Fee vs. Tax vs. Assessment; Commonwealth Immunity from Taxation
Borough of W. Chester v. Pennsylvania State Sys. of Higher Educ., 291 A.3d 455 (Pa. Cmwlth. 2023), direct appeal, appeal docket 9 MAP 2023
The Borough of West Chester (Borough) filed with Commonwealth Court a petition for declaratory judgment against Pennsylvania State System of Higher Education (PASSHE) and West Chester University of Pennsylvania of PASSHE (University), seeking to establish that Borough’s charge related to stormwater management was not a tax that the state entities were immune from paying, but rather a fee for service that PASSHE and the University are obligated to pay. Commonwealth Court summarized the relevant factual background as follows:
The Borough owns and operates a small municipal separate storm sewer system (MS4). Id. at 7, ¶¶ 31-32.
In or about 2016, the Borough Council enacted various provisions of the West Chester Code (Code) providing for the Stormwater Charge. Decl. J. Pet. at 4, ¶ 15. The Borough adopted this charge, as set forth in Section 94A-6(A.) of the Code, W. Chester Code § 94A-6(A.) (2022), as the mechanism by which it would raise revenue to further construct, operate and maintain its stormwater management facilities. Id. at 15-16, ¶¶ 72-73; see also Section 94A-5 of the Code (defining “Stream Protection Fee”). The Code provides, in relevant part:
For the use of, benefit by and the services rendered by the stormwater management system, including its operation, maintenance, repair, replacement and improvement of said system and all other expenses, a stream protection fee [i.e., the Stormwater Charge] as described, defined, and calculated herein is hereby imposed upon each and every developed property within the Borough that is connected with, uses, is serviced by or is benefitted by the Borough’s [S]tormwater [ ] [S]ystem, either directly or indirectly, and upon the owners of such developed property as set forth herein.
Section 94A-6(A.) of the Code, W. Chester Code § 94A-6(A.) (2022). The Code further provides:
A. All sums collected from the payment of stream protection fees shall be deposited into the West Chester Borough Stormwater Management Fund.
B. The Stormwater Management Fund shall be used by the Borough for:
(1) Implementation and management of a program to manage stormwater within the Borough.
(2) Constructing, operating, and maintaining the Borough’s Stormwater [ ] System.
(3) Debt service for financing stormwater capital projects.
(4) Payment for other project costs and performance of other functions or duties authorized by law in conjunction with the maintenance, operation, repair, construction, design, planning and management of stormwater facilities, programs and operations.
Section 94A-9(A.), (B.) of the Code, W. Chester Code § 94A-9(A.), (B.) (2022).
In September 2016, the Borough Council adopted Resolution No. 11-2016 imposing the Stormwater Charge upon the owners of all developed properties within the jurisdictional limits of the Borough that are benefitted by the Borough’s stormwater management system6 (Stormwater System) and the public health, safety and welfare enhancements that are afforded by the Borough’s Stormwater System. Decl. J. Pet. at 4, ¶ 17. The amount of the Stormwater Charge for which the owner of a developed property is responsible is dependent upon the amount of impervious surface on the property. Id. at 17, ¶ 78. All revenue generated by the Stormwater Charge is deposited into the Borough’s Stormwater Management Fund. Id. The Borough uses revenue generated by the Stormwater Charge only for the purposes set forth in the Code, which include funding pollution remediation measures and complying with state and federal regulatory requirements. Id. at 19.
A portion of the University’s campus, known as North Campus, lies in the south-central portion of the Borough. Decl. J. Pet. at 3, ¶ 11. PASSHE, in the name of the Commonwealth of Pennsylvania, is the title owner in fee simple of the properties which form a part of the North Campus, and the University is title owner in fee simple of another portion of that property. Id. at 3-4, ¶ 13. The Borough asserts that all of the Commonwealth titled and University titled properties, including North Campus, are “developed” for purposes of the Code and that these properties are connected with, use, and are served or benefitted by the Borough’s Stormwater System. Decl. J. Pet. at 17, ¶¶ 76-77.
