Shown verbatim: the complete text as captured from the official PDF posted by the Tennessee General Assembly, fetched 2026-09-25. Page and line markers are part of the official record; nothing is edited or removed. This is the chaptered version. The official bill page.
-......
: ~(~ •.., lltrjl:
....
State ff JetUteSSl!e
PUBLIC CHAPTER NO. 1059
SENATE BILL NO. 855
By Taylor
Substituted for: House Bill No. 794
By Vaughan
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, Title 7, Chapter 35, Part 4, is amended by adding
the following as a new section:
(a) Definitions. As used in this section, unless the context otherwise requires:
(1) "Adjacency area" means 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 pursuant to § 7-82-702(b)(1)(E)(i); provided, capacity to
serve new customers is available;
(2) "Affordable housing trust fund" means a separate fund established by a
participating municipality into which surcharge proceeds are deposited and expended
solely for affordable housing purposes within the participating municipality's corporate
limits;
(3) "Commercial development" means any multifamily residential structure that
is part of a mixed-use or planned commercial development, or non-residential
building, site, or structure to be served by the participating municipality's sewerage
system;
(4) "Housing surcharge" means a fee or assessment collected for affordable
housing within the corporate limits of the participating municipality as authorized by
this section for sewer connection of properties located within the adjacency area;
(5) "Participating municipality" means an incorporated city or town in this state
that operates a sewerage system outside of its corporate boundaries, including cities
or towns subject to § 7-35-417(a), and has imposed a moratorium on new sewer
connections outside of its corporate boundaries for a period of five (5) or more
consecutive years;
(6) "Public authority" means any agency, authority, or instrumentality created
or authorized by any participating municipality or by two (2) or more participating
municipalities acting jointly under a general statute or private act, including, but not
limited to, an industrial development corporation organized pursuant to title 7, chapter
53, a health, educational and housing facility corporation organized pursuant to title
48, chapter 101, part 3, and a housing authority organized pursuant to title 13,
chapter 20, part 1; and
(7) "Residential lot" means a platted lot or parcel designated for a single-family
detached dwelling within an approved single-family residential development.
SB 855
(b) Authority to extend sanitary sewer service or allow sewer connection within
adjacency area upon payment of housing surcharge.
(1) A participating municipality may 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
as provided in this section.
(2) Property outside the adjacency area is ineligible for sewerage service
under this section.
(3) The municipality may:
(A) Collect the housing surcharge from the property owner or
developer;
(B) Assess the housing surcharge against the property and permit
payment over a period not to exceed five (5) years, together with interest at a
rate fixed by municipal ordinance;
(C) If authorized by a municipal ordinance, permit the satisfaction of an
amount equal to the housing surcharge through the allocation of the increased
county ad valorem property tax revenues attributable to the development for a
period not to exceed five (5) years; provided, that:
(i) The allocation is not prohibited by state law;
(ii) The allocation is approved by the county legislative body
responsible for levying and appropriating the ad valorem property tax
in the adjacency area where the property is located;
(iii) The allocation is memorialized in a written
intergovernmental agreement, pursuant to title 12, chapter 9, or other
law, between the participating municipality and the county; and
(iv) The revenues allocated pursuant. to the interlocal
agreement are d~posited i·nto the municipality's affordable housing
trust fund and used only for public purposes in accordance with this
section; or
(D) Collect the housing surcharge using a combination of the methods
authorized in subdivisions (b)(3)(A)-(C); provided, that the amount collected
must not exceed the amounts authorized by subsection (c).
(4) This section does 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. All such fees and charges apply in addition to the surcharge
authorized by this section.
(5) Notwithstanding a law to the contrary, 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 services as
determined by a study, report, or other information and evidence obtained by the
participating municipality and the developer requesting the sewer extension or
connection is unable or _not willing to financially contribute to necessary upgrades to
the participating municipality's sewer system.
(c) Housing surcharge amounts.
