When a Fee Becomes a Tax

Executive Summary

On April 30, 2026, the Pennsylvania Supreme Court issued its opinion in Borough of West Chester v. Pennsylvania State System of Higher Education, No. 9 MAP 2023, holding that the Borough of West Chester's stormwater management charge constitutes a local tax rather than a fee for service. The decision affirmed a unanimous 2023 Commonwealth Court ruling and resolved a long-pending question about how Pennsylvania courts will characterize impervious-surface-based stormwater charges. For NewGen's stormwater utility clients in the Commonwealth, and potentially for clients in the more than two thousand jurisdictions nationwide that operate stormwater utilities, the decision warrants careful attention and a deliberate strategic response.

The holding is narrow on its facts but broad in its framework. The Court addressed a home rule borough that adopted a stormwater charge directly through ordinance and applied it to a tax-immune state university. The Court did not directly address charges imposed by stormwater authorities created under the Municipality Authorities Act, nor did it address the question of refunds for previously collected charges. The Court did, however, articulate a two-step test that will govern fee/tax characterization across Pennsylvania municipal practice for the foreseeable future.

The two-step test centers on capacity, not proportionality. At step one, a court must determine whether the municipality is acting in a public or quasiprivate capacity, considering the purpose underlying the municipality's participation in the service and the nature of the relationship between the municipality and the recipients. If the municipality acts in its public capacity — that is, out of duty for the public benefit and without a voluntary, contractual relationship — the charge is a tax and the inquiry ends. Only if the municipality acts in a quasiprivate capacity does the court reach step two, the question of whether the charge is reasonably proportional to the service rendered.

The application is fact-driven and program-specific. The Court found that West Chester's stormwater program operates in a public capacity because the program is driven by federal and state mandates (Clean Water Act, NPDES, Pennsylvania Storm Water Management Act), the ordinance emphasizes public health and welfare, the benefits flow primarily to the community at large rather than to individual ratepayers, and the imposition of the charge on essentially all developed property within the Borough does not reflect a voluntary, contractual relationship.

The fiscal exposure for Pennsylvania municipalities is substantial. Pennsylvania has 1,061 designated MS4s (one Large, one Medium, 1,059 Small) carrying NPDES permit obligations. Approximately fifty Pennsylvania municipalities have adopted impervious-surface-based stormwater charges. Tax-exempt property exposure varies sharply by jurisdiction: amicus briefs identified that approximately 23 percent of Philadelphia's stormwater revenue derives from likely tax-exempt customers, and approximately 41 percent of property in Harrisburg is owned by the Commonwealth alone, with additional property held by twenty-eight other tax-exempt entities. In tax-exempt-heavy jurisdictions, reclassification could shift hundreds of thousands to millions of dollars in annual cost recovery from large, high-impervious-surface payers to the remaining residential and commercial customer base.

The cross-border landscape is mixed and remains so. The Pennsylvania Supreme Court joined a minority position represented by the U.S. Court of Federal Claims in DeKalb County, Georgia v. United States (2013), holding that stormwater charges with general public benefits constitute taxes. The Fourth Circuit (Virginia), the Maine Supreme Judicial Court, the West Virginia Supreme Court of Appeals, and the Arizona courts have all reached the opposite conclusion. As of the 2025 Western Kentucky University Stormwater Utility Survey, 2,147 stormwater utilities operate across the United States, and the federal government has codified that reasonable stormwater fees are not taxes for purposes of federal agency payment obligations.

Justice Mundy's concurrence provides a roadmap. Justice Mundy reserved judgment on stormwater charges in other municipalities where proceeds are directed solely to direct stormwater remediation and where calculation methodology more rigorously ties the charge to discrete benefits. The concurrence is not binding precedent, but it identifies the design choices — ordinance findings, fund usage, calculation methodology, and credit structures — that may preserve fee status under the Court's new framework.

