go into the question of whether a utility is
required to make a main extension where the franchise or charter does not require the
provision of utility services to all potential customers:
In the absence of an express provision in the franchise or charter obligation of a public
service company requiring it to furnish the designated service to every inhabitant of such
territory, the right of an inhabitant of such territory to demand an extension of service for
his benefit is not absolute and unqualified but is to be determined by the reasonableness of
the demand therefor under the circumstances involved. [At 611]
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July 17, 2016
The Court at length then expounds on all the considerations upon which utility extension
decisions can be made, including, the duty of the utility pursuant to its charter or other law,
and the cost of making the extension in question.
The reason the law generally requiring the nondiscriminatory provision of utility services, and
that outline the factors that go into making utility extensions decisions is that those
considerations probably ought to hover over every decision a utility makes, including the
effect of the agreements it makes with a developer on those principles. Because cities operate
their utilities in their proprietary capacities they can probably enter into agreements of the
nature contained in your question. But Johnson City v. Milligan Utility District and
Whitehaven point to the part the utility’s charter and/or franchise may play in whether a
utility’s service decisions have a public or private character, and the latter declares that in the
absence of rules contained in those documents, utility extension decisions are governed by the
rule of reasonableness.
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