Utility Board

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					                                                      May 26, 2010

Dear City Attorney:

        You have several questions related to the Wastewater, Sewer and Natural Gas Board. I
have also received a couple of other questions on this issue. Due to the short time frame I have
been given to answer them, I will not repeat the questions and the facts behind them. But I will
state them and my answers near the end of this opinion letter.

        I will say at the outset that it appears to me an extremely foolish omission by the city to
skip the passage of an ordinance to give the city’s governing body the authority to operate the
city’s Waterworks, Sewerage and Natural Gas System (which for the purposes of distinguishing
it from the electrical system I will call the “utility” or “utility system.”)

       Tennessee Code Annotated, § 7-35-406 provides that in order for the city’s governing
lowering body to elect to operate the utility system, it must do so “by proper ordinance.”

       Article VIII, Section 4 of the City Charter says:

               The operation and control of the Waterworks, Sewerage and
               Natural Gas System shall be vested in the Board of Waterworks,
               Sewerage and Natural Gas Commissioners by ordinance adopted in
               strict compliance with Tennessee Code Annotated, Title 6, Chapter

       Finally, Title 2, Chapter 4 of the Municipal Code also says:

               There is hereby created a board to be known and designated by the
               “board of waterworks, sewerage and natural gas commissioner”
               which shall be responsible for the custody, administration,
               operation, maintenance and control of the waterworks, sewerage,
               and natural gas systems of the City.... After the board has effected
               its organization, it shall have and exercise all the powers and duties
               prescribed for it by the 1933 public acts and shall operate and
               function in the manner and keep the records and accounts required
               by that act subject to the making of such additional provisions or
               regulations as the city council is authorized to make under such
               act... [Section 2-401].
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Page 2

        In short, the state law, the city’s charter, and the city’s municipal code require the
governing body of the city to adopt an ordinance to operate the utility system. The state law and
the city’s charter in particular do not operate as advice, but as commands. If the city’s governing
body simply jumps into the operation of the utility board without the benefit of an ordinance, it
could find itself involved in a lawsuit that will cause it great inconvenience and need never have
happened. The city would not even have the benefit of a good reason for skipping the ordinance.
The vacancies on the utility board can be filled, or the ordinance passed.

         As your own letter properly points out what the city’s governing body created by
ordinance must be abolished by ordinance; it cannot be done by resolution or by simply letting
the utility’s operation “default” to the city’s governing body. In State ex rel. Barr v. Town of
Selmer, 417 S.W.2d 532 (Tenn. 1967), a city utility was organized under Tennessee Code
Annotated, § 7-35-401 et seq., as is the City’s utility. The utility system had been operated by a
board of waterworks and sewer commissioners. The city, by ordinance, elected to take over
the operation of the utility system. Bond holders for the gas system sued claiming that the bond
covenants provided that the gas system would be operated by the board of waterworks and sewer
commissioners. Apparently the chancellor ordered the Town of Selmer to relinquish control of
all the utility’s functions, and that he ordered the city not to enforce the ordinance that gave
control of the utility system to the city’s governing body.

        The court upheld the chancellor’s decree as to the gas system, but said as to the utility’s
other functions:

               .... the chancellor had no authority to divest the Mayor and Board
               of Aldermen of the control of the water and sewer systems. These
               systems are not involved in the litigation.... We further hold that
               the chancellor had no authority to order the Board of Mayor and
               Aldermen to repeal the 1965 ordinance. Insofar as the system of
               waterworks and sewers are concerned, it appears that the 1965
               ordinance is perfectly valid and within the authority granted to the
               governing body of the city by T.C.A. s 6-1413.... [At 534]

         If the chancellor could not take away the right of the city’s governing body to take over
the operation of the utility system, by the passage of an ordinance (except for the gas system, the
operation of which the city had contracted to within the authority of the board of waterworks and
sewer commissioners), it escapes me how the City can presume to take over the operation of the
utility “by default” rather than by ordinance as the state law, the city’s charter and the city’s
ordinance requires. There is no such thing as a “default” in this situation.
May 26, 2010
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         In State ex rel. Patton v. City of Lexington, 626 S.W.2d 5 (Tenn. 1981), the question was
whether the city could abolish a utility board created under the authority of the Municipal
Electric Plant Law of 1935, and return the control of the utility to the city. The court observed
that the utility board was created by resolution and that the city had, by resolution, abolished the
utility board, and said:

