As a result of changes in federal and state laws related to stormwater management, municipalities across the Commonwealth have been forced – in order to comply with the new laws – to seek new funding sources and to regulate businesses located within the municipality. The deadline for compliance for municipalities is quickly approaching – September 30, 2022. Not only are municipalities required to comply with new measures, but often the resulting new municipal regulations and ordinances are then challenged in court. One such challenge, for the City of Chester, concluded in December of 2021 by a decision from Judge Covey in the Commonwealth Court of Pennsylvania.
In the unreported memorandum decision of Appeal of Best Homes DDJ, LLC, 239-40 C.D. 2020 (Pa. Cmwlth. Ct. Dec. 23, 2021), Judge Covey affirmed the decisions made by the Delaware County Court of Common Pleas and held that the City of Chester Stormwater Authority’s (“Authority”) Municipal Separate Storm Sewer System (“MS4”) fees were not an impermissible tax.
In Appeal of Best Homes DDJ, LLC, the Appellants are Authority rate/fee-payers. Some of those Appellants, including the lead Appellant, Best Homes DDJ, LLC, have removed itself from the litigation since the filing of the initial case. On January 17, 2018 (and later, in an amended action), Appellants filed the case in the trial court seeking injunctive relief from the Authority’s new stormwater user fee. In their complaint, Appellants claimed that the Authority was assessing Appellants an illegal tax for stormwater management, repairs, and maintenance. Specifically, Appellants’ allegations included:
- The Authority was improperly formed because the Authority was created in October 2016, and the first public meeting was not held until February 2017, approximately four months passed before the Authority even attempted to comply with Section 704 of the Sunshine Act;
- The Authority was improperly run;
- The services for which the Authority are charging are duplicative of the services performed by the Delaware County Regional Water Authority (“DELCORA”);
- The monies the Authority is assessing City of Chester property owners are an illegal tax;
- The Authority’s services are duplicative, unnecessary, and unreasonable;
- The Authority’s fee scheme is not reasonably related to the services provided; and
- The fee scheme is unreasonable and arbitrary.
On December 13, 2019, the trial court denied the request for injunctive relief, later denied Appellants’ Post-Trial Motions, and then Appellants filed an appeal to the Commonwealth Court of Pennsylvania.
The following issues were raised on appeal:
- Whether the trial court erred or abused its discretion by denying Appellants’ Post-Trial Motion;
- Whether the trial court erred or abused its discretion by denying Appellants’ Petition;
- Whether the trial court erred or abused its discretion by concluding that the Authority was properly formed and did not violate Section 704 of the Sunshine Act or Sections 5607(b)(2) and (d)(9) of the Municipality Authorities Act (“MAA”);
- Whether the trial court erred or abused its discretion by basing its determination solely on the finding that the Authority did not violate the MAA; and
- Whether the trial court erred or abused its discretion by failing to enter any findings of fact or conclusions of law regarding the additional issues of law and fact on which Appellants’ case was predicated.
Judge Covey affirmed the trial court’s decision for the following reasonings:
For Issues One and Two, Appellants failed to develop the issues in the argument section of its brief, which constituted waiver of the issues.
For Issue Three, the trial court did not err or abuse its discretion by concluding that the Authority did not violate Section 704 of the Sunshine Act or Sections 5607(b)(2) and (d)(9) of the MAA, for the following reasons:
Sunshine Act Claim
Section 704 of the Sunshine Act requires:
Official action and deliberations by a quorum of the members of an agency shall take place at a meeting open to the public unless closed under [S]ection[s] 707 (relating to exceptions to open meetings), 708 (relating to executive sessions)[,] or 712 (relating to General Assembly meetings covered) [of the Sunshine Act, 65 Pa.C.S. §§ 707, 708, 712].
65 Pa.C.S. § 704. As noted above, Appellants assert that because the Authority was created in October 2016, and the first public meeting was not held until February 2017, approximately four months passed before the Authority even attempted to comply with Section 704 of the Sunshine Act. However, Section 713 of the Sunshine Act provides:
A legal challenge under this chapter shall be filed within 30 days from the date of a meeting which is open, or within 30 days from the discovery of any action that occurred at a meeting which was not open at which this chapter was violated, provided that, in the case of a meeting which was not open, no legal challenge may be commenced more than one year from the date of said meeting. The court may enjoin any challenged action until a judicial determination of the legality of the meeting at which the action was adopted is reached. Should the court determine that the meeting did not meet the requirements of this chapter, it may in its discretion find that any or all official action taken at the meeting shall be invalid. Should the court determine that the meeting met the requirements of this chapter, all official action taken at the meeting shall be fully effective.
65 Pa.C.S. § 713.
Moreover, Judge Covey found that there is no record evidence establishing the existence of closed Authority meetings, let alone whether official action was taken, and/or whether the action was cured by later open meetings. Notwithstanding, because Appellants allege that the private meetings occurred before October 2016, i.e., the date the letters of incorporation were received, and Appellants did not file the Complaint until January 17, 2018, Appellant’s claims as to the Authority’s Sunshine Act violations are beyond the required one-year filing period, and thus, untimely.
Section 5607(b)(2) of the MAA
Section 5607(b) of the MAA provides, in relevant part:
Limitations.–This section is subject to the following limitations:
. . .
(2) The purpose and intent of this chapter being to benefit the people of the Commonwealth by, among other things, increasing their commerce, health, safety and prosperity and not to unnecessarily burden or interfere with existing business by the establishment of competitive enterprises, none of the powers granted by this chapter shall be exercised in the construction, financing, improvement, maintenance, extension or operation of any project or projects or providing financing for insurance reserves which in whole or in part shall duplicate or compete with existing enterprises serving substantially the same purposes. . . .
