Can a Stormwater Assessment on Every Property Be a Fee?
In Part 1 of this series, we broadly examined the background to the stormwater fees that many Pennsylvania property owners are being assessed. We also briefly evaluated the Borough of West Chester case, currently on appeal at the Pennsylvania Supreme Court, that calls into question the “fee” versus “tax” question. In this Part 2, we look more specifically at the “fee” versus “tax” question. To do so, we will proceed under the Pennsylvania Second Class Township Code.
The Second Class Township Code is chosen because it specifically addresses stormwater management, providing for a clear basis for discussion. Additionally, Pennsylvania has over 1,400 townships of the second class. That makes this discussion broadly applicable. Many municipalities in Pennsylvania have home rule charters that may address this subject in a different fashion, but the Second Class Township Code is a reasonable foundation here.
Basic Framework - The Pennsylvania Second Class Township Code
Sections 2701 to 2705 of the Pennsylvania Second Class Township Code identify and structure the authority of townships of the second class to address stormwater. Section 2701 vests township supervisors the authority to "plan, design, construct, assemble, install and alter facilities" for surface water runoff management. 53 P.S. § 67701. More significantly, Section 2705 authorizes townships to "assess reasonable and uniform fees based in whole or in part on the characteristics of the property benefited by the facilities, systems and management plans." 53 P.S. § 67705(a).
In addition to authorizing stormwater fees, the Second Class Township Code provides guidance about how those fees may be calculated and assessed. First, the Code states that:
“[f]or the purposes of funding the construction, maintenance and operation of storm water management facilities, systems and management plans authorized under this article, a township may assess reasonable and uniform fees based in whole or in part on the characteristics of the property benefited by the facilities, systems and management plans.”
53 P.S. § 67705(a). But, those fees are not unlimited, Under the Second Class Township Code:
“[t]he fees assessed may not exceed the amount necessary to meet the minimum requirements of the Federal Water Pollution Control Act, and Federal or State laws governing the implementation of the Federal Water Pollution Control Act, for the construction, maintenance and operation of storm water management facilities, systems and management plans, as specified in 40 CFR 122.26.”
Id. (internal citations omitted). And, “[i]n establishing the fees, the township shall consider and provide appropriate exemptions or credits for properties which have installed and are maintaining storm water facilities that meet best management practices and are approved or inspected by the township.” 53 P.S. § 67705(a).
The Second Class Township Code offers choices to municipalities who choose to assess those fees. A stormwater fee can be assessed on “. . . all properties in the township”, on “. . . all properties benefited by a specific storm water project” or “[b]y establishing a storm water management district and assessing the fee on all property owners in the district.” 53 P.S. § 67705(b)(1),(2),(3).
On first blush, these provisions from the Second Class Township Code do not appear to implicate a “tax” versus “fee” problem. The law uses the word "fees," mentions properties "benefited," and ties charges to specific stormwater infrastructure. 53 P.S. § 67705(a). But, as the Commonwealth Court discussed in Borough of West Chester v. Pennsylvania State System of Higher Education, 291 A.3d 455 (Pa. Commw. Ct. 2023), language authorizing a “fee” does not automatically mean that the implemented practice is actually a “fee”.
In West Chester, the Borough’s code explicitly stated charges were imposed for "the use of, benefit by and the services rendered by the stormwater management system." Id. at 457-58. But, the Commonwealth Court nonetheless deemed the Borough’s stormwater assessment to be a tax. Consequently, whether it be the Second Class Township Code, a home rule charter, or a municipal ordinance, the identification of a charge as a “fee” is insufficient to end the “fee” versus “tax” inquiry.
