Gen. 127] 127

 We defer to the City Attorney’s construction of local law. 1

MUNICIPALITIES

FEES – WHETHER CONNECTION FEES MAY BE USED FOR

OPERATING COSTS OF MUNICIPAL WATER AND SEWERAGE

TREATMENT FACILITIES

September 25, 2007

The Honorable Carroll A. Jones

Mayor, City of Brunswick

On behalf of the City of Brunswick (“City”), you requested our

opinion about the permissible use of revenues from fees charged for

connection to the municipal water and sewerage systems.

Specifically, you asked whether these revenues may be devoted only

to capital infrastructure costs or whether they may also be used for

operating costs of the City’s water and sewerage treatment facilities.

Consistent with our policy governing opinion requests from

local governments, you included with your request an opinion from

the City Attorney. In that opinion, he stated that the City Charter

authorizes the City to collect charges in accordance with State law

and that neither the City Charter nor the City ordinances themselves

limited the City’s use of connection fees. He identified the 1

applicable State law governing the operation of City’s water and

sewer systems as Title 9, Subtitle 7 of the Environment Article

(“EN”), Annotated Code of Maryland. However, he also pointed out

that the Sewerage Facilities Bond Act, EN §9-801 et seq., might be

interpreted to allow use of connection fee revenues to cover

“expenses of repair and maintenance of sewerage (not water)

systems if such fees fall within the definition of ‘revenue from the

sewerage facility’,” had the City issued bonds under this statute.

While the City Attorney concluded that revenue from connection

fees is to be used for debt service, he stated that the answer to your

inquiry is not clear cut and suggested that the City seek advice from

this Office. Subsequently, we were advised by the City

Administrator that the only outstanding debt that the City has for

water or sewer infrastructure was not issued under either of the

statutes identified in the City Attorney’s opinion, but rather through

State financing programs.
128 [92 Op. Att’y

For the reasons explained below, under the City’s current

financing agreements, revenues from sewer connection fees are

dedicated to debt service. In addition, we agree with the City

Attorney that revenues from any connection charges that might be

imposed under EN §9-722(a) would be dedicated to debt service.

Even if connection fees were to be imposed under other statutory

authority, it is unlikely that the resulting revenues could be used for

routine operating costs of the City’s water and sewerage treatment

facilities.

I

Background

 When a customer initially hooks up to a public water or

sewerage system, the customer is usually required to pay a

connection fee. Generally, a connection fee is a one-time charge,

although payment is sometimes deferred over time. See, e.g., Ward

Dev. Co., Inc. v. Ingrao, 63 Md. App. 645, 651, 493 A.2d 421

(1985). 

Various methods are used to compute connection fees. For

example, it might reflect only the actual cost, or more likely, the

average cost, to complete a physical connection between the main

and properties served. See, e.g., Am. Water Works Ass’n, Principles

of Water Rates, Fees, and Charges p. 181 (5 ed. 2000). But a th

connection fee may not necessarily be limited to the cost of the

making the connection. See, e.g., Meglino v. Township Comm. of

the Township of Eagleswood, 103 N.J. 144, 155 n. 3, 510 A.2d 1134

(1986). The charge might be set so that the new customer

reimburses the municipality for a portion of the cost of capital

required to provide the service or the cost to replace the capacity the

new customer consumes. Roger J. Dolan, et al., Managing the

Water and Wastewater Utility p. 8-5 (2003); see also 12 McQuillin,

The Law of Municipal Corporations §35.55 (3 ed. rev. 2006). rd

Revenue collected through connection charges is usually dedicated

to capital expenses. Dolan, supra, at 9-9, 9-10. 
Gen. 127] 129

 This term is defined as follows: 2

“Municipal authority” means:

(1) The mayor and council of a municipality;

(2) The town commissioners of a municipality; or

(3) Any other governing body of a municipality.

EN §9-701(b). Throughout the remainder of this opinion, we use the term

“municipality” or City for brevity. 

 The subtitle also authorizes the construction and operation of 3

drainage systems and refuse disposal systems. See EN §9-701(c)

(definition of “system”). 

We turn next to the statutory provisions governing the City’s

water and sewerage systems, including the permissible use of

connection fees, and the statutory provisions governing the City’s

existing debt.

