The Day the Stormwater Fee Became a Tax

For nearly a decade, the Borough of West Chester has charged property owners a “stream protection fee” calibrated to the impervious surface on their land. The fee funded the Borough's compliance with its NPDES MS4 permit, paid for capital improvements to its stormwater management system, and produced an annual invoice of approximately $132,000 to West Chester University. The University, a Commonwealth instrumentality, declined to pay. The University took the position that the charge was, in legal effect, a tax — and that as an instrumentality of the Commonwealth, the University was immune.

On April 30, 2026, the Pennsylvania Supreme Court agreed. In Borough of West Chester v. Pennsylvania State System of Higher Education, a divided Court held that the Borough's stormwater charge is a local tax, not a fee for service, and that the University is therefore immune. The decision affirmed a unanimous 2023 Commonwealth Court ruling and resolved a question that had been pending in Pennsylvania utility law for years. For the more than fifty Pennsylvania municipalities that operate similar programs, and for the more than two thousand stormwater utilities across the United States, the consequences are now beginning to be assessed.

The case is significant not only for its result but for the framework the Court used to reach it. The majority opinion, authored by Justice Kevin Brobson and joined by Chief Justice Debra Todd and Justices Kevin Dougherty and Sallie Mundy, codified a two-step test that had been implicit in Pennsylvania case law for more than 150 years but had never been so cleanly articulated. The framework will now govern fee/tax disputes for the foreseeable future, and its application reaches well beyond stormwater.

The Test the Court Built

The two-step test asks two questions in sequence. The first question is dispositive in most cases. The second is reached only if the first answer is yes — and in the West Chester program, the Court never reached step two.

The center of gravity is at step one. Under the Court's framework, a charge can be exquisitely calibrated to impervious surface, defensible at every stage of cost-of-service analysis, and still be a tax — if the municipality is providing the service out of duty rather than discretion, and if the relationship with the customer is imposed rather than chosen.

Why the West Chester Charge Failed

The Court found three reasons that the Borough was acting in its public capacity. None of them are unique to West Chester, which is what makes the decision broadly applicable across Pennsylvania.

The program exists to discharge a federal and state regulatory obligation. West Chester's own ordinance recited that “federal and state regulations require the Borough to implement a program of stormwater controls,” including obligations under the Clean Water Act, the Pennsylvania Storm Water Management Act, and The Clean Streams Law. The Borough's MS4 permit imposes the duty on the Borough itself. The Court treated this as evidence that the program is an exercise of governmental authority, not a discretionary commercial service.

The benefits flow to the general community, not to individual ratepayers. The ordinance's findings emphasized public health, safety, general welfare, environmental quality, and flood risk reduction. The Court observed that stormwater impacts all properties — not just developed properties — and that the benefit of managing runoff inures more to downstream property owners and the broader environment than to the property where the rain originally fell.

There is no voluntary, contractual relationship. The ordinance imposed the charge on essentially all developed property in the Borough, with no realistic way to opt out short of removing all impervious surface or leaving the jurisdiction. The credit and appeal system did not create consent in the first instance — it merely allowed property owners to challenge a unilaterally imposed charge.

The Revenue Cliff for Tax-Exempt-Heavy Jurisdictions

In tax-exempt-heavy jurisdictions, the financial consequences are immediate. The amicus briefs of the municipal supporters in the case quantified the exposure. Philadelphia derives an estimated 23 percent of its stormwater revenue from likely tax-exempt customers. In Harrisburg, the Commonwealth alone owns approximately 41 percent of the property, with additional property held by twenty-eight other tax-exempt entities. In smaller boroughs surrounding state universities, prisons, or major institutional campuses, the share can exceed half of total impervious surface area.

The mechanic is straightforward. Fixed program costs do not change because some customers cannot be billed. If 30 percent of the prior billed base is now tax-exempt, the remaining 70 percent must produce the full revenue requirement. In percentage terms, that translates into roughly a 43 percent rate increase on the remaining customers to hold revenue constant. In a borough with 50 percent exposure, the required increase on the remaining base is 100 percent — a doubling of rates.

Pennsylvania Becomes the Outlier

The Pennsylvania Supreme Court acknowledged in its opinion that “the weight of decided law from other jurisdictions favor[s] a finding” that stormwater service charges are fees. The Court chose not to follow that majority — electing instead to apply Pennsylvania's own century-and-a-half-old framework. The result places Pennsylvania alongside the U.S. Court of Federal Claims in DeKalb County, Georgia v. United States (2013), and against the Fourth Circuit, the Maine Supreme Judicial Court, the West Virginia Supreme Court of Appeals, and the Arizona courts.

