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State Street Aid Fund Explained

Reference Number: MTAS-547
Reviewed Date: 12/12/2022

State street aid funds can pay for:

  • Street improvements, including work by TDOT or by a county highway department or another municipality, performed under an agreement;
  • Valid administration expenses connected with issuing street improvement bonds;
  • Principal and interest on street improvement bonds or other indebtedness incurred to pay for street improvements issued after February 19, 1953;
  • Street work supervision fees;
  • Workers’ compensation insurance for employees engaged in street improvement activities;
  • General and automotive liability insurance coverage of street improvement activities;
  • Property insurance coverage for portions of buildings used to store and maintain street improvement equipment; and
  • Mass transit systems, provided that such funding shall not exceed 22.22 percent.

State street aid funds cannot pay for:

  • Auto expenses for the city recorder;
  • Salary supplements to the street superintendent;
  • Loans temporarily borrowed from the municipal state street aid fund;
  • Audit fees;
  • Recorder’s commission;
  • Personal damages;
  • Property damages;
  • Office assistance; or
  • General administrative expenses.

Be careful:

  • If a city makes curb and gutter improvements and pays the total cost from state street aid funds but has assessed the abutting property owners for two-thirds of the cost, the funds derived from the assessments must remain available for other qualified street projects;
  • Interest received by a municipality from the investment of state street aid funds is subject to the same restrictions as the state street aid fund money; and
  • A city must keep records in accordance with sound municipal accounting practices and include the state street aid funds in the year-end audit.

State street aid funds can pay for:

  • construction, reconstruction, improvement, and maintenance of streets, including paving, repaving, grading and drainage, repairs, cleaning, acquisition and maintenance of rights-of-way, extension and widening of existing streets, elimination of railroad grade crossings, acquisition or lease or lease/purchase of trucks or other equipment necessary in the construction and maintenance of streets, including the purchase, construction or leasing of facilities to store equipment, street lighting, signage, and other traffic control devices, and administrative and other necessary expenses, including labor and employee benefits, in connection with such street improvements. T.C.A. § 54-4-201.
  • Engineering fees for street improvements. Cities are not required to employ licensed engineers to prepare bid specifications and estimates;
  • Constructing sidewalks along city streets;
  • Acquiring rights-of-way for city streets, including approaches to bridges and tunnels;
  • Widening and/or draining a creek to prevent city street flooding, where the primary purpose is to stop street flooding. Protecting other property may be an incidental benefit;
  • Up to one-third of the city’s rights-of-way acquisition costs for a state highway through the city; and
  • The city’s part of the cost of grade eliminations on streets and highways, including state and federal highways.

State street aid funds cannot pay for:

  • Extending municipal sewer lines even if tunneling under city streets is necessary; or
  • Drainage improvements not associated with protecting a street.

Be careful:

  • Funds may not exceed one-third of the total costs of rights-of-way for state and federal highways within the municipality; and
  • All purchases must be made in conformity with public advertisement and competitive bidding laws applicable to the city.

Repair and Maintenance
State street aid funds can pay for:

  • Purchasing machinery to repair and maintain municipal streets;
  • Purchasing and maintaining equipment for mowing areas within street rights-of-way;
  • Removing dead trees, tree limbs, leaves, and similar objects;
  • Purchasing boiler for asphalt plant if used to heat asphalt for street improvements; and
  • Purchasing street cleaning equipment.

State street aid funds cannot pay for:

  • Maintaining county roads; or
  • Purchasing refuse pick-up equipment.

Be careful:

If purchasing a piece of equipment is questionable, spend the money on other equipment, supplies, or paving.

Street Signs and Street Lights
State street aid funds can pay for:

  • Erecting street signs;
  • Installing and maintaining traffic lights; and
  • Street light installation and electric bills for street lights.

State street aid funds cannot pay for:

  • Welcome-to-the-city signs; or
  • Community event and general informational signs.

Other Facilities
State street aid funds can pay for:

  • Purchasing, constructing, repairing, or leasing a facility to store street equipment, street lighting, signs, and other traffic control devices.

Cities are advised to use municipal street aid funds for known eligible expenditures and fund questionable expenditures from the general fund.