II

Municipal Water and Sewerage Systems

EN Title 9, Subtitle 7, Part II provides enabling authority under

which a “municipal authority,” such as the City, may construct and 2

operate, among other things, a water supply and sewerage system. 3

Among the powers granted to a municipality under this subtitle is

authority to construct, extend, or alter a water or sewerage system

and the authority to maintain and operate a system. EN §9-705. A

municipality that constructs or establishes a water or sewerage

system is to “[c]onstruct and provide at its own expense ... a water

service pipe or sewer connection that extends from the water main

or sewer to the property line of each lot that abuts on a street or

right-of-way in which the water main or sewer is laid.” EN

§9-708(a)(1).

Subject to the approval of the voters in a referendum, a

municipality may issue bonds to finance all or part of a system’s

design, construction, extension, alteration, purchase or
130 [92 Op. Att’y

 Such bonds are tax-exempt, can have a term of maturity of up to 4

50 years, and are not subject to any limit on the total amount of municipal

debt. The bonds are a lien on all property within the municipality. EN

§9-711(b). 

 For purposes of such assessments, the municipality may classify 5

property based on use; the annual rates may be altered year to year, but

rates must be uniform within each classification. EN §9-713(b)(3).

 This part applies, not only to municipalities, but also to counties 6

and certain special districts that operate water and sewerage systems. See

EN §§9-720 and 9-721. The authority under this part supplements any

other authority available for financing water and sewerage systems. EN

§9-721(a).

condemnation. EN §9-711(a) and (c). To cover all or part of the 4

debt service, the municipality may impose an annual front-foot

assessment “against any property that abuts on any street, road, ally,

or right-of-way in which a water pipe [or] sewer ... is laid.” EN

§9-713(a). The municipality may also impose service charges to 5

cover both debt service and “the cost of maintenance, repair, and

operation” of a water or sewerage system, “including overhead

expenses.” EN §9-714. To the extent that any front-foot benefit

assessments or service charges do not pay the principal and interest

on the bonds, the municipality is to levy a property tax to satisfy its

debt service obligation. EN §9-712. 

EN Title 9, Subtitle 7, Part III grants additional authority to

municipalities concerning water and sewerage services, including 6

explicit authority to impose connection charges. EN §9-722(a)(1).

That statute authorizes a municipality to “[e]stablish a reasonable

charge that is not less than the actual cost ... for connection with a

water or sewerage system.” Id. The statute also authorizes the

imposition of annual assessments on all property, improved or

unimproved, abutting any street, road, lane, ally, or right-of-way in

which there is a water main or sewer. EN §9-722(a)(2). Revenues

resulting from assessments and connection charges under this statute

are for “the payment of principal and interest on indebtedness that

is incurred to finance any water or sewerage system.” EN §9-722(a).

While these revenues are limited to debt service, unlike charges

under Part II, they are not solely for bonds issued under EN §9-711.

EN Title 9, Subtitle 7, Part III also authorizes a municipality to

impose service charges. Subject to local charter provisions and
Gen. 127] 131

 The City’s loans through the Maryland Water Quality Revolving 7

Loan Fund were closed on September 26, 1996, April 8, 2004, and

January 27, 2005. We understand that the City has also applied for a loan

from the Maryland Drinking Water Revolving Loan Fund. 

statutory requirements, the municipality may set reasonable rates for

water service and reasonable charges for sewer upkeep and sewer

service, chargeable against properties served by a water line or sewer

pipe that the municipality owns or supervises. See EN §9-723

through §9-727. The resulting revenue may be used for debt service,

as well as the maintenance, repair, and operation of a water or

sewerage system. EN §9-723(a).

III

State Financing Programs

We understand that the City has secured funding for its water

and sewer facilities through State financing programs. The

financing agreements related to those loans can also affect the use of

connection charges.

WQFA Programs

The Department of the Environment Water Quality Financing

Administration (“WQFA”) operates two loan programs through

which it offers below market-rate loans to qualified borrowers,

including municipalities: the Maryland Water Quality Revolving

Loan Fund, EN §9-1605, and the Maryland Drinking Water

Revolving Loan Fund, EN §9-1605.1. Both of these programs

require that, as a condition of a loan, the local government establish

a dedicated revenue source for the loan repayment. EN

§§9-1605(d)(1)(iii) and 9-1605.1(d)(1)(i). The WQFA requires that

the bonds evidencing a local government’s loan provide a “doublebarrel” security – that is, in addition to the pledged revenues, the

bonds are backed by the local government’s full faith and credit. See

also EN §9-1606(d) (authorizing a borrower to pledge any revenues

that the borrower would be entitled to receive from the State). 

