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Reviewed Date: May 16, 2017
Surrender of a City Charter
MTAS was asked several questions concerning the surrender of a city's charter.
Knowledgebase-Surrender of a City CharterDecember 5, 1995Recently you contacted MTAS with several questions concerning the surrender of your city's charter. You wanted to know how the city could give up its charter and several funding related issues. My research on this issue has led to a more serious question, whether the city can indeed even give up it's charter. It is my opinion that your city can not surrender its charter absent a grant of legislative authority to do so by the General Assembly. I will address your questions in the order you sent them to me.1. Can the city surrender its charter?T.C.A. 6-52-201 etseq. provides a procedure for municipalities that have general law charters to surrender them. This would not apply to your city since it is a private act charter municipality. This means the basic grant of authority to the city springs from the General Assembly. A reading of the city charter does not show any section in which the city has been authorized to surrender its charter. The old but still valid case of State v. Frost, 103 Tenn. 685, 54 S.W. 986 (1900), points out that the Legislature has absolute power of the creation of municipal corporations. The corollary to this is that it also has power over the dissolution of municipalities. Absent a provision allowing for the surrender of the charter, I do not believe the city can simply give it up and be absorbed by the county without the approval of the General Assembly. This is backed by Article XI Section 9 of the Tennessee Constitution. This section contains two provisions that would hinder the total surrender of the charter. The first states:The General Assembly shall have not power to pass a special, local or private act having the effect of re moving the incumbent from any municipal or county office or abridging the term or altering the salary prior to the end of the term for which such public officer was selected, and any act of the General Assembly private or local in form or effect applicable to a particular county or municipality either in its governmental or its proprietary capacity shall be void and of no effect unless the act by its terms either requires the approval by two-thirds vote of the local legislative body of the municipality or county, or requires approval in an election by a majority of those voting in said election in the municipality or county effected. (emphasis added)In short it prevents the General Assembly from simply passing a private act that would end the corporate existence of the city without the approval of the local legislative body or the city voters. I also think that a very good argument could be made that even if it was passed it could not take effect until the terms of office of the Mayor and council members expired since to do so otherwise would have the effect of abridging their terms.The second provision that could cause problems reads:The General Assembly shall by general law provide the exclusive methods by which municipalities may be created, merged, consolidated and dissolved and by which municipal boundaries may be altered. (emphasis added)The General Assembly has never provided a general law method to surrender the charter of private act municipalities. I must admit that I do not think this would be too much of a problem in the case of a private act municipality since I believe the language was intended only to apply to home rule municipalities but it could. I do feel that there is another issue that causes an even bigger obstacle to surrender of the charter than the legislative problems. This has to do with covenants contained in bonds issued by the city. The issue arises when a normal governmental action impacts on contractual rights. The leading Tennessee case is State ex rel. Barr v. Town of Selmer, 417 S.W.2d 532 (Tenn.1967). In that case the Board of Mayor and aldermen revoked the authority of the board of water and sewer commissioners to run the gas system. One of the gas system bondholders filed suit to have this action overturned. The bond issue resolution the city had passed to fund the gas system contained a section avowing that the operation of the system would be under the board of water and sewer commissioners. The Tennessee Supreme Court held that the city did have the statutory power to remove the operating authority however the resolution created a contract with the bondholders that the board of Mayor and aldermen would violate by removing the commissioners. The Court pointed out that once the bonds were retired the Board would have the power to remove the commissioners but only after that. The trial court had divested the Board of all authority over water, sewer and gas but The Supreme Court overruled this. It pointed out that the contract only existed under the resolutions on the gas bonds, not water and sewer, thus the city could properly run those systems.This situation could easily apply to your city considering its size and the number of bonds it has outstanding. The crux of the issue would be what covenants are contained in the bonds and whether they give rise to contract. I would suggest that the city contact its bond attorney for a reading on the bond covenants and what is in them. I would also suspect that the city has a number of specific contractual obligations for materials and services that, if the city ceased to exist, the other parties could claim that there has been a breach leading to a legal maze that could take years to sort out. 2. The responsibility of the county to former city citizens.If the charter was surrendered, then they would now be county citizens and the county would have no obligation to offer them any more services than it does any of the rest of its citizens.3. Allocation of state shared revenues.T.C.A. 67-6-103(3)(A) allocates 4.5925% of the state shared revenues to be split among the municipalities of the state according to population. This would be split up among the remaining municipalities.4. City debts and assets.As discussed, this could get real sticky in the area of outstanding bonds. About the only guidance is found in T.C.A. 6-52-304. This section only applies to general law charter municipalities but my guess is that any private act authorizing the surrender of your charter would have to contain a similar provision. It specifies that any property and or assets which formerly belonged to the municipality must first be applied to the payment of the debts. Any assets that remain would then go to the county. If any debt remains the county may set up a special taxing district from within the former corporate limits to pay off the debt.5. CDBG funds.This is purely my guess, but I think that since the city has ceased to exist, these funds would be frozen and the county would have to reapply to receive them. 6. Different taxing districts for different levels of service within the county.The statute that lays out the provisions for metro government specifically calls for two different districts with different levels of services and taxes. I don't think this would apply in this situation since the city is simply becoming part of the county. Article II, Section 28 of the Tennessee Constitution is the so called uniform and equal clause. This reads:Each respective taxing authority shall apply the same tax rate for all property within its jurisdiction.The question of whether a county could set variable tax rates within its boundaries was posed in Opinion of the Attorney General 84-105. The attorney general answered that it was clear that a county could not set different tax rates for different parts of the county. Most of his reasoning was based on Jones v. Memphis, 48 S.W. 138 (Tenn. 1898), in which the Tennessee Supreme Court held that the uniform and equal clause meant:[T]axation must always be uniform and equal throughout the extent of the same jurisdiction; that State taxes must be equal throughout the State; that county taxes must be equal and uniform throughout the county, and that a city tax must be equal and uniform throughout the city.In light of this, I think any effort to set up separate taxing districts in the county, even if based on services, would still be unconstitutional.I must admit that many of my conclusions in this letter are educated guesses on my part due to the uniqueness of the issues. I do feel fairly confident in them though. Please feel free to contact me if I may be of any further assistance on this matter.