               Generally, the power of a municipal corporation to repeal an
               ordinance or resolution is, by necessary implication, as broad as the
               power to enact it....The legislature granted the governing body of a
               municipality the option, at any time, of placing supervision of the
               acquisition, operation and maintenance of the municipality’s
               electrical plant in a board created for that purpose or of itself
               exercising supervision over the electrical plant.... [At 6]

        The implication of that case is that what the board established by resolution had to be
abolished by resolution. In City of Bluff City v. Morrell, 764 S.W.2d 200 (Tenn. 1988), the
Tennessee Supreme Court held that an annexation ordinance could not be repealed by a
resolution, that it must be repealed only with an act of equal dignity–and ordinance. [Also see
State ex rel. Schultenbrand v. City of Knoxville, 788 S.W.2d 812 (Tenn Ct. App. 1989).]

        I have been asked a number of times how a utility board works if the city’s governing
body becomes the utility board. I have never found a Tennessee case that expressly answers that
question, but a recent case that I will address below obliquely addresses it. But a reading of the
statutes that bear on the question seem to generate the answer. Tennessee Code Annotated, §
7-35-406(a) says two things pertinent to your city’s questions:

       First, that

               “Board,” as used in this part, means a board of waterworks ad/or
               sewer commissioners as required and authorized in this section,
               constituted and appointed as provided in §§ 7-35-407–7-35-409....

       Second, that:

               The governing body of any municipality of any incorporated city or
               town, may by proper ordinance, elect to perform the duties required
               of the boards under this part, in which event the governing body
               shall have all the powers, duties and responsibilities imposed upon
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Page 4

               the board, and all the references to the board shall refer to such
               governing body acting in the capacity of such board.

        It appears to me difficult to believe that the General Assembly meant that the “Board” as
defined in Tennessee Code Annotated, § 7-35-406(a) was intended to be superimposed in whole
upon the city’s governing body in its capacity as the utility board when it elected to take over the
utility. In fact, some of the provisions of Tennessee Code Annotated, §§ 7-35-407–7-35-409,
and even 7-35-410, simply do not work if the governing body of the city elects to be the utility
board. It seems obvious that the governing body may be larger or smaller than the five members,
will not be appointed to five year terms that expire according to the schedule, and their vacancies
will not be filled, as provided in Tennessee Code Annotated, §§ 7-35-407 and 408. The city’s
charter would prescribe the answer to all those issues. Likewise, it seems unlikely that the city’s
governing body functioning as the utility board could be removed as prescribed by Tennessee
Code Annotated, § 7-35-410.

        In addition, Tennessee Code Annotated, § 7-35-406(a), referring as it does to the
governing body having “all the powers, duties and responsibilities imposed upon the board”
seems to mean that if the governing body of the city is the utility board, it must comply with the
provisions in Tennessee Code Annotated, § 7-35-401 et seq., that apply to the powers, duties and
responsibilities of the board of water and sewer commissioners. The only rub there is that it is
not exactly clear what those powers, duties and responsibilities are with respect to Tennessee
Code Annotated, § 7-35-409. Presumably, it can be argued that statute contains part of the
duties of the utility board, consisting of “The board shall do” a number of things:

       - Hold a meeting to elect a chair;

       - Designate a secretary and/or treasurer, and fix his or her compensation;

       - Hold public meetings at least once a month; and

        - “Except as otherwise expressly provided,” establish its own rules of procedure. (I see no
rules of procedure prescribed in § 7-35-401 et sec. at all.)

         On first glance, that argument has some merit. But the argument fails a second glance.
The provision allowing the city’s governing body to take over the utility was the product of
Private Acts 1963, Chapter 232. One would have to believe that the General Assembly
intended the simple provision that the city’s governing body could take over the operation of the
city utility meant that the city’s governing body would be required to convert itself into a utility
board that would adopt a set of procedures to governing itself, when it already has in place a set
of procedures to govern itself. Tennessee Code Annotated, § 7-35-406(a) does provide that “all
May 26, 2010
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references to the board shall refer to such governing body acting in the capacity of such board,”
but it acts in capacity of the utility board. But when it is “acting in the capacity of such board,”
the governing body of the city does not become the utility board. Surely, it was not intended by
the General Assembly that all those “the Board shall do ....” that apply to separate utility boards
be recreated by a city that elects to operate the utility, especially when its charter already
addresses all those “shall do’es,” including the shall do meeting at least once a month.