63 Pa.C.S. § 5607(b).
The Appellants argue the Authority’s services duplicate and compete with DELCORA’s services in violation with this section of the MAA. That argument, however, according to the court, is without merit. DELCORA’s Director of Operations and Maintenance testified that DELCORA has absolutely no control over Chester’s stormwater inlets and pipes into the combined sewer system, and further that DELCORA has absolutely no control over any MS4 stormwater infrastructure whatsoever. The trial court concluded, as a result, that the Authority’s services do not duplicate or interfere with DELCORA’s services. Thus, no error by the trial court.
Section 5607(d)(9) of the MAA:
Section 5607(d) of the MAA provides, in relative part:
Every authority may exercise all powers necessary or convenient for the carrying out of the purposes set forth in this section, including, but without limiting the generality of the foregoing, the following rights and powers:
. . . .
(9) To fix, alter, charge and collect rates and other charges in the area served by its facilities at reasonable and uniform rates to be determined exclusively by it for the purpose of providing for the payment of the expenses of the authority, the construction, improvement, repair, maintenance and operation of its facilities and properties . . . . Any person questioning the reasonableness or uniformity of a rate fixed by an authority or the adequacy, safety and reasonableness of the authority’s services, including extensions thereof, may bring suit against the authority in the court of common pleas of the county where the project is located . . . .
53 Pa.C.S. § 5607(d). When the reasonableness of a fee is challenged, Pennsylvania courts have determined that the party challenging the fee bears the burden of proving its unreasonable. Appellants contend that the Authority failed to adopt a proper budget and the Authority failed to reveal any of the analytical process or computations that support the Authority’s final fee determination. This argument, however, failed, according to the court, because the Authority had an expert testify at trial as to how the Authority initiates the implementation of its fees and how the fees are reasonably related to services or projects that the Authority will produce and execute. The trial court found the expert’s testimony credible and the Authority’s fees, thus, were reasonable. Accordingly, the Commonwealth Court found no errors on trial court’s part.
In addition, Appellants argued that the Authority’s assessed fee is an impermissible tax. Specifically, Appellants contend that the charges are a tax because it generates revenue and are a burden placed upon property owners to raise money for public purposes. Appellants assert that the Authority has raised and used revenue for projects unrelated to stormwater. Judge Covey reasoned that the Commonwealth Court has held:
[I]n determining whether a levy under a municipal ordinance is a tax or a true fee, “[t]he common distinction is that taxes are revenue-producing measures authorized under the taxing power of government; while fees are regulatory measures intended to cover the cost of administering a regulatory scheme authorized under the police power of government.”
Rizzo v. City of Phila., 668 A.2d 236, 237 (Pa. Cmwlth. 1995) quoting City of Phila. v. Se. Pa. Transp. Auth., 303 A.2d 247, 251 (Pa. Cmwlth. 1973). Moreover, Judge Covey cited the reasoning in Borough of W. Chester v. Pa. State Sys. of Higher Educ.:
whether the [Authority’s] [s]tormwater [c]harge constitutes a tax or a fee depends upon whether the [s]tormwater [s]ystem provides a discrete benefit to [Appellants], as opposed to generally aiding the environment and the public at large; whether the value of the [s]tormwater [s]ystem to [Appellants] is reasonably proportional to the amount of the stormwater charge; and, apart from general operation, maintenance and repair of the [s]tormwater [s]ystem, how exactly [] the [Authority] utilize[s] the funds generated by the [s]tormwater [c]harge.
Pa. Cmwlth. No. 260 M.D. 2018, filed July 15, 2019, slip op. at 11. And the reasoning from the Rizzo case, which provided: “[T]he party challenging a fee on the ground that it constitutes an unlawful tax bears the initial burden of establishing that the fees were not in fact used to reimburse the municipality for . . . providing a service.” 668 A.2d at 237.
Judge Covey found no record evidence that the Authority’s collected fees were unrelated to stormwater. Furthermore, Judge Covey found that the Appellants did not establish that the Authority does not provide a discrete benefit to Appellants or that the value of the Authority to Appellants is not reasonably proportional to the amount of the fees. Accordingly, Appellants failed to meet its burden of proving the fees are, in actuality, revenue-raising taxes rather than valid fees. Thus, the trial court did not err.
For Issues Four and Five, the trial court did not err or abuse its discretion by basing its determination solely on the finding that the Authority did not violate the MAA or by failing to enter any findings of fact or conclusions of law regarding the additional issues of law and fact on which Appellants’ case was predicated. This is so because the trial court concluded that Appellants did not establish a clear right to relief since they failed to meet their burden of proving the allegations set forth in their complaint. As a result, given that the trial court clearly explained the reasons for its conclusion in its opinion, there was no reason for the trial court to enter any findings of fact or conclusions of law regarding the additional issues.
In conclusion, the Authority’s stormwater user fees were found to be acceptable. Appeal of Best Homes DDJ, LLC makes it clear that it will take significant fact evidence in order to overturn a new stormwater user fee. It is incumbent upon the rate payer to develop the facts, which in this specific case, are nearly non-existent. Reasonableness, in comparison to the benefits gained from the ratepayer will be critical for the court, as will proportionality. Finally, courts will be looking to see whether the new fee is revenue-raising, which would make it more likely a tax.
If you have questions about Appeal of Best Homes DDJ, LLC or matters related to the new implementations of stormwater fees and stormwater authorities, please contact Ryan Gonder (717-237-5340 or rgonder@mcneeslaw.com) or any member of the McNees State and Local Tax team.