New Tool for Economic Growth: Public-Private Partnerships for Municipal Sewer Construction

Written by: Jay Surdukowski, Esq.

Senate Bill 223 – which amended NH RSA 149-I to allow municipalities to enter into contracts for private funding of and repayment for the construction of new public sewer systems – became effective in April of 2014. This new law provides a creative mechanism for economic development by allowing public-private collaborations to build infrastructure necessary for business growth.

An impediment to commercial development in New Hampshire can be the lack of availability of a municipal sewer line connection. Large scale businesses and restaurants that are not connected to municipal sewer systems must install, build, and maintain their own costly septic systems. Because subsurface disposal systems have limited useful lives and require ongoing repairs and maintenance, businesses prefer the convenience and cost-effective nature of municipal sewer service.

Sewer lines, like anything else that ushers in modern convenience, can cost a lot of money – and such projects can be a burden to the tax base of smaller municipalities or municipalities that are already committed to many other capital projects. This new statute provides a new way to solve this problem by allowing businesses to pay the up-front costs of constructing new sewer improvements and then to recoup those costs as new users connect to the improvements in subsequent years. In essence, the businesses that build the new sewer lines provide the municipality with a no-interest loan equal to the cost of construction.

The new statute requires that contracts for new sewer construction that are entered into between municipalities and businesses must satisfy various requirements, including the following:

  1. Sewer rentals, fees, and other charges collected from persons served by the new sewer project must be accounted for within a special fund that is separate from other town municipal funds. This segregated fund is the sole source of money from which the municipality will repay the business that builds the improvements in the first instance.
  2. The municipality’s obligation to repay the business that built the improvement must be limited to the cash on deposit or to be deposited in the special fund. The contract may not require or obligate the municipality to use any funds other than those deposited in the new special fund to repay the business that built the improvement.
  3. The total of repayments under the contract may not exceed the total costs of design and construction incurred by the business to construct the improvements. This provision ensures that the contract does not provide an unwarranted windfall to the business that constructs the improvements.
  4. The contract must state that no municipal general funds shall be appropriated for the repayment of the obligations under the contract. Again, this requirement shields the municipality’s general fund from being tapped for contract payments.
  5. The contract must be approved by majority vote of the governing body of the municipality or one of its commissions or departments to which that power has been delegated.

Senate Bill 223 was very popular and easily passed both houses of the Legislature, perhaps in part because it aims to create “an improved pattern of economic development while reducing public tax burdens” (quoted from the Bill’s statement of purpose). It will facilitate the creation of public-private partnerships that permit municipalities to expand or upgrade their capital infrastructure without negative impacts on the taxpayers.