December 9, 2011
MUNICIPAL FINANCING OF THE COSTS OF UNDERGROUNDING OF UTILITY LINES
By: Kevin E. McCarthy, Principal Analyst
You asked for legislative options to allow municipalities to place existing utility lines underground.
In Connecticut, electric distribution and telecommunications lines are typically overhead, located along streets and roads. The electric and telephone companies own these lines and share responsibility for maintaining them.
The legislature has at least four options for undergrounding these lines. It could (1) amend CGS § 7-148 to include undergrounding among the general powers of municipalities, (2) amend CGS § 7-326 to permit the creation of special taxing districts for this purpose, (3) make undergrounding costs eligible for the Local Capital Improvement Program (LOCIP), or (4) create a new mechanism for municipalities to underground utility lines and finance the work.
Under the first option, adding undergrounding to the list of municipal powers would allow the project to be financed by property taxes or by special assessments. Under the second, property owners would be allowed to create a special taxing district (which could be the entire municipality) to underground utility lines and finance the work by paying a separate property tax. Under the third option, (1) if funding for the LOCIP program was not increased, other projects that are currently eligible for funding would not be funded or (2) if program funding was increased, state taxpayers would pay for the undergrounding. Under the fourth option, the undergrounding could be financed using bonds or other means authorized by the legislation.
These options are not mutually exclusive. For example, the legislature could amend CGS § 7-148 to allow municipalities to underground utilities under their general powers, but also allow them to use LOCIP funds to pay for part of the cost of undergrounding projects.
As discussed in OLR reports 2011-R-0338, undergrounding existing electric distribution lines typically costs $1 million or more per mile, and there are additional costs for undergrounding telecommunications lines. In some cases, the utilities would need to acquire additional easements for the relocated lines, for example where existing lines go over bodies of water, which would increase the cost of undergrounding. Undergrounding electric distribution lines also requires the relocation of the service drops that serve individual customers. The legislature could allow the municipality to finance this one-time cost, which can exceed $1,500 per customer, or require the customer to pay for it.
MUNICIPAL POWERS (cgs § 7-148)
This statute prescribes the general powers of municipalities, which include providing street lighting and regulating the construction and maintenance of poles, wires, and other utility infrastructure. It also allows municipalities, among other things, to (1) assess taxes for general or special purposes and impose special assessments for pubic improvements, (2) purchase or condemn property, and (3) issue general obligation bonds backed by the municipality's taxing authority.
The legislature could amend this section to allow municipalities to use these powers to underground utility lines. Assuming the project was funded by bonds, it would be subject to the provisions of CGS § 7-369 et seq. The bonds would count against the municipality's bond limit (CGS § 7-374) unless the enabling legislation specified otherwise. The project would also be subject to applicable provisions of the municipality's charter, which could have requirements for public hearings and approval by referendum.
SPECIAL TAXING DISTRICTS (cgs § 7-326)
This statute authorizes the creation of special taxing districts. It prescribes the process for creating and dissolving them, their powers and duties, and their governance structure. The property taxes the districts levy are in addition to those levied by their respective municipalities.
The residents of an area within a municipality can form a special taxing district, which can perform a wide range of functions enumerated in CGS § 7-326, including street lighting and the construction and operation of water systems. The legislature could expand this list to include the undergrounding of utility lines.
Under current law, the process for forming a special taxing district begins with residents specifying its boundaries and petitioning the town to convene a meeting of voters in the proposed district. The residents may establish the district either at a special meeting called for that purpose or through a referendum. In either case, the district is formed if two-thirds of the people voting approve its petition (CGS § 7-325).
OLR report 2011-R-0347 provides additional information on special taxing districts and special services districts (a related type of entity that is commonly used to provide services in areas such as business districts).
The LOCIP program provides formula grants to municipalities for a wide variety of capital improvement projects (CGS § 7-536 (a) (4)). A municipality may apply to the Office of Policy and Management (OPM) for reimbursement after it spends money on an authorized project. The amount reimbursed cannot exceed the municipality's available LOCIP balance. More information on LOCIP is available at OPM's website: http://www.ct.gov/opm/lib/opm/igp/grants/locip/locip_guidelines.pdf.
The legislature could make expenses associated with undergrounding projects eligible for this program. Statewide funding for this program was $30 million in FY 11. Unless funding program were substantially increased, municipalities could only underground a very small fraction of their utility lines each year, even if they spent their entire LOCIP allocations for this purpose.
As an alternative to amending existing laws, the legislature could create a new mechanism to allow municipalities to finance the undergrounding of utility lines. The legislation could address the process a municipality would have to follow in order to use this mechanism. This could include requirements for a vote of the legislative body following notice and public hearing. It could also include a requirement for a referendum and the approval standard for the referendum (e.g., specifying a minimum turnout and requiring a simple majority or two-thirds vote).
The legislation could also specify how the undergrounding project would be financed. Among the options are (1) having the municipality finance the entire project cost and recover the cost through the property tax on all residents, (2) imposing a special assessment on the properties that benefit from the undergrounding, (3) financing the cost of the project by a surcharge collected on utility bills of all residents and businesses in the municipality or just those who benefit from the project, or (4) some combination of these methods. The legislature could either require that any bonding associated with the project conform to CGS § 7-369 et seq. or establish separate bonding provisions.
The legislature could also (1) specify how the municipality would determine where undergrounding would take place, (2) address what would happen if undergrounding required new easements, and (3) impose requirements for the municipality and the affected utilities to cooperate. The legislature could require municipalities that opt to pursue undergrounding to undertake an engineering study before proceeding to determine the feasibility and costs of the proposed project or projects.
The legislation could specifically authorize the municipality to contract with the utilities (1) to develop plans and specifications for the undergrounding, (2) for paying for work they perform in connection with the project, (3) for paying the value of overhead lines and other property removed under the project, and (4) for ownership and maintenance of the underground facilities after the project is completed.
As discussed in OLR report 2011-R-0400, at least five (Arizona, California, Maryland, Montana, Rhode Island, and Washington) have established specific mechanisms allowing municipalities or counties to finance the undergrounding of utility lines using special taxing districts and other means.