Utilities, Utility Districts

Plain English Breakdown

The provided official bill summary text does not include information about issuing bonds or other financing mechanisms for affordable housing projects, which were mentioned in the candidate explanation. The bill summary focuses on establishing a process for charging fees and depositing them into an affordable housing trust fund but does not provide details on bond issuance.

Municipal Sewer Service Extension Act

This bill allows certain Tennessee municipalities to charge fees for extending sewer service outside their city limits if they have imposed a moratorium on new connections for five or more years and agree to use the money for affordable housing projects within the city.

What This Bill Does

• Allows participating municipalities that have not built new sewers in five or more consecutive years to extend services only if property owners pay a fee called a 'housing surcharge'.
• Defines an 'adjacency area' as land near but outside of a municipality's limits where sewer service can be extended.
• Sets rules for how the housing surcharge is collected, including from property owners directly or through assessments over time.
• Requires participating municipalities to deposit surcharges into an affordable housing trust fund and use it only for building affordable homes within city limits.

Who It Names or Affects

• Municipalities that operate sewer systems outside their boundaries and have imposed a moratorium on new connections for five or more consecutive years.
• Property owners and developers who want to connect to a municipality's sewer system outside its limits.

Terms To Know

housing surcharge

A fee charged by participating municipalities for extending sewer service to properties located in an adjacency area, which must be used for affordable housing projects within the municipality's limits.

adjacency area

Land outside a municipality’s corporate boundaries but near them where sewer services can potentially be extended under this amendment.

Limits and Unknowns

• The bill does not specify how much the housing surcharge will increase property taxes or utility bills.
• It is unclear if all municipalities will choose to participate in this program.
• The exact impact on affordable housing projects and their availability within participating municipalities remains uncertain.

Official Summary Text

ON MARCH 19, 2026, THE SENATE ADOPTED AMENDMENT #2 AND PASSED SENATE BILL 855, AS AMENDED.

AMENDMENT #2 r
ewrites this bill to establish a process for

a municipality
that operates a sewerage system outside of its corporate boundaries and has imposed a moratorium on new sewer connections outside of its corporate boundaries for a period of five or more consecutive years
(a "participating municipality") to
extend sanitary sewer service or allow sewer connection only to property located within an adjacency area if the property owner or developer agrees to pay, or the municipality assesses, a housing
surcharge
. For purposes of the amendment, an "a
djacency area"
is
the area outside the corporate limits of a participating municipality but contiguous to or adjacent to those limits and situated such that the participating municipality's provision of sewer service to that area could be reasonably construed
under present law authorizing the Tennessee board of utility regulation to hear complaints based on a utility's failure to offer or extend service.
Property outside the adjacency area is ineligible for s
ewerage service
under this amendment.

The housing surcharge is a fee or assessment for
affordable housing within the corporate limits of the participating municipality as authorized by this
amendment
for sewer connection of properties located within the adjacency area
. This amendment provides four methods of collecting the surcharge: collection
from the property owner or developer
; assessment
against the property and permit payment over a period not to exceed five years
, plus interest; allocation of increased property tax revenue based on th
e increased value of the property due to the development, pursuant to an interlocal agreement, and for a period not to exceed five years; and a hybrid-method combining any of the other three methods. Generally, this amendment caps the surcharge at
3% of the appraised value of
a
residential lot with improvements
and 5%
of the appraised value of commercial property with improvements
. The full text of this amendment provides different caps for circumstances when the surcharge is imposed in two stages.

This amendment specifies that it d
oes not exempt a property owner or developer from any other fees, charges, or other assessments customarily imposed by the municipality, county, or utility in connection with the development of property or the provision of sewer service.
Additionally, this amendment specifies that
a participating municipality may deny a sewer extension or connection request for sewerage services in the event the participating municipality lacks sufficient capacity to provide such service
s
.

The surcharges must
be deposited into
a
participating municipality's affordable housing trust fund
and u
sed solely to support affordable housing projects located within the participating municipality's corporate limits, including acquisition, development and construction, rehabilitation, or preservation of affordable units.
This amendment authorizes a participating municipality to do the following with regard to financing affordable housing:

(
1
)
C
ontribute or pledge revenues in
its affordable housing trust
fund to a public authority
; and

(2) Subject to various requirements specified in the full text of this amendment, is
sue special obligation revenue bonds or notes for the purpose of financing affordable housing projects.

Th
is amendment requires a
participating municipality
to
include annual reporting of the fund's receipts and expenditures in its budget documents or municipal audit related to all housing surcharges.

If a developer elects to pay the surcharge in full at the time of connection, rather than through assessment over time, the developer
will be authorized to
request and
the
municipality
will be authorized to
reserve an amount of surcharge proceeds equal to the payment within the affordable housing trust fund for the exclusive use and benefit of that developer for a period not to exceed five years from the date of payment.

Reserved funds may be applied only to affordable housing projects located within the m
unicipality's corporate limits in which the developer has an ownership interest, development role, or financial participation, as determined by municipal ordinance.

I
f the housing surcharge is assessed to the property owner for payment over a period of time, the participating municipality must bill the unpaid balance as a separate line item on the monthly utility bill for the premises served.
A
billed installment constitutes a utility service charge and may be collected and enforced in the same manner as service charges pursuant to
present law
.
Any unpaid balance on surcharge must be disclosed to a subsequent purchaser of the property.

Current Bill Text

SENATE BILL 855
By Taylor

HOUSE BILL 794
By Vaughan

HB0794
002937
- 1 -

AN ACT to amend Tennessee Code Annotated, Title 4;
Title 5; Title 6; Title 7; Title 8; Title 12; Title 13;
Title 29; Title 54; Title 64; Title 65; Title 68 and
Title 69, relative to municipal utilities.

BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF TENNESSEE:
SECTION 1. Tennessee Code Annotated, Section 7-52-110(b), is amended by deleting
"ten (10) days" and substituting "ten (10) business days".
SECTION 2. This act takes effect upon becoming a law, the public welfare requiring it.