October 14, 2004 Dear Commissioner:

October 14, 2004
Dear Commissioner:
You have three questions related to the city’s sewer system. I will state and answer them
in three separate units below.
1. Does the phrase “property owners” in Tennessee Code Annotated, ' 7-35-407 refer to
only those property owners that have a direct fiscal and service interest in the sewer system?
The answer is no.
Tennessee Code Annotated, ' 7-35-407 provides that:
At the time the governing body of the city or town passes the
ordinance authorizing the acquisition of a waterworks and/or
sewerage system, the governing body shall appoint five (5)
members from among the property holders, who are and have been
residents of the city or town for not less than one (1) year next
preceding the appointment....
Under the rules of statutory construction, the courts give statutes a plain unstrained
reading. A plain unstrained reading of this statute indicates that the only qualifier on the property
holders is that they be residents of the city for one year prior to appointment. I see nothing in the
statutory scheme reflected in Tennessee Code Annotated, ' 7-35-401 et seq. that suggests the
answer is otherwise. Had the General Assembly intended the “property holders” means property
owners who have a direct fiscal and service interest in the sewer system, it could have expressed
that intent in the statute.
Incidentally, it can be argued that the statute is unconstitutional on the ground that it
discriminates against non-property holders. Statutes that discriminate against non-property
holders in various contexts have regularly been stricken down. However, the courts have made
an exception where the statute in question applies to certain special districts and other limited
purpose governments. As far as I can determine, the above provision has never been challenged.
A sewer/water system established under Tennessee Code Annotated, 7-35-401 et seq., is actually
a department of the city, the latter of which is a general purpose government, but the
department itself has a specific limited purpose. In that situation, I am not sure how the courts
would handle a charge that the restriction of board members to property owners discriminates
against non-property owners.
October 14, 2004
Page 2
2. Is it legal for the city board of commissioners to serve as the board of sewer
The answer is yes.
Tennessee Code Annotated, ' 7-35-406 declares that:
The governing body of any incorporated city or town may, by
proper ordinance, elect to perform the duties required of the boards
under this part, in which event the governing body shall have all
the powers, duties and responsibilities imposed upon the board,
and all references to the board shall refer to such governing body
acting in the capacity of the board.
In State ex rel. Barr v. Selmer, 417 S.W.2d 532, it was held that the above provision
authorized the board of mayor and aldermen to take over the functions of the board of
water/sewer commissioners.
3. Does the provision in Tennessee Code Annotated, ' 7-35-414(d), which says that
“such minimum base rate shall be considered a tax upon sewer users in the same manner that
local property taxes are so considered,” apply if the city has no local property taxes?
The answer is that notwithstanding the characterization by that statute of the base rate as a
“tax,” the base rate is not a tax, but a fee. For that reason, the question of whether or not the city
has a property tax is not pertinent.
In some instances what a statute defines as “fee” is actually a tax, and in some
circumstances, what a statute defines as a “tax” is actually a fee. In City of Tullahoma v.
Bedford County, 938 S.W.2d 408 (Tenn. 1197), the Tennessee Supreme Court said:
Whether the charge for depositing waste in a landfill is a tax or a
fee, even though denominated a tax, is determined by its purpose.
A tax is a revenue raising measure levied for the purpose of paying
the governments general debts and liabilities. [Case citations
omitted.] A fee is imposed for the purpose of regulating a specific
activity or defraying the cost of providing a service or benefit to the
party paying the fee. [At 412.] [Case citations omitted.] [Emphasis
is mine.]
There is no question but that user fees levied and collected by boards of water and
October 14, 2004
Page 3
wastewater commissioners under Tennessee Code Annotated, ' 7-35-414 is levied and collected
to defray the cost of providing water and/or sewer service to the customers of the water and/or
sewer system. In fact, Tennessee Code Annotated, ' 7-35-414 itself says as much:
....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 principal
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. Any upward adjustment of rates and charges for
sewerage services shall not be granted solely on the basis of
increases of rates and charges for water service, but shall be made
only after a finding by the governing body that such an adjustment
is reasonable and justified....
In addition, Tennessee Code Annotated, ' 7-35-115, which applies to all municipal
utilities of any kind, provides that:
Notwithstanding the provisions of any other law to the contrary, as
a matter of public policy, municipal utility systems shall be
operated on sound business principles as self-sufficient entities.
User charges, rates and fees shall reflect the actual cost of
providing the services rendered. No public works shall operate for
gain or profit or as a source of revenue to a governmental entity,
but shall operate for the use and benefit of the consumers served by
such public works and for the improvement of the health and safety
of the inhabitants of the area served. [Subjection (a).]
The same statute carefully details precisely in what order and for what purposes utility revenues
can be spent in support of the utility.
Let me know if I can help you further in these or any other matters.
Sidney D. Hemsley
Senior Law Consultant