January 17, 2002
Dear Mayor: I have the following questions, which were communicated to me through the MTAS
general consultant for your city:
1. Can the city enter into a contract with a Mobile Home Park to cut off water for the
nonpayment of sewer bills, where the sewer system is owned by the Mobile Home Park?
2. Can the city collect and hold a deposit for sewer service for the Mobile Home Park?
3. Can the city refuse water service to persons who refuse to pay sewer connection
charges or sewer deposits to the Mobile Home Park?
As I understand the facts behind the questions from your consultant, from your city
officials, and from the City Municipal Code, the City provides both water and sewer service
inside the city, but only water service outside the city. The city is the water provider to the Mobile
Home Park, which is outside the city limits. The Mobile Home Park owns its own wastewater
collection and treatment system. However, the city has a contract with the Mobile Home Park
under which it collects the sewer bills of the residents of the Mobile Home Park (but not sewer
deposit or connection charges), which are reflected on the city’s water bills. The Mobile Home
Park wants the city to cut off the water service of residents of the Mobile Home Park who fail or
refuse to pay the sewer bills, and to refuse water service to such residents who refuse to pay
sewer deposits or connection charges.
I have been unable to obtain a copy of the contract, or to determine what kind of entity
the Mobile Home Park sewer “cooperative” is. For that reason, my answers will be general.
As far as I can determine, the answer to all three questions is no.
I find no authority in the utility law of the state authorizing a municipality that provides
water service to even collect the sewer bills of a private entity. Apparently, the private entity in
this case is denominated as some kind of “cooperative,” but absent any information to the
contrary, it does not appear to be an entity with whom a municipality is authorized to contract for
the collection of its sewer bills.
Generally, municipalities are prohibited under Article II, ' 29 of the Tennessee
Constitution from directly aiding private businesses. [Metropolitan Development and Housing
Agency v. Leech, 591 S.W.2d 427 (Tenn. 1979)] The Tennessee courts have declared that
what is a public purpose cannot be precisely defined. [Smith v. City of Pigeon Forge, 600
S.W.2d 231 (Tenn. 1980)] However, it has been held that the expenditure of municipal funds in
the aid of private business is not a public purpose. [Ferrell v. Doak, 152 Tenn. 88, 275 S.W. 29
(1924); Abzill v. Lexington Manufacturing Corp., 188 Tenn. 477, 221 S.W.2d 522 (1949)]
Several subsequent cases have upheld the expenditure of public funds to promote
private business through the Industrial Building Bond Act of 1955, the Industrial Park Act, and
the Industrial Development Corporation Act. [McConnell v. City of Lebanon, 314 S.W.2d 12
January 17, 2002
Page 2
(1957); Mayor and Aldermen of the City of Fayette v. Wilson, 367 S.W.2d 772 (1963); West v.
Industrial Development Board of Nashville, 332 S.W.2d 201 (1960); Industrial Development
Board of Sevier County v. First U.S. Corp., 407 S.W.2d 457 (1966); Small World v. Industrial
Development Board, 553 S.W.2d 1977).] However, in those cases the courts point out that those
statutes are the exclusive state-prescribed methods by which public funds for private
development can be expended.
Cities operate their utility systems under their proprietary rather than their governmental
powers, and in their proprietary capacity utilities have some latitude as to how they operate their
systems, provided that such operations do not conflict with state law. Let us simply assume for
the purpose of argument that under the city utility system’s proprietary powers the contract
between the city and the Mobile Home Park is legal for the former to collect the latter’s sewer
bills. However, it would still not be legal for the contract to contain a provision authorizing the
city to cut off water service to Mobile Home Park residents for their failure or refusal to pay their
sewer bills. Tennessee Code Annotated, '7-35-201(6)(A) authorizes municipal governing
bodies which have issued sewer revenue bonds:
To enter into contracts for the collection of such sewer charges
with any public or private corporation or municipality utilities board
of commission operating a water system therein, and any public
corporation or municipal utilities board or commission is authorized
and empowered to make contracts with any other city, town or
utility district:
(i) To meter, bill and collect sewer services charges as an added
designated item on its water services bills, or otherwise;
(ii) To discontinue water service to sewer users who fail or refuse
to pay sewer service charges;
(iii) Not to accept payment of water service charges from any
customer without receiving at the same time payment of any sewer
service charges so owned by such customer; and
(iv) Not to reestablish water service for any customer until such
time as all past due sewer service charges owned by such
customer have been paid.
However, that statute obviously does not work to the benefit of the Mobile Home Park.
As a private entity, I doubt that it has issued sewer bonds, and the statute is designed to protect
public entities that have issued such bonds. The same analysis applies to a similar statute
found at Tennessee Code Annotated, ' 68-221-208, which applies to municipal sewer systems
that have received state grants. Those two statutes authorize a governmentally-owned water
and sewer utility to cut off water service for the non-payment of sewer bills, and authorizes a
governmentally-owed sewer utility to contract with the water utility to cut off water service for the
non-payment of sewer bills.
In addition, generally municipalities, no matter under what statute they operate their
utilities, have a legal obligation to provide utility service upon the demand of potential customers,
and to not interrupt such service absent a violation of some reasonable policy adopted by the
customer. [J.W. Farmer v. Mayor and City Council of Nashville, 127 Tenn; 509 (1912),
January 17, 2002
Page 3
Watauga Water Co. v. Wolfe, 99 Tenn. 429 (1897), Crumbly v. Watauga Water Co., 99 Tenn;
419 (1897)]. Utility customers also have a contractual right to the continued provision of such
services under the utility’s service policies. With respect to the former obligation of utilities, I
have found no case holding that in the absence of a statute providing otherwise, a utility can
terminate utility service to a customer who has failed to pay a bill to a private business that
operates its own package treatment plant. With respect to the latter obligations of utilities, Title
18, Chapter 1, of the city Municipal Code governs the contractual provisions of water and sewer
services by the city’s water and sewer system. Although Section 18-113 provides for a
combined water and sewer bill and for the termination of service for failure to pay the combined
bill, it is clear in all of Title 18, Chapter 1, that Section 18-113, and Section 18-114, which
provides how water and sewer services are terminated, apply only where the city’s water and
sewer services are involved; they offer no authority for the city to terminate water service in the
Mobile Home Park for the failure of residents there to pay their sewer bills.
I will mention one thing I am sure that the city has already considered: If the sewer
system in the Mobile Home Park goes belly-up, there will be pressure on the city to take over the
sewer service there. If the city does not provide outside sewer service anywhere such pressure
should have no legal consequences. If, however, the city does provide outside sewer service
somewhere, particularly within the vicinity of the Mobile Home Park, there is a possibility that the
city would have a legal obligation to provide sewer service there. If that appears to be the case,
let me know, and I will cover the law under which municipalities can be required to make water
and sewer main extensions.
Sincerely,
Sidney D. Hemsley
Senior Law Consultant
SDH/