We understand that the City currently has three outstanding

loans from the Maryland Water Quality Revolving Loan Fund

through the WQFA. In financing agreements concerning those 7

loans, the City has pledged sewer user charges, “including any and
132 [92 Op. Att’y

 One loan agreement involving the 2 Avenue and B Street 8 nd

Stream Restoration also includes water user charges as part of the

dedicated revenue pledge. 

 The pledge of revenues otherwise distributed by the State to the 9

political subdivision facilitates collections. See HCD §4-229(b)(2)

(directing Comptroller and State Treasurer to pay pledged moneys to CDA

or trustee designated by CDA). 

all fees for use of the public sewer system or connection to it,” for

repayment of the loans (emphasis supplied).8

Infrastructure Program

Under the Infrastructure Program, see Annotated Code of

Maryland, Housing and Community Development Article (“HCD”),

§§4-220 and 4-228 through 4-233, a municipality may enter into an

agreement with the Community Development Administration

(“CDA”), a unit within the Department of Housing and Community

Development, to finance infrastructure projects, including water and

sewerage systems. See HCD §§1-101(i) (definition of “political

subdivision”) and 4-220 (qualifying infrastructure projects). Under

this program, the municipality pledges “any money, including a

share of income tax, that the [municipality] is entitled to receive

from the State.” HCD §4-229(b)(1). 

The City has two outstanding loans through this program. The

agreement for the City’s most recent loan pledges as security money

that the City is entitled to receive from the State, including

State-shared revenues, State-collected local taxes, the City’s share

of State taxes, including the State income tax, general purpose grants

or payments, State highway user revenues, and any future program

revenues replacing those programs in place at the time of the loan.9

However, the primary security under the repayment agreement is the

City’s full faith and credit. 
Gen. 127] 133

 Other financing arrangements that the City might enter into 10

could include pledge requirements with detailed flow of funds provisions

specifically earmarking connection charges.

IV

Analysis

You have asked whether revenues from connection fees may

be used to defray the operating costs of a system. 

As noted above, the City has outstanding financing agreements

with the WQFA and the CDA Infrastructure Program. Revenues

resulting from connection fees must be used consistently with any

covenant made as part of these transactions or any other financing

arrangement. For example, the WQFA loans funded through the

Maryland Water Quality Revolving Loan Fund specifically required

that the City pledge sewer connection fees for repayment of the

loans.10

With respect to Title 9, Subtitle 7 of the Environment Article,

the source of funding identified by the City Attorney, our analysis

starts with the plain language of the statute – the “best source of

legislative intent.” Ross v. State Bd. of Elections, 387 Md. 649, 661,

876 A.2d 692 (2005). As noted above, EN §§9-714 and 9-723

specifically authorize the use of service charges to fund, among

other costs, the costs of operating a water or sewerage system. In

contrast, EN §9-722 authorizes imposition of a connection charge

“[t]o provide funds for payment of principal and interest on

indebtedness that is incurred to finance any water or sewerage

system ....” EN §9-722(a). The statute requires that a connection

charge be “reasonable” and “not less than the actual cost ... for

connection.” EN §9-722(a)(1). Thus, while a connection charge

may exceed the actual cost of making the connection, nothing in the

statute relates the charge to operating expenses or authorizes the use

of revenues for operating expenses. Rather, the statute explicitly

assigns those revenues to the payment of debt service.

The statutory provision requiring that connection charge

revenues be dedicated to capital expenses is consistent with the

underlying purpose of such charges, that is, requiring new customers

to contribute a share of the capital costs of the system. See, e.g., 12

McQuillin, The Law of Municipal Corporations §§35.43 and 35.55

(3 ed. rev. 2000) (water connection fees); 11 McQuillin, supra,

rd
134 [92 Op. Att’y

 Other State statutes addressing the use of connection charges 11

generally limit the use of revenues to capital costs. For example, the law

governing county sanitary commissions allows reasonable connection

charges as well as benefit assessments to pay debt service. EN §9-656.

Subject to an individual county exception, excess connection charge

revenues are only to be used for “repairs, replacement, and extraordinary

expenses.” EN §9-661(g)(1); see also EN §9-922 (water and sewer

authoritymay charge reasonable tapping fee). The Washington Suburban

Sanitary Commission is generally required to divide revenue from

connection fees exceeding the actual connection costs between debt

service and a contingency fund for “repair, replacement, or any

extraordinary expense in the maintenance and operation” of its systems.