(1) For each residential lot in a single'."family development located within an
adjacency area, the housing surcharge must be an amount not to exceed three
percent (3%) of the appraised value of the residential lot with improvements, as
determined by an independent appraisal, if a principal structure has been constructed
or a building permit for a principal structure :has been issued at the time of sewer
a connection. If a principal structure has not been constructed and building permit for
a principal structure has not been issued at the time of sewer c~:mnection, then the
housing surcharge may be imposed in the following two (2) stages:
2
SB855
(A) Not to exceed two and one-half percent (2.5%) of the appraised
value of the residential lot as improved with subdivision or site infrastructure,
as determined by an independent appraisal; and
(B) Not to exceed three percent (3%) of the value of the building or
construction, as established at the time of issuance of the building permit.
(2) For each commercial development located within an adjacency area, the
housing surcharge shall be an amount not to exceed five percent (5%) of the
appraised value of the commercial property with improvements, as determined by an
independent appraisal, if a principal structure has been constructed or a building
permit for a principal structure has been issued at the time of sewer connection. If a
principal structure has not been constructed and a building permit for a principal
structure has not been issued at the time of sewer connection, then the housing
surcharge may be imposed in the following two (2) stages:
(A) Not to exceed five percent (5%) of the appraised value of the
commercial property as improved with site or subdivision infrastructure, as
determined by an independent appraisal; and
(B) Not to exceed five percent (5%) of the value of the building or
construction, as established at the time of issuance of the building permit.
(d) Affordable housing trust fund.
(1) Notwithstanding § 7-34-115 or any other law to the contrary, a housing
surcharge collected pursuant to this section is not revenue derived from public works
for purposes of§ 7-34-115 and must be deposited into the participating municipality's
affordable housing trust fund.
(2) Revenues in the fund must be used 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 pursuant to the rules, requirements, and limitations of the participating
municipality's affordable housing trust fund.
(3) A participating municipality may contribute or pledge revenues in the fund
to a public authority for the purpose of financing affordable housing projects eligible
under this section, which such affordable housing projects constitute projects eligible
to be financed with bonds issued by any such public authority.
(4)(A) A participating municipality, through its public authority, is authorized to
issue special obligation revenue bonds or notes for the purpose of financing
affordable housing projects eligible under this section.
(8) Bonds or notes issued under this subdivision (d)(4) must be
payable solely from, and secured by a pledge of, all or any portion of the
revenues deposited into the municipality's affordable housing trust fund
pursuant to this se<;tion, including revenues collected in future fiscal years,
and any other legally available funds approved by the governing body of the
municipality.
(C) Bonds or notes issued under this subdivision (d)(4) do not
constitute a general obligation or indebtedness of the municipality, and neither
the faith and credit nor the taxing power of the municipality is pledged to the
payment thereof.
(D) Bonds or notes issued by a participating municipality pursuant to
this subdivision (d)(4) must be issued and sold in the manner provided by title
9, chapter 21, part 3, except to the extent this subdivision (d)(4) provides
otherwise.
(5) The participating municipality shall include annual reporting of the fund's
receipts and expenditures in its budget documents or municipal audit related to all
housing surcharges.
(6)(A) If a developer elects to pay the surcharge in full at the time of
connection, rather than through assessment over time, the developer may
request and the municipality may reserve an amount of surcharge proceeds
equal to the payment within the affordable housing trust fund for the exclusive
3
SB 855
use and benefit of that developer for a period not to exceed five (5) years from
the date of payment.
(8) Reserved funds may be applied only to affordable housing projects
located within the municipality's corporate limits in which the developer has an
ownership interest, development role, or financial participation, as determined
by municipal ordinance.
(C) Reserved funds must be expended solely for affordable housing
purposes consistent with this section and must not be distributed as a cash
refund or rebate to the developer.
(D) Any portion of the reserved funds not committed or expended
within five (5) years of the date of payment revert to the general balance of the
affordable housing trust fund and may be used for any eligible purpose under
this section.
(E) The municipality may establish by ordinance the procedures,
eligibility requirements, documentation standards, and approval process for
use of reserved funds under this subdivision (d)(6)(E).
(e) Deferred payment - Billing and collection.
(1). If the housing surcharge authorized by this section is not paid in full at the
time of connection, closing, or acquisition of the property and is instead assessed to
the property owner for payment over a period of time not to exceed five (5) years,
then the participating municipality must bill the unpaid balance, including authorized
interest, as a separate line item on the monthly utility bill for the premises served.