The Tax and Fee Baseline
In theory, the distinction between a “fee” and a “tax” is relatively clear. “Where a charge is imposed by a state or municipality not in its capacity as a sovereign but rather under a voluntary, contractual relationship, it has been held not to be a tax. A “fee” is paid to a public agency for bestowing a benefit which is not shared by the general members of the community and is paid by choice.” City of Philadelphia v. Pennsylvania Public Utility Commission, 676 A.2d 1298, 1307-08 (Pa. Commw. Ct. 1996) (internal citations omitted). In 1924, the Pennsylvania Supreme Court wrote about the distinction between taxes and other types of governmental assessments:
“It is true that general taxation and these local assessments have their basis in the taxing power, but there the similarity ends. Payment of the former results in no return to the treasury; while in nearly every instance all that is expended for the latter, and, not infrequently, much more, comes back when the property is sold. The former had no basis in contract and is limited only by the necessities of the government; the latter is quasi contractual, and is expressly limited to the benefits accruing to the property affected.”
City of Philadelphia, to Use of Union Paving Co. v. U.S. Housing Corporation of Pennsylvania, 124 A. 669, 670–71 (Pa. 1924).
Whereas a general tax “. . . renders no return of special benefit to any property, but only secures to the citizen that general benefit which results from protection to his person and property, and the promotion of those various schemes which have for their object the welfare of all”, “special assessments or special taxes proceed upon the theory that when a local improvement enhances the value of neighboring property, that property should pay for the improvement.” In re Broad Street in Sewickley Borough, 30 A. 1007, 1008 (Pa. 1895) (internal citations omitted). But, fees “. . . must be reasonably proportional to the value of the product or service received, for, if imposed without due regard to that requirement, ‘the charge provided for by the ordinance is, in legal effect, undoubtedly a tax, and the obligation to pay it could be created only by the [township’s] exercise of its general taxing power.’” Supervisors of Manheim Township, Lancaster County v. Workman, 38 A.2d 273, 276 (Pa. 1944) (quoting Hamilton’s Appeal, 16 A. 2d 32, 35-36 (Pa. 1940).
“Fees charged by a municipality for services rendered are proper if they are reasonably proportional to the costs of the regulation or the services performed.” Rizzo v. City of Philadelphia, 668 A.2d 236, 238 (Pa. Commw. Ct. 1995). But, “[a]n assessment cannot be imposed on property not, in fact, receiving a benefit.” Southeastern Pennsylvania Transportation Authority v. Pennsylvania Public Utility Commission, 592 A.2d 797, 803, n.12 (Pa. Commw. Ct. 1991) (citing Riehl v. Millcreek Township, 441 A.2d 466 (Pa. Commw. Ct. 1982)). A fee must be “. . . a burden or benefit one bears or receives incidental to one's ownership of land, not a tax or fee to support the public welfare.” Id.
Application to the Second Class Township Code
Recall that the Second Class Township Code authorizes stormwater management fees to be assessed in three ways. They can be assessed on “. . . all properties in the township”, on “. . . all properties benefited by a specific storm water project” or “[b]y establishing a storm water management district and assessing the fee on all property owners in the district.” 53 P.S. § 67705(b)(1),(2),(3). The second method, an assessment on “. . . all properties benefited by a specific storm water project” will be addressed in Part 3, with the third method, assessment based on a storm water management district, being too specific for this discussion.
The principal focus of the present analysis is the Second Class Township Code’s authorization of a stormwater fee on “. . . all properties in the township”. This seems problematic given the basic “fee” versus “tax” discussion outlined above. As the Commonwealth Court’s decisions in Rizzo and SEPTA make clear, fees must be reasonably proportional to the costs of regulations or services provided and the burden or benefit must be related to ownership of land. If “all” properties in a township are being assessed for stormwater, that seems to be more of a generalized charge, versus an assessment related to a service touching on certain property. That suggests a “tax” versus a “fee”.
But, questions arise about this approach under the Commonwealth Court’s holding in Township of West Manchester v. Mayo, 746 A.2d 666 (Pa. Commw. Ct. 2000).In Mayo, a municipality enacted an ordinance through which “. . . the collection, transportation and disposal of municipal waste by a contractor is mandatory.” Id. at 667. A property owner, Mayo, refused to pay the trash collection charges and contested the lien that the municipality placed on his property due to the failure to make payments. Id.
