MEMORANDUM
FROM:
Sid Hemsley, Senior Law Consultant
DATE:
March 20, 2002
RE:
Subdivision issues
You have the following questions related to subdivision development in the City:
1. Can a developer as condition to being supplied by the city with utility services
be required to request annexation with respect to his development outside the city?
The answer to that question is not clear in Tennessee, and probably depends upon the
extent to which the city has previously supplied utility services in the area of the development.
However, the weight of the law in other jurisdictions appears to be that generally, a city has a
right to require an outside property owner to request annexation as a condition of such service,
at least with respect to future development after such a policy has been promulgated.
The general rule in Tennessee with respect to a city’s obligation to provide utility service
extensions is stated in Chandler Investment Co. v. Whitehaven Utility District, 311 S.W.2d 603
(1958). In that case, the utility district was by statute the exclusive provider of water service in a
certain area. When a developer could not secure from the utility district water service on terms
as favorable as he could secure them from the City of Memphis, he asked the Court to allow him
to obtain water service from the City of Memphis without interference from the utility district, or
alternatively, to issue a writ of mandamus requiring the utility district at its own expense to make
the water main extensions necessary to supply him with water service. In denying the developer
the relief he sought, 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 law or the utility’s 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 Am.Jur.2d, 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]
Under the City Municipal Code, title 2, chapter 3, the city’s utility board is established
under Tennessee Code Annotated, ' 7-35-401 et seq. That statutory scheme does not require
the utility to provide outside utility 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
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 outside property owners 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 constitutes "rates and charges" within the meaning of Tennessee Code Annotated, '
7-35-404.
But it needs to be emphasized that Tennessee Code Annotated, ' 7-35-414 does require
that the criteria establishing any priority of service be reflected in an ordinance. Presumably that
requirement would also apply to the city’s adoption of a policy requiring that a request for
annexation precede the provision of utility services.
The city has by ordinance adopted rules and regulations governing water and sewer
extensions. [See the City Municipal Code, '' 18-108 and 109] Those rules and regulations do
not require the city to provide outside water and sewer service. Indeed, ' 18-109 says:
The authority to make water and/or sewer main extensions under
the preceding section is permissive only and nothing contained
therein shall be construed as requiring the Town to make such
extensions or to furnish service to any person or persons.
But that language does not necessarily the answer the question of whether utility service
can be conditioned upon annexation. Under Chandler Investment Co. if the City has in the past
provided utility services in the area in question, that is probably one of the factors that weigh in
the determination of whether there is a reasonable basis upon which to require a utility to provide
services to other property owners in the area. But even if the utility is required to provide such
services, that does not mean that it cannot require those property owners to be annexed as a
condition of receiving utility services. In Chandler Investment Co., the Court was clear on the
point that the developer was not being denied utility services, only that as a condition of
receiving such services he had to pay an up-front cost that he did not want to bear; the City of
Memphis had offered him a better deal. A city which conditions outside utility services on a
request by the property owner for annexation has not denied services, merely set conditions on
the service.
As far as I can determine, there are no Tennessee cases involving the question of
whether a city can require outside property owners to request annexation as a condition of
receiving utility services. But that question has arisen in several other states. The lead case in
that area appears to be Andres v. City of Perryburg, 546 N.E.2d 1377 (Ohio. App. 1988). There
the court upheld a challenge to a city ordinance that required non-resident property owners who
wanted sewer service beyond a certain date to execute an annexation agreement under which
such property owners were required to petition the city for annexation. The court itself stated the
two questions in this case:
(1) Whether the city can precondition extension of sewer service to non-resident users
upon agreement to annex their land?
(2) Whether the doctrine of equitable estoppel precludes the city from doing so in this
particular district because of the city’s prior position of not requiring annexation of the land?
With respect to question (1), the Court pointed to the city’s right under the Ohio
Constitution to provide utility service within and without its corporate limits. That authority, said
the Court, could not be limited or restricted by the Ohio Legislature to require the city to provide
utility service outside its corporate limits. For that reason, continued the Court:
Thus, the city may provide services outside its corporate limits
subject to whatever conditions it deems necessary to the exercise
of its police powers so long as each condition is not unreasonable,
arbitrary, or capricious and bears a legitimate and rational
relationship to the health, safety, and welfare of its citizens.
[Citations omitted.] If the city limits the scope and extent of its duty
through contract, the city is then bound to supply services to nonresidents in accordance with its contract and without
discrimination. [Citations omitted.] However, the city is not bound
to supply such service to non-residents after the contract expires.
