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Limitations on Expenditures of Utility Revenue

Reference Number: MTAS-827
Reviewed Date: 08/18/2021

Although T.C.A. § 7-34-115 is part of the Revenue Bond Law, it probably applies to all utility systems. It requires that "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." T.C.A. § 7-34-115(a). Under this statute, all municipal utility revenues must be spent on:

  • Payment of operating expenses;
  • Bond interest and retirement or sinking fund payments;
  • Acquisition and improvement of public works;
  • Contingencies;
  • Payment of other operations, maintenance, and service cost obligations;
  • Redemption and purchase of bonds;
  • Creation and maintenance of a cash working fund;
  • The payment of an amount to the general fund of the municipality not to exceed a cumulative return of six percent (6%) per annum of any equity invested from the general fund, if any, of the municipality. Equity investment includes any contributions or purchases made by the municipality from the general fund, including, but not limited to, cash contributions, retirement of debt service and purchases of equipment, so long as these contributions are reflected in the utility's financial statement; provided, that such definition of equity investment shall not change the status under this section of any payments made pursuant to any city charter in existence on or before July 1, 1993;; and
  • If the governing body of the municipality by resolution so requests, payments to the municipality in lieu of ad valorem tax on the property of the public works within the corporate limits of the municipality not to exceed the amount of taxes payable on privately owned property of similar nature.

Any remaining utility revenues shall be used solely for rate reduction.

Municipalities may make covenants with the purchasers of bonds concerning the use and disposition of revenues as to the application order of such revenues and as to limitations on the amount of the return on the equity of investment or payment in lieu of taxes to the municipality.

The statute contains other information useful in explaining allowed expenditures of municipal utility revenue and procedures for spending the money under the above provisions. It also contains the penalty for the violation of the statute.

Section (j) lists the training and continuing education requirements for the utility board members. Section (k) states the consequences if a utility board member does not complete the education requirements.