In one of his appellate arguments, the property owner contended that “. . . it is unreasonable to impose the same charge on a resident that does not need or use the refuse collection and disposal services provided by the Township as are imposed on others who do need and use the service. . .” Id. at 669. While there was a debate about whether the property owner actually generated any waste, the municipality contended that even if the landowner “. . . does not generate any refuse, he is still liable for the fees imposed for refuse collection.” Id. This scenario seems to suggest that the refuse assessment is a “tax” instead of a “fee”. But, that is not what the Commonwealth Court concluded.
The Mayo court observed that “. . . the issue of whether a resident, such as Mayo, who does not generate any refuse, is still liable for the fees imposed for refuse collection, appears to be one of first impression in Pennsylvania appellate courts.” Id.at 670. The Mayo court concluded that in that instance, the assessment was still valid, so the lien was properly filed against the landowner’s property. The Commonwealth Court concluded that “. . . even if a resident does not generate any refuse or waste, the resident is still responsible for any service fee or charge lawfully imposed by a municipality for the collection and disposal of refuse.” Id. at 671.The court reasoned that “. . . residents of a municipality are users of the municipality’s collection and disposal service regardless of how they choose to dispose of refuse because they receive benefit from the general disposal system by the collection of refuse from other premises in the community.” Id.
Does Mayo Mean A Township-Wide Assessment is a Fee?
Based on the Mayo court’s reasoning, it can be easier to qualify a township wide assessment as a "fee" versus a "tax". The Mayo court did not require a demonstration of a specific benefit to each property in order to justify the assessment. Instead, the Commonwealth Court operated from a higher level, seemingly reasoning that the availability of refuse collection in and of itself constituted a benefit to all properties. To a degree, that same type of reasoning could be used with stormwater systems. Controlling run-off and managing flooding issues can provide a benefit to every property owner. Additionally, on the question of a fee only covering administrative costs of a project, the Second Class Township Code prohibits fees from exceeding the amounts necessary to satisfy the Clean Water Act. See, 53 P.S. § 67705(a).
However, the Mayo reasoning does not extend cleanly to stormwater assessments. In Mayo, the Commonwealth Court confronted a service that addresses a genuinely universal need. Every occupied property generates refuse as an inevitable byproduct of human habitation. Moreover, the benefit that the Mayo challenger received from his neighbors' waste being collected was direct and unavoidable. He could not insulate himself from the disease vectors, odors, and property value impacts that would arise from uncollected garbage on surrounding properties. The refuse collection service was, in economic terms, an indivisible public good—the township had to deploy collection infrastructure throughout the municipality regardless of whether any single property owner attempted to opt out through aggressive recycling.
Stormwater management differs fundamentally on each of these points. Unlike refuse generation, stormwater burden varies dramatically from property to property. A commercial development with acres of impervious surfaces imposes a vastly different burden than a residential lot with extensive pervious area, mature tree cover, and on-site detention. A property in a valley at the bottom of a watershed can obtain a substantially greater benefit from stormwater mitigation than a property at the top of a hill. Properties with comprehensive stormwater management systems effectively internalize the costs that Mayo reasoning would externalize onto them.
The statutory framework itself challenges an application of Mayo's universal-service logic to stormwater. Section 2705(a) of the Second Class Township Code states that townships "shall consider and provide appropriate exemptions or credits for properties which have installed and are maintaining storm water facilities that meet best management practices." 53 P.S. § 67705(a). This requirement acknowledges what Mayo denied in the refuse context: that individual properties can meaningfully reduce their burden on the municipal system. The statute admits that stormwater service is divisible and that some properties warrant different treatment based on their on-site management. Where Mayo upheld universal charges because the service was truly indivisible and the need universal, stormwater assessments under Section 67705(b)(1) authorize charging "all properties" despite the statute's own recognition that all properties do not impose equal burdens or receive equal benefits.
The Second Class Township Code labels stormwater assessments as "fees," but that label does not control the analysis. When a charge is imposed on all properties in a municipality for the general benefit of stormwater management throughout the community, the essential characteristics point toward a tax rather than a fee. The statute's authorization in Section 67705(b)(1) to charge "all properties" appears to permit what is functionally a general tax, regardless of the label applied. Whether more particularized assessments under subsections (b)(2) and (b)(3) can legitimately qualify as fees will be explored in Part 3.