[Citation omitted.]....The city of Perrysburg, in the case sub judice,
sought to limit the scope of its obligation to provide sewer service
to non-residents by mandating annexation as a condition to
receiving service. Such a condition has been held to be a valid
exercise of the municipality’s police power. [Citations omitted.] [At
1380-81]
The Court, in turn, rejected the non-resident property owner’s arguments that the
annexation requirement was an unlawful and unconstitutional exercise of economic duress, a
taking of property without due process, a violation of the right to acquire, possess and protect
property, and a violation of equal protection.
With respect to question (2), the Court declared that the doctrine of equitable estoppel
was derived from the concept that one cannot change his position once another has acted in
reliance thereon. There are four elements to equitable estoppel, continued the Court:
1. A party knowingly made a false representation or concealment of a material fact (or at
least took a position contrary to that now taken);
2. The representation was made in a misleading manner with the intention or
expectation that another would rely on it to act;
3. The plaintiff actually relied on the representation;
4. The plaintiff relied to his detriment so much that unless the other party is estopped
from asserting the truth or a contrary position, the plaintiff would suffer loss.
The Court refused to apply the doctrine of equitable estoppel for several reasons, but the
reason most pertinent to the city was that, “We cannot find any representation of non-annexation
was ever made by the city. The mere fact that the city had not required annexation in the past is
insufficient to bar it from doing so now.” [At 1384]
In Andres, then, the Court generally upheld the policy of the city conditioning outside
utility service on annexation, and upheld the city’s decision to apply that policy under the facts in
that case.
The Tennessee Constitution contains no provision similar to the one in the Ohio
Constitution that apparently gave municipalities broad authority to provide utility services inside
and outside their corporate boundaries. However, Tennessee municipalities have similar rights
under statute, specifically Tennessee Code Annotated, ' 7-51-401. But neither that statute nor
any of the above statutes under which the city utility system is organized require the city to
provide outside utility services. For that reason, the City, like Ohio cities, has some discretion in
the provision of such services. But also like Ohio cities, Tennessee cities are subject to the
same prohibitions on discriminatory or arbitrary service decisions. That is true even in the
absence of such prohibitions in the particular utility statute at issue. [See J.W. Farmer v. Mayor
and City Council of Nashville, 127 Tenn. 590 (1912); Watauga Water Co. v. Wolfe, 99 Tenn. 429
(1897); Crumley v. Watauga Water Co., 99 Tenn. 419 (1897).] Those cases all apply to inside
utility service, but they undoubtedly apply to outside utility services where a municipality has in
the past decided to provide such service. A similar prohibition on discriminatory or arbitrary
service decisions is seen in the rule of reasonableness with respect to main extensions in
Chandler Investment Co.
If your city adopts a policy conditioning outside utility services on annexation, the
question of whether that policy will be upheld in any particular case where the city has up to that
point already provided outside utility service in an area, probably depends upon the facts. In
Andres, the Court found none of the elements necessary for the application of the doctrine of
estoppel. I do not want to get too deeply into the doctrine of equitable estoppel in Tennessee.
Estoppel generally does not apply to municipalities in Tennessee, but where it does, its elements
are similar to those in Ohio. In Andres the Court held that the conduct of the city in supplying
outside utilities in the past without requiring annexation did not operate as a representation that it
would never condition utilities upon annexation. That seems to me the way that the Tennessee
courts would approach that issue.
But the rule of reasonableness that applies to utility extension and that appears in
Chandler Investment Co, probably does apply in individual cases. It is similar to the doctrine of
equitable estoppel in that whether a particular request for a utility extension is reasonable may
depend somewhat on whether a city’s past provision of utility services in the area creates a
reasonable expectation of service on the part of other property owners in the area. The rule of
reasonableness appears similar to the “holding itself out” rule that appears in Yakima City Fire
Protection Dist. v. Yakima, 858 P.2d 245 (Wash. 1993)
In that case, under the laws of the State of Washington, utilities had the authority, but no
duty, to provide outside utility services. For that reason, the City of Yakima had the discretion to
require that outside property owners request annexation as a condition of utility service. But that
discretion was unlimited:
However, there are several cases recognizing an exception to this
“no duty” rule in circumstances where the city “holds itself out” as
willing to supply sewer or water service to an area or where a city
is the exclusive supplier of sewer or water service in a region
extending beyond the borders of the city. See Barbaccia v. County
of Santa Clara, 451 F.Supp. 260, 264 n.2 (N.D. Cal. 1978)
(commenting that “several state courts have recently held that a
city holding itself out as the sole provider of sewer services in a
given locale will be considered a public utility and allowed to deny
sewer hook-ups to property within its ‘service area’ only for such
utility-related reasons as lack of capacity”) (citing Robinson v.