The national context matters because it suggests that the West Chester reasoning is unlikely to spread quickly to other states. Most state courts have anchored their analyses in proportionality, not capacity. Stormwater utilities are entrenched in jurisdictions where the legal framework is settled. The 2025 Western Kentucky University Stormwater Utility Survey identifies 2,147 stormwater utilities operating in the United States and 82 in Canada, with six states (Washington, Minnesota, Texas, Ohio, Iowa, and Florida) each operating more than 100. The national trend is toward adoption, not retrenchment.

But Pennsylvania utility clients with operations in multiple states should monitor West Chester-style reasoning as a potential persuasive authority in jurisdictions whose fee/tax doctrines are similarly anchored in capacity rather than proportionality. The opinion's careful walk through 150 years of precedent reads, in places, like an invitation to other state high courts to revisit their own settled law.

Justice Mundy's Concurrence: A Roadmap

Among the dissents and concurrences, Justice Sallie Mundy's solo concurrence is the most consequential for practitioners. Justice Mundy joined the majority but wrote separately to reserve judgment on stormwater charges in other municipalities — signaling that programs with different design features might survive the same framework. The opinion is not binding precedent, but it identifies the design choices that may preserve fee status going forward.

The four design choices that most affect the analysis are the scope of fund usage, the calibration methodology, the ordinance findings, and the structure of opt-out mechanisms. Justice Mundy noted that charges whose proceeds go solely to direct stormwater remediation — rather than to tree planting, street sweeping, public education, or general environmental program activities — stand on stronger footing. Charges calibrated to the runoff burden imposed on the system by surrounding properties, rather than to the impervious surface on the payor's own property, more rigorously reflect the discrete benefit the system confers.

For utility decision-makers, the immediate question is not whether to restructure but what to restructure first. The McNees Land Use analysis of the decision puts it directly: “To preserve fee status, ordinances should articulate the discrete, individualized benefit each payor receives and tie the charge to the service rendered.” The Eckert Seamans analysis counsels patience, noting that “all municipal authorities and municipalities should decline to make immediate or definitive decisions regarding West Chester until a clearer picture emerges from its application.” Both positions are defensible. The right answer for any particular utility depends on the existing program structure, the tax-exempt customer share, the regulatory posture of state and federal partners, and the political and operational tolerance for restructuring.

What Stormwater Utility Clients Should Do Now

The immediate response should be measured but not delayed. NewGen recommends a five-step diagnostic and response framework for any Pennsylvania utility operating a stormwater program subject to West Chester.

First, inventory the exposure. Identify every tax-exempt customer account, quantify revenue exposure, and project the cost-shifting impact under multiple assumptions about how aggressively tax-exempt entities will pursue refunds and prospective relief. A defensible exposure analysis is the foundation for every subsequent decision.

Second, audit the ordinance. Review the enabling ordinance or authority resolution against the principles articulated in Justice Mundy's concurrence. Identify language that emphasizes regulatory compliance and general public welfare, and identify provisions for restructuring that emphasize discrete benefit, voluntary opt-out, and narrow fund usage.

Third, audit the fund usage. Document every category of expenditure from the stormwater fund and assess whether each expenditure ties to direct stormwater remediation or to broader environmental and public welfare activities. Expenditures outside direct remediation will need to be reconsidered.

Fourth, model the rate scenarios. Build a cost-of-service analysis under multiple revenue requirement scenarios, customer base scenarios, and rate structure scenarios. The goal is not to pick the “right” answer immediately but to understand the trade-offs, the affordability implications, and the political constraints.

Fifth, engage the broader policy conversation. Coordinate with the Pennsylvania Municipal Authorities Association, the Pennsylvania State Association of Boroughs, and other trade associations on legislative options. The General Assembly is the only body that can resolve the underlying tension between regulatory compliance obligations and tax-exempt sovereign immunity. Utility decision-makers should be active participants in that conversation.

This article is for informational and planning purposes only. It does not constitute legal advice. Municipal counsel should be consulted on the specific implications of Borough of West Chester v. PASSHE for any particular jurisdiction's stormwater program.

At NewGen Strategies & Solutions, we help utilities navigate complex regulatory transitions, restructure rates under pressure, and build defensible cost-of-service models that withstand judicial and regulatory scrutiny. If your utility is reassessing its stormwater program in light of the West Chester decision, we'd love to hear from you.