Are Pennsylvania Stormwater “Fees” Really Fees? | Houston Harbaugh, P.C.

Part 1: Setting the Scene

Ben Franklin once said that “nothing is certain except death and taxes”. Fortunately for Mr. Franklin, he passed away before governments learned about “fees”. The many Pennsylvania property owners who are now being assessed with stormwater fees may wonder if these “fees” will join “death and taxes” as one of the few certainties in life.

The proliferation of these fees leads to a basic question: are these stormwater management fees being properly assessed? The government’s ability to assess taxes is generally tied to the provision of certain services. To keep up a colonial theme, if a service is not being provided but a fee is being charged, is that a form of “taxation” without “representation”? In 2023, the Commonwealth Court issued a decision in Borough of W. Chester v. Pennsylvania State Sys. of Higher Educ., 291 A.3d 455 (Pa. Commw. Ct. 2023), in which it held that the Stormwater Charge instituted by the Borough of West Chester was actually an impermissible tax, rather than a fee. In so doing, the Commonwealth Court effectively called into question all of the stormwater fee regimes that are being enacted around the Commonwealth.

Given the potential wide-ranging implications of the West Chester decision, not to mention the loss of revenue just to the Borough itself, the Borough appealed the decision to the Pennsylvania Supreme Court. See 9 MAP 2023. While we await the Supreme Court’s decision on the issue, we first examine the background of stormwater fees and the West Chester decision to set the scene for further evaluations of the “fee” versus “tax” debate and whether stormwater “fees” can ever be properly assessed.

The Background to the Stormwater Fees

Although a stormwater fee is assessed by a local municipality or municipal authority, it has a much deeper foundation. The ultimate source of these stormwater management fees is the federal Clean Water Act, 33 U.S.C. § 1251 et seq. Among other things, the Clean Water Act established the National Pollutant Discharge Elimination System (NPDES), a nationwide permit program governing discharges of pollutants from “point sources” into “waters of the United States.” The Water Quality Act of 1987 amended the Clean Water Act to create a system to regulate stormwater discharge that was associated with industrial activities and municipal storm sewer systems, including the creation of the NPDES permitting system. See 33 U.S.C. § 1342(p).

From these foundations, the federal Environmental Protection Agency adopted regulations that require an operator of a “municipal separate storm sewer system” (referred to as an “MS4”) to obtain NPDES permits for stormwater discharges. The Code of Federal Regulations broadly defines an MS4 as a publicly owned conveyance system, like streets, gutters, ditches, catch basins, storm drains, or similar structures, that are designed or used to collect or convey stormwater. See, 40 C.F.R. § 122.26.

The Pennsylvania Department of Environmental Protection is the state agency that is authorized to administer the MS4 program in Pennsylvania. MS4 permittees have a variety of obligations under the law. For instance, holders of MS4 permits must implement “minimum control measures” including things like detection and elimination of illicit discharges to the storm sewer system, construction site stormwater runoff controls, and post-construction stormwater management for new development and redevelopment. See, 40 C.F.R. § 122.34(b). MS4 permittees can also be obligated to implement Pollution Reduction Plans (PRPs) to reduce the amounts of nutrients and sediments in certain watersheds. These PRP obligations often require MS4 permittees to invest in capital projects, like stream restorations, basin retrofits, channel stabilization, or green infrastructure.

Laws Authorizing the Assessment of Stormwater Fees

Because the law requires MS4 permittees to address stormwater management in ways that are often capital-intensive, Pennsylvania law authorizes fees to be assessed for stormwater-related projects. Most Pennsylvania municipalities who do not have their own home rule charters are governed by the Third Class City Code, the Borough Code, the First Class Township Code, or the Second Class Township Code (the “Codes”).

The Codes expressly authorize covered cities, boroughs, and townships to plan, construct, manage, and maintain stormwater management systems. See 11 Pa. C.S.A. § 13401 (Third Class Cities Code); 8 Pa. C.S.A. § 2201-06 (Borough Code); 53 Pa. C.S. § 56579.56 (First Class Township Code); 53 Pa. C.S. §§ 67701-04 (Second Class Township Code). Just as the Codes authorize municipal authorities, cities, boroughs and townships to operate in the stormwater management realm, they also permit the imposition of fees for services. See 11 Pa. C.S.A. § 13407 (Third Class Cities Code); 8 Pa. C.S.A. § 2203 (Borough Code); 53 Pa. C.S. § 57502-A (First Class Township Code); 53 Pa. C.S. § 67705 (Second Class Township Code).