The Borough avers that the impervious area of the portion of the North Campus that lies in the Borough covers 32 acres, constituting nearly 8% of the total impervious area within the Borough. Id. at 11-12, ¶¶ 51-52. The Borough further avers that stormwater which flows from the impervious areas of the North Campus situated in the Borough either enters and flows through its Stormwater System or flows directly into a nearby watercourse. Id. at 12, ¶ 53. The Borough contends “there is a direct relationship between the amount of impervious surface within a given watershed and the health and quality of the watercourse (and its tributaries) within that watershed, as well as public health, safety, and welfare concerns related to flooding and other stormwater-related issues.” Id. at 11, ¶ 50.
The Borough sent Respondents Stormwater Charge invoices in 2017, 2018, and 2019, all of which Respondents refused to pay. Decl. J. Pet. at 19-21, ¶¶ 92-102; Respondents’ Motion for Summary Judgment (Respondents’ MSJ) at 16, ¶¶ 47-48. The Borough does not dispute that both PASSHE and the University are immune from local taxation; however, the Borough argues that the Stormwater Charge constitutes a fee for service rather than a tax, such that Respondents are obligated to pay it. Decl. J. Pet. at 22, ¶¶ 106-07.7
Respondents filed preliminary objections demurring to the Borough’s declaratory judgment petition on the basis that the Stormwater Charge is not a fee for service, but rather a tax from which they are immune as Commonwealth entities. Preliminary Objection to the Borough’s Declaratory Judgment [Petition] (Preliminary Objection) at 4-5, ¶¶ 15-25. Respondents also asserted that even if the Stormwater Charge is considered an assessment rather than a general tax because it is limited to stormwater infrastructure projects, it is still a form of tax subject to the Commonwealth’s tax immunity. Id. at 6, ¶ 24. Respondents additionally contended that the Stormwater Charge is not reasonably proportional to the value of any product or service provided to the Commonwealth in a quasi-private capacity, such as the provision of natural gas or garbage collection. Id. at 6-7, ¶ 26 (citing Supervisors of Manheim Twp., Lancaster Cnty. v. Workman, 350 Pa. 168, 38 A.2d 273, 276 (1944)).
On July 15, 2019, this Court issued a memorandum opinion overruling Respondents’ preliminary objections. Borough of W. Chester v. Pa. State Sys. of Higher Educ. (Pa. Cmwlth., No. 260 M.D. 2018, filed July 15, 2019), slip op. at 11-12, 2019 WL 3069642. We reasoned that
questions remain[ed], inter alia, as to: whether the Borough’s Stormwater System provide[d] a discrete benefit to Respondents, as opposed to generally aiding the environment and the public at large; whether the value of the Stormwater System to Respondents [was] reasonably proportional to the amount of the Stormwater Charge; and, apart from general operation, maintenance and repair of the Borough’s Stormwater System, how exactly [ ] the Borough utilize[d] the funds generated by the Stormwater Charge.
Id., slip op. at 11. We posited that “[f]urther factual development and the resolution of pending questions may enable the Borough to establish that the Stormwater Charge constitutes a fee for service that is reasonably proportional to the value of the benefit conferred to Respondents in a quasi-private capacity.” Id.
Respondents countered that the Borough’s Stormwater System confers a general environmental benefit on all property owners and citizens within and around the Borough. Respondents’ Answer at 3, ¶ 19. Thus, Respondents maintained the Stormwater Charge constitutes a tax which they are immune from paying. Id. at 17 & 22, ¶¶ 1 & 32-33. Respondents averred that the University maintains its own separate MS4 permit and stormwater system to collect and manage stormwater runoff and, consequently, does not rely upon the Borough’s MS4 for these purposes; rather, Respondents insisted that measures implemented on the University’s campus pursuant to its own MS4 and at its own expense in fact decrease the amount of stormwater runoff managed by the Borough’s Stormwater System. Respondents’ Answer at 9, ¶ 53; Respondents’ New Matter at 21, ¶¶ 27-28. Respondents also averred that the University has borne the cost of implementing numerous measures for the prevention of stormwater runoff, such as adding trees, green roofs, rainwater gardens, and pervious paver surfaces to various portions of campus; Respondents maintained that the University’s MS4 permit likewise generally benefits residents both on campus and in the Borough. Respondents’ New Matter at 21-22, ¶¶ 28-31.