The West Chester Case: Facts and Procedural History

The Borough System and the Stream Protection Fee

The Borough of West Chester is a home rule municipality organized under the Home Rule Charter and Optional Plans Law, 53 Pa. C.S. §§ 2901-3171. The Borough owns and operates a small municipal separate storm sewer system (MS4) as defined under 40 C.F.R. § 122.26(b)(16), which constitutes only one component of the Borough's broader stormwater management system (Borough System). As defined by Section 94A-5 of the Borough's Stream Protection Fee Ordinance, the Borough System includes underground pipes, conduits, mains, inlets, culverts, catch basins, gutters, ditches, manholes, outfalls, dams, flood control structures, natural areas, structural and non-structural stormwater best management practices, channels, detention ponds, public streets, curbs, drains, and related appurtenances used for collecting, conveying, detaining, discharging, and treating stormwater.

In June 2016, the Borough Council adopted Ordinance No. 5-2016, which established the “stream protection fee,” referred to throughout the litigation as the “Stormwater Charge.” The ordinance imposed the charge on all owners of developed properties that the Borough deemed to benefit from the Borough System. The ordinance defined “developed” expansively to include essentially any property where manmade changes added impervious surface. The charge amount was calculated based on impervious surface area: $6.70 per 1,000 square feet of impervious surface per month for properties exceeding 3,000 square feet, with five tiered brackets for smaller properties. All revenue was directed to a dedicated Stormwater Management Fund used for stormwater program implementation, system construction and maintenance, debt service on stormwater capital projects, and related regulatory compliance activities under the Clean Water Act, the Pennsylvania Storm Water Management Act, and The Clean Streams Law.

The PASSHE Dispute

The Pennsylvania State System of Higher Education (PASSHE) is a Commonwealth instrumentality established under the Public School Code, 24 P.S. § 20-2002-A(a), comprising fourteen public universities, including West Chester University of Pennsylvania (the University). Portions of the University's North Campus sit within the Borough's jurisdictional limits, and the parties did not dispute that at least some of the stormwater flowing from North Campus either enters and flows through the Borough System or flows directly into a nearby watercourse. The Borough issued invoices to PASSHE and the University for the Stormwater Charge in 2017, 2018, and 2019, in amounts totaling approximately $132,088.68 per year. The University did not pay the invoices, asserting that the charge constituted a tax from which the University, as a Commonwealth instrumentality, was immune.

The Borough filed a petition for review in the Commonwealth Court seeking a declaratory judgment that the Stormwater Charge was a fee for service. The parties cross-filed for summary relief. In a unanimous 2023 opinion, the Commonwealth Court ruled for PASSHE, holding that the Stormwater Charge constituted a general tax from which the Appellees were immune. Borough of W. Chester v. Pa. State Sys. of Higher Educ., 291 A.3d 455 (Pa. Cmwlth. 2023). The Borough appealed.

The Stakes

The dispute attracted substantial amicus participation. In support of the Borough, the Chesapeake Bay Foundation, Citizens for Pennsylvania's Future, the Pennsylvania Municipal Authorities Association, the Pennsylvania State Association of Boroughs, the Pennsylvania State Association of Township Supervisors, the Pennsylvania State Association of Township Commissioners, the Pennsylvania Municipal League, Capital Region Water, the Wyoming Valley Sanitary Authority, the cities of Philadelphia, Lancaster, Lock Haven, and Franklin, and approximately ten additional municipalities filed amicus briefs. The Pittsburgh Water and Sewer Authority filed independently in support of the Borough. The municipal amici argued that recharacterization of stormwater charges as taxes would force non-tax-exempt property owners to subsidize the costs of tax-exempt entities, with disproportionate impacts in cities and boroughs with substantial Commonwealth, university, or institutional property holdings.

In support of the University, Consolidated Scrap Resources, Inc., Dura-Bond Pipe LLC, the Pennsylvania Aggregates and Concrete Association, the Pennsylvania Chamber of Business and Industry, the Lehigh-Northampton Airport Authority, and the Susquehanna Area Regional Airport Authority filed amicus briefs. The airport authority briefs argued that the General Assembly, not local governments or courts, should determine whether tax-exempt status should yield to stormwater management cost-sharing.