Boulder, 190 Colo. 357, 547 P.2d 228 (1976), overruled by Board
of Cy. Comm’rs v. Denver Bd. Of Water Comm’rs, 718 P.2d 235,
244 (1986); Mayor & Coun. V. Delmarva Enters., Inc., 301 A.2d
276 (Del. 1973)). Also Milwaukee v. Public Serv. Comm’n, 268
Wis. 116, 120, 66 N.W.2d 716 (1954) (explaining that “[t]he basic
question here is whether appellant has extended it service and is
holding itself out to serve in the general area.”) The Court of
Appeals in Brookens recognized a similar exception. “A contract
to supply water may also be found by implication, as where a
municipality holds itself out as a public utility willing to supply all
those who request service in a general area.” (Footnote omitted]
Brookens, at 466, 550 P.2d 30 (citing Milwaukee v. Public Serv.
Comm’n, supra at 124-25, 66 N.W.2d 716) [At 251]
The City of Yakima had earlier entered into a certain agreement that made it a sole
provider of sewer services, concluded the Court. But that agreement itself contained the city’s
policy requiring annexation as a condition of supplying sewer service. For that reason, while the
city held itself out as willing to supply the sewer services it did so only to the extent that present
or future annexation precede sewer service.
Yakima stands for the proposition that has “held itself out” as a provider of utility services
in an area (even an exclusive provider) it can adopt a policy requiring annexation as a condition
of utility services. That case is also consistent with Chandler Investment Co. In neither case
was utility service being denied; it was simply being conditioned upon a policy. The policy was
obviously not the same in those cases, but the principle of those cases that utility service can be
conditioned upon a policy is the same.
The question of whether a city that by interlocal agreement had “exclusive jurisdiction” to
provide sewer service in a certain area could require an outside property owner in that area to be
annexed as a condition of receiving sewer service arose in Allen’s Creek Properties v.
Clearwater, 679 So.2d 1172 (Fla. 1996). Allen’s Creek Properties was in the area where the
City of Clearwater had “exclusive jurisdiction” to provide sewer service, made a request of the
city for such services, but refused to be annexed. It argued that the facts of the case created an
exception to the general rule that a municipality could not be compelled to supply outside utility
services. The Court rejected that argument. It did agree that there are two situations under
which a city might be required to provide outside utility service when it would otherwise have no
duty to do so:
1. Where the city has a contract to provide such service either to a particular entity, or to
a particular area.
2. Where the city by its conduct “holds itself out” as a public utility for a certain area:
We agree that through its conduct a municipality may assume the
legal duty to provide reasonably adequate services for reasonable
compensation to all of the public in an unincorporated area. See
City of Winter Park v. Southern States Utilities, Inc., 540 So.2d
178, 180 (Fla. 5th DCA 1989) (city’s passage of ordinance requiring
property owners outside the city but within a zone designated by
ordinance to connect to the city’s sewer service when available
was conduct sufficient to bring into effect law applicable tp public
utilities). We add however that the conduct must expressly
manifest the municipality’s desire or intent to assume that duty. A
municipality’s decision to provide service without restriction in an
area outside its boundaries would meet this requirement...[At
1176]
The agreement in this case did not put the City of Clearwater into either category.
Neither the agreement [nor the plan upon which the agreement was based] stated that the City
of Clearwater would provide services to the unincorporated area, nor precluded property owner’s
outside Clearwater’s city limits from acquiring utility services elsewhere; the use of the term by
the parties of the city’s “exclusive jurisdiction” to provide services was a misuse of the term.
The fact that Clearwater provided utility services to a limited extent outside its limits did not rise
to the level of the city “holding itself out” to provide services generally. Because the city had no
duty to provide sewer service in the area in question, it could require annexation as a condition
of the service.
All of the above cases appear to support the theory that your city can adopt a policy of
requiring outside property owners to request annexation as a condition of receiving from the city
utility services. But whether that policy could be applied in cases where the city is already
supplying utility services would probably depend upon all the circumstances.
2. Can the city develop a policy that would permit the city to provide certain
infrastructure incentives to developments based on the type of development?
Although I have no doubt that cities in Tennessee do informally encourage and
discourage certain types of development by the amount and type of infrastructure support they
provide, I find nothing in the statutory or case law in Tennessee that would permit any non-utility
incentives except those authorized for industrial and similar development under the various
statutes authorizing incentives for such growth.
However, municipalities operate their utilities in a proprietary, rather than a governmental,
capacity. The importance of that distinction is that utilities can probably enter into development
agreements under which developers can recover all or part of their cost of making utility
extensions. I have attached a copy of my Utility Connections and Extensions, Etc. monograph
that I did for a utility seminar last year. Pages 11B17 cover the law on such agreements. In
addition, if such agreements fit into the category of the incentives that the City has in mind, the
MTAS utility consultants will have information about what agreements are possible.
3. Can the city have a policy that permits the board to award different developers
different incentives?