Annotated Code of Maryland, Article 29, §6-101; see Washington

Suburban Sanitary Comm’n v. C.I. Mitchell and Best Co., 303 Md. 544,

565-66, 495 A.2d 30 (1985) (Article 29 usually relates specific

revenue-raising measures to identified costs). 

To be sure, there are statutes that grant broader authority. For

example, the Worcester County Sanitary Commission is authorized to use

excess connection charge revenues for “any ... purpose relating to the

operation of the service area.” EN §9-661(g)(2). And, as noted by the

City Attorney, the Sewerage Facilities Bond Act allows use of any

sewerage facility revenues to cover operating costs – authority that might

be interpreted as extending to connection charges for sewerage systems.

EN §9-812.

In his analysis, the City Attorney also cited an opinion of the Public

Service Commission concerning a private water company, which

suggested a narrower view of the appropriate use of connection charges.

See LXXI Report of the Public Service Commission of Maryland 125

(1980). However, that opinion is consistent with the notion that

connection fees should be dedicated to capital costs. Of course, the Public

Service Commission lacks jurisdiction over rates charged by municipal

water and sewerage utilities except under limited circumstances involving

service beyond municipal limits. Annotated Code of Maryland, Public

Utility Companies Article, §§4-304 and 4-305.

§§31.30 and 31.30.15 (sewer connections). Routine operating costs,

however, are not a capital expense. United States v. Michigan, 483

F. Supp. 2d 561, 563 (E.D. Mich. 2007), citing Water Environment

Federation, Financing and Charges for Wastewater Systems 28-9

(2004). It is difficult to see how routine operating costs could be

funded out of connection charge revenues in a manner that would

ensure a reasonable allocation of costs between existing and new

customers.

11
Gen. 127] 135

 A municipality could issue general obligation bonds or, if 12

authorized by its charter, revenue bonds to finance water and sewer

infrastructure pursuant to the Annotated Code of Maryland, Article 23A,

§31 et seq. A municipality, acting alone or in combination with another

political subdivision could establish a public authority to be responsible

for water or sewerage services. See EN §9-901 et seq. A municipality

could obtain water or sewerage services through a county sanitary

commission. See EN §9-601 et seq. A franchise might be granted to a

private entity to provide water or sewerage services within the

municipality. Article 23A, §§2(b)(13) and 2A(b). A municipality might

also have authority under a public local law to provide water or sewerage

service, provided the authority is not inconsistent with Part II of Title 9,

Subtitle 7 of the Environment Article. EN §9-704(a); see, e.g., Garrett

County Sanitary Dist. v. Mayor and Town Council of Oakland, 249 Md.

400, 405, 240 A.2d 228 (1968). A municipality could also establish a

special taxing district to fund water or sewer infrastructure. Article 23A,

§44A. 

We have focused our response on the City’s existing financing

agreements and EN Title 9, Subtitle 7, the statutory provisions

referenced by the City Attorney. There are other provisions under

which the City might operate a water or sewerage system, finance

water and sewerage infrastructure, and impose connection charges.12

For example, Article 23A, §2(b)(33) authorizes a municipal

governing body to establish “reasonable fees and charges ...

[a]ssociated with the exercise of any governmental or proprietary

function authorized by law to be exercised by a municipal

corporation.” Without cataloging each of these possible sources of

authority, it is unlikely that connection fees imposed under any of

those provisions could be used for operating expenses. Unless a

particular statute authorized the use of connection fees for operating

expenses, a “connection” charge would likely be considered a fee

that must be reasonably related to the cost of connection or the

capital costs of the system to which the user is connected. See Part

I above.

V

Conclusion

Under the City’s current financing agreements, revenues from

sewer connection fees are dedicated to debt service and thus are not

available for operating expenses. Revenues from any connection

charges that might be imposed under EN §9-722(a) would be
136 [92 Op. Att’y

dedicated to debt service. Even if connection fees were to be

imposed under other statutory authority, it is unlikely that the

resulting revenues could be used for routine operating costs of the

City’s water and sewerage treatment facilities.

Douglas F. Gansler

Attorney General

William R. Varga

Assistant Attorney General

Robert N. McDonald

Chief Counsel, 

 Opinions and Advice