The Two-Step Framework: A Codified Test

The Court devoted substantial portions of its opinion to articulating, with the explicit purpose of providing “the bench and bar with a clearer understanding through a consolidation of our precedent,” the framework for distinguishing fees from taxes under Pennsylvania law. The Court traced the framework's origins through more than 150 years of Pennsylvania jurisprudence, citing In re Washington Avenue, 69 Pa. 352 (1871); Hammett v. City of Philadelphia, 65 Pa. 146 (1869); Olive Cemetery Co. v. City of Philadelphia, 93 Pa. 129 (1880); Borough of McKeesport v. Fidler, 23 A. 799 (Pa. 1892); Jolly v. Monaca Borough, 65 A. 809 (Pa. 1907); American Aniline Products, Inc. v. City of Lock Haven, 135 A. 726 (Pa. 1927); Shirk v. City of Lancaster, 169 A. 557 (Pa. 1933); Supervisors of Manheim Township v. Workman, 38 A.2d 273 (Pa. 1944); and In re Petition of City of Philadelphia, 16 A.2d 32 (Pa. 1940). The result is a clean two-step test grounded in long-standing precedent.

Step One: Public Capacity or Quasiprivate Capacity?

The threshold inquiry is whether the municipality is performing the service in its public capacity or its quasiprivate capacity. This is a binary categorization that depends on two factors: the purpose underlying the municipality's participation in the service, and the nature of the relationship between the municipality and the recipients of the service.

Public capacity is characterized by duty, generality of benefit, and the absence of contract. A municipality is acting in its public capacity when it performs a service out of a non-delegable duty for the public benefit, in the absence of a voluntary contractual relationship with those receiving the service. Examples drawn from the Court's precedent include the repair and maintenance of streets, the cleaning, watching, and lighting of public spaces (Hammett, 65 Pa. at 156), and the paving of highways (Shirk, 169 A. at 564). These are core governmental functions tied to the welfare of the entire community.

Quasiprivate capacity is characterized by discretion, individual benefit, and contract. A municipality is acting in its quasiprivate capacity when it provides a discretionary service for private emolument within the scope of a contractual relationship. The Court catalogued the long-recognized scope of quasiprivate services: the supply and distribution of a commodity, ash collection, garbage removal, and sanitary sewer services (Supervisors of Manheim Twp., 38 A.2d at 276). These are services that municipalities may but need not provide, that compete with or could be supplied by private market participants, and that involve a definable customer relationship.

If the municipality is acting in its public capacity, the inquiry ends and the charge is a tax. Proportionality is not reached.

Step Two: Proportionality (Only If Reached)

If, and only if, the municipality is acting in its quasiprivate capacity, the court proceeds to step two, which asks whether the associated charge is measured by the service rendered. Under Supervisors of Manheim Township, a charge that is reasonably proportional to the extent of use or the value of the service rendered is a fee. A charge that has “no necessary or likely connection between the amount of the charge and the services rendered” is, in legal effect, a tax. Because the West Chester majority resolved the case at step one, it expressly did not reach proportionality with respect to the Stormwater Charge.

The Court's Application: Why the Stormwater Charge Is a Tax

Public Capacity: The Purpose of the Program

The Court began its application by examining the Borough's stated purposes for the Stormwater Charge. The Court found that, notwithstanding the Borough's litigation position that the program was designed to relieve individual landowners of stormwater management obligations, the contemporaneous ordinance findings told a different story. The Ordinance recited that “[f]ederal and state regulations require the Borough to implement a program of stormwater controls,” and defined the Stormwater Charge as “an assessment levied . . . to cover the costs of constructing, operating, and maintaining” the Borough System and “to fund expenses related to the Borough's compliance with PADEP NPDES permit requirements under applicable state law.” The Court found that this language “indisputable[e]” demonstrated that the program was prompted at least in part by federal and state mandates imposed on the Borough itself.

The Court further found that the ordinance's explicit findings of fact described the program's benefits in terms of public health, safety, and general welfare: a comprehensive program of stormwater management was “fundamental to the public health, safety, and general welfare of the residents of the Borough,” and inadequate stormwater management increased flood risks, harmed the environment and water quality, and threatened public health and safety. The Court characterized these as findings reflecting an intent to address the negative impacts of stormwater runoff on the environment and community — not findings of intent to benefit individual landowners.

The Court emphasized that this characterization was inherent to the subject matter, not merely a feature of the Borough's drafting: “By its very nature, stormwater impacts all properties, not just developed properties, and the benefit received from the Borough System (in the form of the management of stormwater flowing from a particular property) is a benefit that inures to the general public more so than to the owner of the particular property from which the stormwater flowed.”