(2) Subject to subsection (d), for purposes of collection and enforcement, the
billed installment constitutes a utility service charge and may be collected and
enforced in the same manner as service charges pursuant to § 7-35-201, including
combined billing and discontinuance of service for nonpayment.
(3) The municipality shall provide written disclosure of the remaining balance
and payment terms to the property owner upon initiation of billing and upon request
thereafter.
(4) The obligation to pay installments under this subsection (e) applies only to
the premises served and terminates automatically upon payment in full.
(5) As a condition of authorizing deferred payment of the housing surcharge to
be paid by a subsequent purchaser or property owner, the participating municipality
shall require the developer to:
(A) Include a disclosure of the deferred surcharge obligation, including
the amount, payment term, and billing method, in the purchase and sale
contract for the affected property; and
(8) Provide written evidence to the participating municipality, in a form
prescribed by municipal ordinance, demonstrating that the disclosure required
by subdivision (e)(5)(A) has been included in the purchase and sale contract
prior to conveyance of the property.
(f) Appeal.
A request for sewer service, surcharge assessment, or any related action
taken under this section is governed exclusively by this section and the implementing
municipal ordinance.
(g) Service area limitation'.
(1) A participating municipality has exclusive authority ·by ordinance to
delineate the boundaries of the adjacency area eligible for service under this section
but is inclusive of the area that could be reasonably construed pursuant to § 7-82-
702(b)( 1)(E). Any modification of such boundaries must be approved in writing and by
ordinance enacted by the participating· municipality prior to such modification.
(2) Extension of sewer service 'under this section does not expand the
corporate limits of the participating municipality for any purpose.
4
S8855
(h) Contractual condition.
(1 )(A) Except as provided in subdivision (h)(1 )(8), as a condition to receiving
sewerage service under this section, the participating municipality and the
property owner or developer shall execute a written connection agreement
that incorporates the surcharge obligation, the amount and payment schedule,
any interest authorized by this section, and any other conditions of service
established by municipal ordinance.
(8) The requirement of subdivision (h)(1 )(A) does not apply when the
manner of collecting an amount equal to the housing surcharge is the manner
authorized by subdivision (b)(3)(C).
(2) The participating municipality shall not authorize the extension or
connection of sewer service to any property located within the adjacency area unless
and until the sewer connection agreement has been fully executed.
(3) All costs associated with any authorized sewer extension or sewer
connection must be borne by the property owner or developer.
(i) Vested rights.
(1) This section does not impair, modify, or supersede vested property rights
established pursuant to the Vested Property Rights Act of 2014, compiled in §§ 13-3-
413 and 13-4-310.
(2) The housing surcharge_, assessment, or other requirements authorized by
this section only apply to development applications, sewer extension requests, or
sewer. connection requests submitted on or after the date that a municipality
establishes the sewer extension policy authorized by this section.
(3) This subsection (i) does not limit the authority of a participating municipality
to condition new or amended sewer extension or connection approvals on
compliance with this section where vested rights have not otherwise been established
under state law.
SECTION 2. The headings in this act are for reference purposes only and do not constitute a
part of the law enacted by this act. However, the Tennessee Code Commission is requested to
include the headings in any compilation or publication containing this act.
SECTION 3. If Section 1, subdivision (b)(3) or (b)(4), authorizing the allocation of increased
ad valorem tax revenues to satisfy a housing surcharge or its application to any person or
circumstance is held invalid, then the invalidity does not affect other provisions or applications of the
act that can be given effect without the invalid provision or application, and to that end, the
provisions of this act are severable.
SECTION 4. This act takes effect upon becoming a law, the public welfare requiring it.
5
SENATE BILL NO. 855
PASSED: April 23, 2026
RANDYM
SPEAKER OF THE
CAMERO~SEXTON,SPEAKER
HOUSE OF REPRESENTATIVES
APPROVED this J;).w:> day of (V)a,,. A 2026
K
~ l~LJ~
BILL LEE, GOVERNOREvery fact on this page links to its source, starting with the official bill record.