SB 855

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."