The Absence of a Voluntary, Contractual Relationship

The Court then examined the relationship between the Borough and the property owners subject to the Stormwater Charge. The Court applied the long-standing rule that quasiprivate service charges require “express or implied contract on the part of the consumer to make compensation for [the service] which he has applied for and received, on the terms and conditions made public.” Jolly, 65 A. at 811. The Court found three reasons that no such contract existed.

First, stormwater management is not a service that property owners typically seek out. The Court observed that stormwater is transient and that, absent immediate liability or property damage risk, owners do not affirmatively seek stormwater management. Quoting the DeKalb court, the Court emphasized that “the burden imposed on the system by the runoff from the property, and the benefits conferred upon that property by the system are not the same thing,” and noted that the relationship between impervious surface and benefit is not symmetrical: properties with extensive impervious cover atop a hill may impose substantial burden while deriving little benefit, while small homes downhill from extensive development may receive substantial benefit while imposing little burden.

Second, no specific action by a property owner triggers each use of the stormwater system. Unlike water or sanitary sewer service, where a customer's act of opening a tap or flushing initiates a discrete transaction, the rain falls regardless of customer behavior. The Court rejected the Borough's argument that the existence of impervious surface manifests consent: the Ordinance's expansive definition of “developed” effectively swept in all habitable property and any functional commercial property, leaving no realistic alternative to paying the charge. The Court further noted the historical context: many properties were developed long before stormwater management programs existed, making it “inappropriate to rely upon the initial construction of impervious surfaces to establish a contract between the parties to pay a charge that was not imposed until decades, if not a century, after the property was first developed.”

Third, the Court found the Ordinance's sweeping terms inconsistent with a contractual relationship. Section 94A-6(A.) imposed the Stormwater Charge on “each and every developed property within the Borough that is connected with, uses, is serviced by or is benefitted by the [Borough System], either directly or indirectly.” The Court drew a parallel to its earlier rejection of similar reasoning in the sanitary sewer context, where it had distinguished between “actual use of” the system and “the privilege of using” it, and had held that a charge applicable to vacant lots, unconnected buildings, and properties that did not actually use the system was “without any regard whatever to the extent or value of the . . . [service].” In re Petition of City of Phila., 16 A.2d at 35.

The Credit System Did Not Cure the Problem

The Borough argued that the Ordinance's credit and appeal system, which allowed property owners to reduce their charge by implementing on-site stormwater management practices, demonstrated voluntariness. The Court rejected this argument, holding that “[r]equiring property owners who became subject to a unilaterally imposed stormwater charge to seek an appeal to avoid that charge is not equivalent to the individual or entity deciding in the first instance to accept or decline a service or engage or refrain from a regulated activity.” The Court further observed that the only realistic ways to avoid the charge entirely were to employ a private stormwater management system, remove all existing impervious surfaces, refrain from any development, or move outside the Borough.

The Court also rejected the Borough's reliance on a cost-of-alternatives analysis. The Borough had submitted expert testimony estimating that the University would incur capital costs of approximately $4.2 million (annualized at approximately $178,500 per year) to construct and operate independent stormwater facilities, against an annual Stormwater Charge of $132,088.68 — presenting the charge as a value proposition for the University. The Court treated this argument as irrelevant to the question of whether a voluntary, contractual relationship existed.

The Court's Conclusion

Synthesizing these findings, the Court concluded that the Borough was providing stormwater management services out of duty, for the public benefit, and in the absence of a contractual relationship. Accordingly, the Borough was acting in its public capacity, the Stormwater Charge was a local tax, and PASSHE and the University were immune. The Court did not reach the proportionality question.

Concurrences and Dissents: Where the Court Disagreed

The majority opinion was authored by Justice Kevin Brobson and joined by Chief Justice Debra Todd and Justices Kevin Dougherty and Sallie Mundy. Justice Mundy also filed a concurring opinion. Justices David Wecht and Daniel McCaffery filed concurring and dissenting opinions, with Justice Christine Donohue joining Justice McCaffery's opinion. The disposition therefore commanded a four-justice majority, with three justices writing separately, and with two justices ultimately dissenting from the result.

