Knowledgebase-Sewer Tap Fees


Information Product

Title:Sewer Tap Fees
Summary:MTAS was asked under what authority municipalities charge sewer tap fees.
Original Author:Hemsley, Sid
Co-Author:
Product Create Date:10/14/94
Last Reviewed on::12/05/2016
Subject:Utilities--Rates and charges; Sewers
Type:Legal Opinion
Legal Opinion:

Reference Documents:

Text of Document: October 14, 1994

Your question is, under what authority do municipalities charge sewer tap fees? You said in your telephone call that the courts had struck down your sewer impact fees; I assume you were speaking of section 18-104 and 105 of the city's Municipal Code of Ordinances. Section 18-102 of the same code provides for a sewer connection charge. The pertinent authority for municipalities to levy tap fees is set out below; I think you could use that authority to broaden both the basis and the amount of the connection (tap) fees.

Background

Apparently the city's utility services are provided under what is now Tennessee Code Annotated, section 7-52-101 et seq., the Municipal Electric Plant Law of 1935. However, the city's water and sewer system appear to have been initially organized under what is now Tennessee Code Annotated, section 7-35-101 et seq. Tennessee Code Annotated, section 7-52-111 authorizes municipalities owning a waterworks or sewerworks to transfer the operation of that/those system/s to the electric plant board. The city appears to have done that in section 18-401 of its Municipal Code.

The Tennessee Attorney General in OAG U91-15 opined that where such a transfer has been made the electric board must operate the transferred utility under its organizing statute. That opinion is probably correct. In other words, the city's water and sewer system is now operated by the electric board, but its operation continues to be governed by Tennessee Code Annotated, section 7-35-101 et seq.

State Law

Tennessee Code Annotated, section 68-221-210(a)--(b) provides that:

The municipality collecting the user's fee shall have in addition the authority to fix, levy and collect fees, rents, tolls or other charges in an amount necessary to provide for the maintenance and operation of sewage treatment works and payment of any indebtedness.
(b) This authority shall be in addition to other authority to set like fees or to levy taxes pursuant to any other authority granted by the state of Tennessee.

That statute applies to municipalities that have obtained grants to construct wastewater treatment facilities. As I understand it, the City is in that category.

In addition, Tennessee Code Annotated, section 7-34-104(5) authorizes municipalities to "Prescribe and collect rates, fees, and charges for the services, facilities and commodities furnished by such public works [water and sewer systems]," and Tennessee Code Annotated, section 7-34-114(a) further provides that:

The governing body of a municipality issuing bonds pursuant to this chapter shall prescribe and collect reasonable rates, fees or charges for the services, facilities and commodities of such public works [water and sewer systems], and shall revise such rates, fees or charges from time to time whenever necessary so that such public works shall be and always remain self-supporting.

The same statute goes on to provide that the rates, fees or charges shall be sufficient to provide revenue to pay for bonds and for the cost of the operation of the system.

As I read section 18-401 of the Municipal Code, the city has issued bonds under those statutes. Tennessee Attorney General's Opinion 91-17 opines that that statute is effective even if the bonds a municipality has issued have been retired. That opinion also appears correct.

All of the above statutes appear broad enough to permit municipalities to impose tap fees without express legislative authority. In addition, Patterson v. City of Chattanooga, 192 Tenn. 267, 241 S.W.2d 291 (1951) declares that general law authorizing cities to construct public works should be liberally interpreted.

Case Law

As far as I can determine, there are no Tennessee cases on the specific question of whether a municipality can impose a tap fee absent express specific legislative authority. However, several cases in other jurisdictions have upheld such fees on the basis of the municipal utility's general rate-making power. The most recent of those is Bertone v. Department of Public Utilities, 583 N.E.2d 829 (Mass. 1992). There the Court pointed to a Massachusetts statute that read only that the electric utility in question was empowered to "'maintain and operate' a light plant [statutory citation omitted], and to have 'full charge of the ... distribution of ... electricity ... [and] the method, time, price quantity and quality of supply'" [statutory citation omitted] to hold that:

Consistent with these statutes, HMLP has broad discretion to expend money and to set rates, and to determine rate practices. [citations omitted] We have recognized the authority of municipal utilities to establish terms and conditions for service to prospective customers [citations omitted], and we have inferred that a municipal facility, as part of its rate-making function, may impose a hook-up charge to deal with the increasing cumulative demands of new development. [citations omitted]

Clearly, the statutory authority upon which the Bertone court relied to give the municipality the authority to impose a tap fee was even more general than the authority given to Tennessee municipalities under the statutes cited above. In addition Bertone points to several other cases in which the courts in other states have upheld tap fees, relying upon statutes similar to those at issue in Bertone. [Hillis Homes, Inc. v. Public Utility. Dist No. 1 of Snohomish County, 105 Wash.2d 288, 298, 714 P.2d 1163 (1986); Contractors & Builders Ass'n of Pinellas County v. Dunedin, 329 So.2d 314, 318-321 (Fla.), cert. denied, 444 U.S 867, 100 S.Ct. 140, 62 L.Ed.2d 91 (1976)]

However, as the language of Bertone indicates, the tap on fee charges have to be reasonably related to the cost of adding new customers. Other cases have made the same point. [City of Pontiac v. Mason 50 Ill. App.3d 102 (4th Dist. 1977); Tidewater Ass'n of Homebuilders v. City of Virginia Beach, 400 S.E.2d 523 (Va. 1991).]

Tennessee Code Annotated, section 7-35-414 provides that it is the duty of the municipality "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 sewer system." Presumably, that provision applies to charges and rates of every kind, including tap fees. In any event, the Tennessee courts have said the same thing. [City of Parsons v. Perryville Utility District, 594 S.W.2d 401, 406 (Tenn. App. 2979) cert. denied.]

So too the court in other jurisdictions. However, it has also been held that, "A presumption of validity is accorded rates enacted by municipal ordinance and plaintiffs bear a heavy burden of proving that the rates charged are unjustly discriminatory and unreasonable." [Inland Real Estate Corp. v. Palatine, 146 Ill. Alp.3d 92, 99(1st Dist.1986). Also see Village of Nile v. City of Chicago, 101 Ill. Alp. 3d 651 (1st Dist. 1990).] In Handy v. City of Rutland, 598 A.2d 114 (Vt. 1990), the plaintiffs could not prove a $10,000 sewer connection charge unreasonable; they could produce no cost analysis to that effect. However, I am not sure the Tennessee courts would generally approve tap fees in that amount.
I have asked Sharon Rollins, the MTAS wastewater consultant, to contact you relative to developing a schedule of tap fees. I am also enclosing an article related to a recent decision by the Idaho Supreme Court in which the Court upheld an "equity buy-in hook-up ordinance." That kind of system might be a route for the city to go.

Let me know if I can help you further in this or any other matter.

Sincerely,

Sidney D. Hemsley
Senior Law Consultant

SDH/

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