The University of Tennessee, Knoxville

Tennessee County Municipal Advisory Service

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Developing a New Sewer System

Reference Number: MTAS-572
Tennessee Code Annotated
Reviewed Date: October 07, 2016
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Why Build a New Sewer System?
The usual reasons are:

  • To solve health, environmental and ground water concerns caused by failing septic tanks/drainfields;
  • To attract new or expanded commercial/business/industrial growth;
  • To serve new residential growth; and
  • To preserve and increase property values.

What to Consider

  • Are citizens in favor of centralized sewer service? City leaders will have to do a good job of public education to get the residents on-board with the idea.
  • Sewer systems provide a valuable service. The primary reasons for having a sewer system are public health environmental protection and growth. Having well designed and well operated centralized sewer likely will increase property values and business tax revenues.
  • If your city decides to develop a sewer system, mandatory hookup is a must. For financial viability, cities with standalone sewer systems (those where the town does not own the water system) should require mandatory hookup where sewer is available. Many lenders require mandatory hookup. If a city is able to avoid mandatory hookup requirements, at a minimum all properties where sewer is available, but who choose not to hookup, should be charged a minimum bill. Where old structures are demolished and new ones built, the new structures should have mandatory hookup requirements.
  • The financial capability of the sewer system is subject to state law and enforcement. The Water and Wastewater Financing Board, under the state comptroller, regulates financial capability of municipal water and sewer systems. Those systems must be operated as enterprise funds (be financially self sufficient, i.e., revenues from user fees must cover expenses).
  • Building a new sewer system may be the biggest project any community ever undertakes. It will be administratively and financially challenging, especially in the first few years.
  • Sewer systems will change your community. For growth to occur, centralized sewer service must be available. Growth will occur where centralized sewer service is available.
  • When city A’s wastewater is treated and discharged by city B and city B owns the national pollution discharge elimination system (NPDES) permit, there are advantages and disadvantages for city A.
    • The advantage is that the contributing city (city A) does not have the liability of the NPDES permit and does not have to operate and maintain a sewage treatment plant.
    • The disadvantages are that city A is dependent on city B for short-term and long-term capacity to handle wastewater from city A in its lines and its plant. City A has no control over rates passed on by city B.
  • If city B treats wastewater from city A, a contract satisfactory to both sides must be developed. City A will still have the administrative, financial, and operating and maintenance responsibilities that go along with operating a sewer collection system. Considerations include:
    • A contract between two municipalities that includes the following and is prepared and or reviewed by an attorney:
      • Identifies parties and purposes;
      • Specifies each party’s responsibilities;
      • Clearly specifies any capacity guarantees;
      • Addresses sewer use ordinance differences and industrial pretreatment permitting if applicable;
      • Has a dispute resolution and/or termination clause;
      • Is specific about what rates are to be charged and how, how often and on what basis they can be changed;
      • Describes the services to be performed;
      • Stipulates how and when payments are to be made;
      • Includes an indemnity or hold harmless clause; and
      • Includes a severability clause.
    • Administrative responsibilities:
      • Developing and managing the contract between the two cities;
      • Planning, engineering, and construction responsibilities and managing those functions, for instance, procuring engineering services and obtaining easements;
      • Procuring financing for the project, including setting tap fees; connection fees, capacity fees, and clearly defining what each of terms means. There is often significant confusion on the meaning of these terms and what is or is not included in the fees.
      • Keeping residents and businesses informed;
      • Developing policies and procedures such as a sewer use ordinance and customer forms such as applications;
      • Determining how billing and revenue collection will be done;
      • Setting sewer rates; and
      • Receiving and handling complaints.
    • Operation and Maintenance
      Determining who will be responsible for operation and maintenance and managing the work, i.e., will you hire certified operator(s) or contract for these services?
    • Funding the project
      • Several options for grants and loans are available. The city will have to decide how to proceed on funding questions.
      • Be aware that the cost of installing a sewer main is only part of the costs. The construction costs to install collector sewers to residences that are widely dispersed can be enormous.
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