Municipalities say Pennsylvania court ruling on stormwater fees could drain them financially

Millions of dollars that help local governments manage stormwater runoff are at stake as the Pennsylvania Supreme Court considers a lower court’s decision that a state-owned university was not required to pay because of its tax-exempt status, a decision that also raises questions about whether the charges are even legal.

In January, Commonwealth Court ruled the stormwater charge imposed by the borough of West Chester is actually a tax, and therefore the state-owned West Chester University should not have to pay an annual bill of around $130,000.

The court also said calculating the fee based on how large a developed property is does not necessarily correspond to the level of service that is provided, as municipalities do when they charge for other services such as water consumption.

The borough — and many others — levy the charge based on a property’s square footage of impervious surface, saying that buildings, parking lots and the like contribute more to runoff, and put more strain on their stormwater systems. That aspect of the case has wider ramifications for other Pennsylvania municipalities that impose similar stormwater fees.

In a friend-of-the-court brief, a number of municipal authorities and other governmental bodies in Pennsylvania warned the justices that “correctly classifying stormwater charges as ‘fees’ rather than hiding behind taxation immunity is of major consequence.”

Similar cases have popped up elsewhere around the country with mixed results, said Diana Silva, an attorney with an environmental, energy and land use law firm not involved in the litigation.

“If the way that these fee structures are set up are declared improper, it pretty much rips out the fabric of how people are charging these fees currently,” Silva said.

Federal and state regulations require municipalities to manage runoff from stormwater — the rainwater that doesn’t get absorbed into the ground because of impervious surfaces such as roads, sidewalks, parking lots and roofs. Without systems to manage stormwater, collected water can pick up grease from roadways and dirt that then flows into rivers and streams, polluting and eroding them.

“The problem is, it’s the forgotten infrastructure,” said Warren Campbell, a professor at Western Kentucky University who has studied the stormwater issue nationwide. “Every drainage system works great as long as it’s not raining, and people don’t think about it.”

In the case on appeal to the Pennsylvania Supreme Court, some boroughs and townships are asking to get the lower court’s ruling overturned, warning there are millions of dollars at stake.

“Even a modest size town can raise millions of dollars a year with a fairly small fee,” Campbell said. “You’re not talking an insignificant amount.”

John Brenner, the executive director of the Pennsylvania Municipal League, said the case represents an additional threat to the financial stability of the state’s many municipalities.

“Many of our communities are already struggling to meet today’s costs, especially with inflation, and under a taxing system that is, well, outdated,” he said. “You throw this on top of that for many of the communities, and it could certainly be a significant burden for them.”

Nationally, 42 states and Washington, D.C., have stormwater utilities. Philadelphia was the first in Pennsylvania to charge a utility fee about a decade ago, followed by many others. Among the roughly 60 localities that currently issue charges in Pennsylvania, some homeowners get bills of just a few dollars a month, while large commercial properties can end up with much higher costs.

West Chester University operates its own stormwater system, but the borough has argued the school still benefits from the government’s system. The university has countered that the borough also benefits from the school’s system — and the university has never charged the borough for it.

In the majority opinion in the Commonwealth Court case, Judge Christine Fizzano Cannon wrote that the charge should be considered a tax because it generally benefits the wider community rather than just the individuals who pay the fee. She sided with the university, which argued it does not benefit from the stormwater management system any more than others just because it has more impervious surface.