Further, Respondents contended that the Borough developed the Pollution Reduction Plan, which is funded by the Stormwater Charge, specifically to address sediment in Brandywine Creek, Blackhorse Run, Plum Run, and Taylor Run; to install infiltration facilities—including rain gardens, vegetated curb extensions, bioswales, infiltration trenches, and brick pavers—at Veterans Park, Marshall Square Park, and Brandywine Street; to conduct streambank restoration in the Blackhorse Run, Plum Run, and Taylor Run watersheds; to fund street sweeping and tree planting throughout the Borough; to address phosphorus buildup in Goose Creek; to install infiltration facilities-including rain gardens, vegetated curb extensions, bioswales, and infiltration trenches at John Green Memorial Park, Fugett Park, and Greenview Alley; to fund street sweeping and tree planting throughout the Borough; to install Jellyfish Filters at two discharge points on East Nields Street; and to manually clean inlet boxes throughout the Borough. Id. at 17-20, ¶¶ 2-22 (citing MS4 Pollution Reduction Plan at 8 & 16-17; MS4 Total Maximum Daily Load (TMDL) Plan at 12, 19 & 20-21). Respondents contended that none of the aforementioned projects will benefit University campus property. Id.
The Borough filed an answer denying Respondents’ “characterizations” of the Borough’s MS4 Pollution Reduction Plan and TMDL Plan. Answer to New Matter at 3-5, ¶¶ 9-13 & 16-19. The Borough admitted only that the streambank restoration projects referenced by Respondents will be located outside University property. Id. at 5, ¶ 19. The Borough admitted that the University manages its own MS4, but asserted that the University also benefits from the Borough’s MS4. Id. at 7, ¶ 27.
Slip op. at 2-9. Commonwealth Court summarized the parties’ arguments as follows:
Respondents contend that they are entitled to judgment as a matter of law because the Stormwater Charge constitutes a tax from which they are immune, rather than a fee for service. Respondents’ MSJ at 16, ¶¶ 50-51. Respondents maintain that the Stormwater Charge constitutes a tax because the projects it funds are designed to return a “general benefit” and promote “the welfare of all.” Id. at 16, ¶ 52 (quoting In re Broad St. in Sewickley Borough, 30 A. 1007 (Pa. 1895)). According to Respondents, the Borough’s contention that the University derives a discrete benefit in return for payment of the Stormwater Charge is undermined by the stated finding of the Borough’s Council that maintaining a stormwater system is fundamental to the “public health, safety, and general welfare” of Borough residents. Respondents’ Br. in Support of MSJ at 13 (quoting Section 94A-2(D.) of the Code, W. Chester Code § 94A-2(D.) (2022)). Moreover, Respondents maintain that even if this Court were to deem the Stormwater Charge a special assessment on the basis that it funds certain infrastructure projects, such assessments nevertheless constitute a form of tax under Pennsylvania law. Id. at 16-17, ¶ 53 (citing Sw. Del. Cnty. Mun. Auth. v. Aston Twp., 413 Pa. 526, 198 A.2d 867, 870 (1964)).
Respondents also insist that even if deemed a fee, rather than a tax, the Stormwater Charge is not reasonable, as it is not proportional to the cost of maintaining the Stormwater System. Respondents’ MSJ at 17, ¶ 55. Respondents further maintain that the purpose of municipal stormwater projects is to benefit not only adjacent properties, but the community as a whole. Respondents’ Br. in Support of MSJ at 24-25 (citing Supervisors of Manheim Twp., 38 A.2d at 276 (explaining that “the maintenance of the streets of a municipality are for the benefit of the entire community and not merely of the abutting property owners”)). Respondents theorize that all property owners receive the same general benefits from the projects funded by the Stormwater Charge, such as decreased flooding, minimized erosion to public waterways, and cleaner water. Id. at 27 (citing Deposition of Michael A. Perrone (Perrone Dep.) at 67-70). Respondents also note that prior to the enactment of the Stream Protection Ordinance, the Stormwater System was funded by the Borough’s general fund. See id. at 41 (citing Perrone Dep. at 45-46). Thus, Respondents request that this Court conclude the Stormwater Charge is a tax. Respondents’ MSJ at 18.