In addition to municipalities directly handling stormwater, many stormwater management functions are addressed by municipal authorities. The Municipal Authorities Act authorizes municipal authorities to engage in projects that involve “[s]torm water planning, management and implementation . . . .” 53 Pa. C.S. § 5607(a)(18). It also permits authorities to impose stormwater-related fees. See 53 Pa.C.S. §§ 5607(d)(9), (d)(24).

Is There a Problem With Stormwater Management Fees?

If the law requires local governments and authorities to manage stormwater, and the law also allows these entities to perform those tasks and to assess fees, then one may logically conclude that the proliferation of stormwater management fees across Pennsylvania is not problematic. But that is too simplistic a view. There are complex issues relating to the nature and assessment of these fees. Specifically, in the stormwater context, the applicable statutes authorize the assessment of fees to support stormwater operations. That is different from an exercise of general taxing power.

Generally, Pennsylvania courts have held that taxes are imposed by a legislative body upon many or all citizens, are used to raise money for the general fund, and spent for the benefit of the entire community, while fees, by contrast, are paid to public agencies for bestowing a benefit not shared by the general members of the community. See City of Phila. v. Pa. Pub. Util. Comm’n, 676 A.2d 1298, 1307-08 (Pa. Commw. Ct. 1996). It is within this analytical framework that the Commonwealth Court analyzed the stormwater “fee” at issue in West Chester.

The dispute in Borough of West Chester arose after the Borough adopted a “Stream Protection Fee” in 2016 and applied it to all developed parcels, including property owned by West Chester University (WCU), a member of the Pennsylvania State System of Higher Education (PASSHE). 291 A.3d at 457. The ordinance implementing the “Stream Protection Fee” stated that the charge compensated for “the use of, benefit by and the services rendered by the stormwater management system,” and calculated assessments based on each parcel’s impervious surface area. Id. at 457-58. Revenue raised from the fee was deposited into a dedicated Stormwater Management Fund at the Borough and used for activities which were indisputably not a direct benefit to WCU, including, among other things, MS4 compliance activities, system operations, infrastructure improvements, pollutant-load reduction projects, streambank restoration, street sweeping, tree plantings. Id.

WCU was invoiced for the “Stream Protection Fee” but declined to pay, arguing that the assessment was not a fee for a discrete service but instead was a tax from which Commonwealth entities, like WCU, are immune. See id. at 461. In the ensuing litigation, WCU and PASSHE contended that the Borough’s “Stream Protection Fee” lacked the essential characteristics of a fee because the assessment did not correspond to any parcel-specific service or benefit. Id. In opposition, the Borough contended that the “Stream Protection Fee” was a true user fee: it applied only to developed property, relied on an objective impervious-surface metric, included credit and appeals processes, and was restricted to stormwater-related expenditures. Id. at 462. The Borough further argued that WCU benefited from reduced runoff, improved drainage, and the availability of the municipal stormwater system. See id. at 461-64.

Sitting in its original jurisdiction, the Commonwealth Court agreed with WCU and concluded that the Borough’s “Stream Protection Fee” was a tax in substance and not a fee:

[T]he Stormwater Charge does not constitute a special assessment subsidizing a particular project of limited duration, such as constructing culverts and pipes. Rather, the charge subsidizes an ongoing series of evolving tasks and projects. Further, the Stormwater Charge constitutes a general tax, as opposed to a special assessment, because the work funded thereby does not benefit individual properties, but rather, yields a common benefit shared by residents of the Borough generally.

Id. at 466-67. Therefore, WCU did not have to pay the Stormwater Charge at all. See id. at 467. In light of that decision, the Borough appealed to the Pennsylvania Supreme Court, where the matter remains pending as of this writing.

Conclusion – Separating Taxes from Fees Can Be Challenging

West Chester underscores that not every stormwater assessment labeled a “fee” is lawful. When a charge funds broad public stormwater initiatives, or when the charge ignores on-site controls already in place, the assessment may bear the hallmarks of a tax. While the Commonwealth Court’s decision in West Chester did not label every stormwater fee as a “tax”, it requires careful examination of municipal ordinances and the nature of the assessments to ascertain the source of authority for the charge.

The tension between a “fee” and a “tax” related to stormwater has many facets that warrant further exploration and have a practical impact on Pennsylvania property owners. For instance, if certain stormwater “fees” are actually “taxes”, then that substantively impacts “who” has the legal authority to make those assessments in the first place. In addition, there can be extreme differences from one property to another in a stormwater context. Some properties may have robust stormwater management controls already on the property, or be subject to other requirements associated with stormwater, such as NPDES permits. How these factors come together to shape the foundation for the scope and extent of stormwater fees will be explored in a separate post.