Because the answer to question 2 is, in my opinion no (except perhaps with respect to
some utility cost-recovery agreements), it is not necessary to address this question.
4. Does MTAS have any sample policies or examples of how the city can
encourage developers?
See the answers to questions 3 and 4 above.
5. Can the city enforce zoning and subdivision regulations in their urban growth
boundaries without the permission of the county?
I frankly do not know the answer to this question; some language in Chapter 1101
suggests the authority of municipalities in this area was limited by that Law. I assumed that the
question would have been litigated by now, but as far as I can determine it has not. Chapter
1101 made amendments to Tennessee Code Annotated, title 13, chapters 3 and 7, and adopted
the comprehensive growth policy for the state, contained in Tennessee Code Annotated, title 6,
chapter 58. What follows is what I think is the impact those amendments and that
comprehensive growth policy had on municipal control over planning and subdivision
development outside municipalities’ boundaries. I have tired to outline that impact by comparing
the law in those areas before and after Chapter 1101.
Extraterritorial Planning, Subdivision
and Zoning Regulation Before Chapter 1101
Before Public Chapter 1101 was adopted, it was possible for a city to receive two kinds
of extraterritorial jurisdiction: (1) planning and subdivision authority without zoning authority
(Tennessee Code Annotated, title 13, chapter 3); and (2) planning and subdivision authority with
zoning authority (Tennessee Code Annotated, title 13, part 7).
(1) Planning and subdivision regulation authority: In order to exercise planning
jurisdiction outside its corporate limits, the city applied to the Local Government Planning
Advisory Committee (LGPAC) for designation as a regional planning commission. If the LGPAC
approved that designation, it set a limit of up to five miles in which the city could impose
subdivision regulations and exercise other planning functions. Once approved as a regional
planning commission, the city could exercise this authority regardless of whether the county had
adopted zoning or subdivision regulations. However, this authority did not include the authority
to zone in this territory.
(2) Zoning authority: A city could exercise zoning authority beyond its corporate limits
only if it met the following conditions: (A) The city was designated as a regional planning
commission by LGPAC (in the manner prescribed above); (B) the county had no zoning in force;
and (C) the city notified the county of its intent to zone at least six months prior to enacting
zoning for the area. If the county subsequently adopted zoning for the territory and provided for
its enforcement, the city’s zoning in that area was automatically repealed.
Extraterritorial Planning, Subdivision
and Zoning Regulation Under Public Chapter 1101.
Public Chapter 1101 did three important things with respect to planning and subdivision
and zoning regulations.
1. Amended Tennessee Code Annotated, sections 13-3-102 and 13-3-401(2) to provide
that the authority of regional planning commissions (those planning commissions designated
regional planning commissions by LGPAC under Tennessee Code Annotated, section 13-3-102)
can be extended by the LGPAC to the Urban Growth Boundary (UGB), the obvious corollary of
which is that such authority cannot be extended past the UGB.
2. Provided that notwithstanding the extraterritorial jurisdiction regional planning
commissions have under Tennessee Code Annotated, title 13, chapter 3 (subdivision regulation
jurisdiction), nothing in Chapter 1101 shall be construed to authorize municipal planning
commission jurisdiction beyond the UGB [Tennessee Code Annotated, ' 6-58-106(d)].
3. Provided that in a county without county zoning, a city may adopt zoning and
subdivision regulations beyond its corporate limits only with the approval of the county legislative
body [Tennessee Code Annotated, ' 658-106(d)].
Read together, those three things have the following implications for city planning, and
for city subdivision and zoning regulations beyond city limits.
1. Regional planning commissions in counties without county zoning: A municipal
planning commission that has been designated a regional planning commission cannot adopt
zoning or subdivision regulations outside its corporate limits without the approval of the county
legislative body. Even with such approval of the county legislative body, neither subdivision
regulations nor zoning regulations can extend beyond the UGB. [Tennessee Code Annotated, '
6-58-106)(d)].
2. Regional planning commissions in counties with county zoning: The authority of
the LGPAC to designate a municipal planning commission a regional planning commission, and
to authorize the regional planning commission to adopt subdivision regulations beyond its
corporate limits, was not changed by Public Chapter 1101, except that such municipal authority
cannot be extended beyond the UGB. In addition, it does not appear that the authority of
regional planning commissions to recommend zoning regulations within the above geographical
limits was changed by Public Chapter 1101.
3. Planning commissions not designated regional planning commissions: As was
true under previous laws, a municipal planning commission that has not been designated a
regional planning commission has no authority to adopt subdivision or zoning regulations outside
its corporate limits.
That is not an optimistic interpretation of the statutes that govern municipal subdivision
and zoning authority outside municipal boundaries following Chapter 1101.