The Borough admits that the University has its own MS4. Borough’s Answer in Opp. to Respondents’ MSJ at 10, ¶ 27. However, the Borough contends that the Stormwater System simultaneously accords both specific and general benefits, maintaining that such benefits are not mutually exclusive. Id. at 17-18, ¶ 54. The Borough maintains that the Stormwater Charge constitutes a fee, because amounts imposed may be reduced through the appeals process, revenue is deposited only in the Stormwater Management Fund, and it is imposed only on owners of developed land. Id. at 13.
The Borough also asserts that if required to provide for disposal of their own stormwater, Respondents would incur initial capital costs in excess of $4,200,000, and that annualizing these costs along with annual maintenance costs yields a total annual cost of $178,500, whereas Respondents’ actual annual Stormwater Charge bill is roughly $132,000. Borough’s Br. in Support of ASR at 33 (citing id., Exhibit C, NTM Engineering, Inc. Report (NTM Report) at 11). Thus, the Borough contends that its Stormwater Charge is reasonably proportional to the level of benefit afforded Respondents from connection to the Borough’s Stormwater System. See id. at 2, 12, 20 & 33 (citing NTM Report).
Slip op. at 9-11.
Noting that “no direct measure of [PASSHE and the University’s] purported use of the Stormwater System exists” and agreeing with PASSHE and the University’s “assertion that the impervious surface area of a property does not correlate to the level of benefit accorded the owner of that property,” slip op. at 15, Commonwealth Court held that the Stormwater Charge is not a fee, reasoning that:
The Stormwater Charge provides “benefits that are enjoyed by the general public,” such as decreased flooding, erosion and pollution, as opposed to “individualized services provided to particular customers.” [DeKalb County, Georgia v. United States, 108 Fed. Cl. 681, 701 (Fed. Cl. 2013)]; see also City of Philadelphia, 676 A.2d at 1308. Further, as it is calculated based on a lot’s impervious surface area, the Stormwater Charge is “based not on the benefits derived by the payor, but by the anticipated burden that its property imposes on the [S]tormwater [S]ystem.” Dekalb, 108 Fed. Cl. at 703.
Moreover, although the Borough identifies an appeals process through which owners of developed properties may apply for credits against Stormwater Charge assessments under certain circumstances, the Borough nevertheless fails to establish that it enters into “voluntary, contractual relationship[s]” with property owners subject to Stormwater Charge assessments or that such property owners pay the charge “by choice.” City of Philadelphia, 676 A.2d at 1307-08. Thus, the Stormwater Charge is not a fee. See id.
Slip op. at 17. Commonwealth Court further held that the Stormwater Charge was a tax, not an assessment, opining that:
Here, the Stormwater Charge does not constitute a special assessment subsidizing a particular project of limited duration, such as constructing culverts and pipes. See id.; Supervisors of Manheim Twp., 38 A.2d at 275 (stating that “an assessment for special benefits may be imposed only once as to any given improvement”); see also Section 94A-2(B.) of the Code (stating that “much of [the Stormwater System] was constructed over 100 years ago”). Rather, the charge subsidizes an ongoing series of evolving tasks and projects. See Section 94A-6(A.) of the Code, W. Chester Code § 94A-6(A.) (2022) (imposing the Stormwater Charge for the “operation, maintenance, repair, replacement and improvement” of the Stormwater System); see also Supervisors of Manheim Twp., 38 A.2d at 275 (explaining that “[r]epairing streets is as much a part of the ordinary duties of the municipality—for the general good—as cleaning, watching and lighting. It would lead to monstrous injustice and inequality should such general expenses be provided for by local assessments.”). 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. See In re Broad St. in Sewickley Borough, 30 A. at 1008.
Slip op. at 18-29. Therefore, having found that the Stormwater Charge constitutes a tax, Commonwealth Court concluded that PASSHE and the University were immune from payment as Commonwealth entities.
The Borough appealed to the Pennsylvania Supreme Court, which granted oral argument to consider the following issues:
a. Did the Commonwealth Court err in granting summary judgment in favor of [appellees] when [appellees] did not (and cannot) establish a clear right to judgment as a matter of law?
b. Did the Commonwealth Court err in denying summary judgment in favor of [appellant]?
Docket sheet at 13.
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