        Even if we conceded that statute is ambiguous, its ambiguity would trigger the
application of the rules of statutory construction, and under those rules statutes will not be read to
produce an absurd result. [State ex rel. Maner v. Leech, 558 S.W.2d. 5354 (Tenn. 1979)] It
seems to me to produce an absurd result to read the statute to require the city’s governing, which
is already a complete body, to convert itself into the utility board in order to operate the utility.
Indeed, under Tennessee Code Annotated, § 35-7-1401 et seq., it is the governing body that has
the authority to impose and change the utilities rates. Are we to believe that in order to adjust
one utility rate or another the governing body of the city reconstituted as the utility board must
decide a utility rate adjustment is needed, then reconstitute itself into the city’s governing body to
make the rate adjustment?

        That conclusion that if the city decides that it wants to operate the city’s utility, it does not
need to convert itself to the utility board in order to operate it, also receives some surprising
support from the recent case of Allamand v. Pavletic, 292 S.W.3d 618 (Tenn. 2009). In that case,
Pavletic entered into an unbelievably long and lucrative contract with the City of Milan, under
which he operated the city’s electrical department and the gas, sewer and waterworks department.
 Under the city’s charter he served at the will and pleasure of the city’s governing body. The
city’s gas, sewer and waterworks department was apparently organized under Tennessee Code
Annotated, § 7-35-401 et seq., and under Tennessee Code Annotated, § 7-35-406(a) the
governing body of the city operated that utility system. That statutory scheme, the court pointed
out, contained no at will employment provision. Pavletic urged that under Tennessee Code
Annotated, § 7-35-412, the city’s governing body, acting in the capacity of a utility board, had
extremely broad authority to enter into contracts and to fix the compensation of its employees.

        The court rejected that argument, declaring that:

                Again, these general statutory provisions must be read in
                conjunction with the City Charter and the prohibition against
                actions beyond the powers conferred by the city charter. See
                Grubb, 203 S.W.2d 596. The statutes cited by Allamand do not
                negate the requirement [in the city’s charter] that he serve at the
                will and pleasure of the board. [At 628] [Emphasis is mine.]
May 26, 2010
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        If that is true a city’s charter provisions governing terms of employment apply to a utility
board organized under Tennessee Code Annotated, § 7-35-1401 et seq. it is difficult to find a
reason it is not true as to charter provisions that are already in place that address how it–not a
separate utility board--would operate the utility system.

         In short, for the purposes of your city’s questions, when the city’s governing body operates
the utility, the city’s charter remains in operation, and presumably so do the city’s ordinances that
do not conflict with the charter. All of which leads me to conclude that:

          With respect to the question of whether the mayor will be the chairman of the board, there
being no separate utility board when the city’s governing body takes over the operation of the
utility, it appears that the mayor will function the same way he does in regard to all other . bodies
of the city. Under Article VI, Section 2 of the charter, the mayor is the presiding officer “at all
meetings of the city council,” but does not vote except in cases of a tie. He is an “ex officio
member of all Boards, Commissions, and Committees.” However, under the same section, the
mayor “shall not serve as a voting member of any board except as provided by law.”

        With respect to the question of how many votes it takes to pass resolutions to conduct
business, Article IV, Section 1, provides that the governing body of the city consists of a mayor
and six council members. Under Article V, Section 1 of the charter, four councilmen constitute a
quorum. The same provision provides that an affirmative vote of four members of the council are
required to pass measures.

       With respect to the question of whether the city needs an ordinance establishing the rules
and procedures of the city council to act as the utility board, the answer is no, there not being a
separate utility board. Presumably, the city council has already adopted rules of procedure to
govern its meetings.

        With respect to the functions of ex officio members of boards and commissions, etc., the
city charter itself prohibits the mayor from voting on any board or commission. But under
Article VI, Section 1 of the city charter, he has a voice on the city council, and even has the power
to introduce resolutions and ordinances.

         With respect to the question of whether the mayor can make temporary appointments to
fill the vacant positions on the utility board, Article VI, Section 1 of the city charter empowers the
mayor “In the temporary absence of any officer or vacancy in any office, other than Councilman,
theat required [sic] Council appointment to fill, the Mayor shall appoint some qualified person to
serve during the absence or temporarily until the Council fills the vacancy.” I can see no reason
that provision would not apply to vacancies in the utility board. The persons who hold those
offices are probably “officers.”
May 26, 2010
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       Let me know if I can help you in this or any other matter.


                                                    Sidney D. Hemsley
                                                    Senior Law Consultant


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