Justice Mundy's Concurrence: A Roadmap for Future Programs

Justice Mundy joined the majority opinion but wrote separately to reserve judgment on stormwater charges in other municipalities. The concurrence is consequential because it identifies design choices that might preserve fee status under the Court's framework. Justice Mundy noted that charges whose proceeds are directed solely to direct stormwater remediation — rather than tree planting, street sweeping, or other general environmental program activities — may stand on stronger footing. Justice Mundy also suggested that calculation methodologies that more rigorously tie the charge to the runoff burden imposed on the system by surrounding properties, rather than to the impervious surface on the payor's own property, may better reflect the discrete benefit conferred by the system.

Justice McCaffery's Dissent (Joined by Justice Donohue)

Justice McCaffery argued that the majority's reasoning was “overly simplistic and ignores other relevant concerns.” The dissent focused on fairness and on the practical consequences of the decision: the costs of operating the Borough System would now be borne by other ratepayers, including residential customers, while the University — whose North Campus drains in part through the Borough System pursuant to its own MS4 permit assumptions — would not contribute. Justice McCaffery quoted a University deposition acknowledging that the University's stormwater management plan was developed on the assumption that some University stormwater would enter the Borough System. The majority responded that “perceived 'fairness,' alone, cannot be the driving factor in this Court's decision” and that the question presented was one of law, not policy.

Justice Wecht's Concurring and Dissenting Opinion

Justice Wecht filed a separate concurring and dissenting opinion. The opinion concurred with the majority's articulation of the two-step framework but dissented from aspects of its application to the West Chester program. The concurring portion confirmed that the two-step test now commands at least five votes on the Pennsylvania Supreme Court, even though the result in West Chester commanded only four.

Implications for Pennsylvania Municipalities

The Scope of Exposure

Pennsylvania has 1,061 designated MS4s under the Pennsylvania Department of Environmental Protection's PAG-13 General Permit framework: one Large MS4 (Philadelphia), one Medium MS4 (Allentown), and 1,059 Small MS4s. Approximately fifty Pennsylvania municipalities have adopted impervious-surface-based stormwater charges, with approximately a dozen having organized formal stormwater authorities under the Municipality Authorities Act amendments enacted in 2013 and 2014 (Act 68 of 2013 and the 2014 follow-on amendments).

The exposure varies sharply by jurisdiction. Amicus briefs in the West Chester appeal identified several illustrative data points. In Philadelphia, approximately 23 percent of stormwater management revenue derives from customers that are likely tax-exempt — representing tens of millions of dollars in annual recovery. In Harrisburg, approximately 41 percent of property is owned by the Commonwealth alone, with additional property held by twenty-eight other tax-exempt entities. In smaller jurisdictions surrounding state university campuses, prisons, large nonprofit hospitals, or major churches, the tax-exempt share can exceed half of total impervious surface area.

The Municipal Authority Question

The Court explicitly did not address charges imposed by stormwater authorities created under the Municipality Authorities Act. Under Act 68 of 2013, the General Assembly added “stormwater planning, management, and implementation” to the powers of municipal authorities, and the 2014 amendment specifically authorized stormwater fees. The question is whether the express statutory authorization to charge fees alters the analysis: municipal authority practitioners have long emphasized that authorities can charge fees on tax-exempt properties precisely because they have express statutory authority to do so, while municipalities operating directly under their general home rule or municipal authority cannot impose taxes on Commonwealth property.

The West Chester framework does not, on its face, exempt municipal authorities. The Court's test asks whether the entity is acting in a public or quasiprivate capacity, and a stormwater authority acting under express statutory authority to address regulatory compliance obligations is at minimum arguably acting in a public capacity under the Court's framework. But the question is unresolved, and municipal authority practitioners can advance reasonable arguments that the express statutory authorization, combined with the more deliberate corporate separation between authority and parent municipality, creates a different posture under the framework.

The Refund Question

The Court did not address whether previously collected charges must be refunded to tax-exempt entities or to other property owners. The Eckert Seamans analysis of the decision notes that this question is among “the unresolved questions posed by the impact of West Chester” and counsels 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.” In practice, prospective relief is the most probable outcome for charges collected pursuant to a presumptively valid ordinance, but tax-exempt entities that have paid under protest may have stronger refund claims. NewGen recommends that clients consult with municipal counsel on refund exposure before adjusting reserve or rate-setting practices.

Rate Recovery and Cost Shifting

For utilities that conclude their tax-exempt customers cannot be billed, the immediate consequence is a cost-shifting problem. The fixed cost of operating an MS4 program does not change because some customers cannot be billed; the cost must be recovered from the remaining customer base or from another funding source. In tax-exempt-heavy jurisdictions, the resulting impact on residential and commercial rates can be substantial: in Harrisburg, for example, a 41-percent reduction in the billed base would, all else equal, require a 70-percent rate increase on remaining customers to hold revenue constant.

The Cross-Border Question: How Other States Have Ruled

The West Chester decision places Pennsylvania in a minority position. Most state courts that have addressed similar questions have characterized impervious-surface-based stormwater charges as fees rather than taxes. The Court itself acknowledged that “the weight of decided law from other jurisdictions favor[s] a finding” that stormwater service charges are fees, but expressly declined to follow that majority position, electing instead to apply Pennsylvania's own century-and-a-half-old framework grounded in cases like Hammett, Manheim Township, and Jolly.

Other States' Approaches

The following table summarizes representative state court decisions on the fee/tax characterization of stormwater charges, drawn from the briefs of the parties and amici and from the 2025 Western Kentucky University Stormwater Utility Survey.

What Distinguishes the Pennsylvania Approach

The principal doctrinal distinction between the Pennsylvania approach and the approach of most other state courts is the choice of step-one focus. The federal and other-state precedents that have characterized stormwater charges as fees have generally focused on the question of proportionality — whether the charge is calibrated to runoff contribution or impervious surface in a reasonably defensible way. The Pennsylvania approach, by contrast, focuses first on whether the municipality is acting in its public capacity, and asks the proportionality question only if the answer is no. Under the Pennsylvania approach, a charge can be perfectly proportional and still be a tax.

A second distinction is the treatment of voluntariness. The Fourth Circuit and Maine courts have explicitly rejected the argument that the high cost of alternatives makes a charge involuntary. The Pennsylvania Supreme Court, by contrast, treated the sweeping applicability of the West Chester ordinance to essentially all developed property as evidence that no voluntary contractual relationship existed.

National Stormwater Utility Landscape

The 2025 Western Kentucky University Stormwater Utility Survey identifies 2,147 stormwater utilities in the United States, with an additional 82 in Canada. Six states (Washington, Minnesota, Texas, Ohio, Iowa, and Florida) each have more than 100 stormwater utilities. The median monthly residential charge is approximately $4.75. The first U.S. stormwater utility was established in Bellevue, Washington in 1974, and the model has expanded steadily across both Democratic-leaning and Republican-leaning states. Legal challenges have been a recurring feature of stormwater utility implementation, but the utility prevails in most cases — an outcome largely attributable to the proportionality-focused framework applied by most state courts.

The Path Forward: Rate Design, Authority Structures, and Legislative Action

Program Restructuring: The Mundy Roadmap

For Pennsylvania utilities seeking to preserve fee status, Justice Mundy's concurrence and the McNees Land Use analysis converge on a set of design principles. These principles do not guarantee fee status under the Court's framework, but they align program structure more closely with the Court's articulated criteria for quasiprivate-capacity services.

1. Narrow fund usage to direct stormwater remediation. Ordinance language and accounting practice should restrict the use of stormwater charge proceeds to the direct construction, operation, and maintenance of physical stormwater management facilities serving the payor's property, drainage area, or hydraulically-connected subwatershed. Expenditures on tree planting, public education, curb extensions, and general beautification — even when arguably related to stormwater management — weaken the fee characterization.
2. Calibrate the charge to runoff burden imposed on the system. The methodology should tie the charge to the volume or rate of runoff that each property is anticipated to contribute to the system, rather than to the property's own impervious surface alone. Hydraulic models, runoff coefficients, and time-of-concentration analyses produce more defensible methodologies than equivalent residential unit (ERU) systems based solely on impervious area.
3. Reframe ordinance findings. The findings of fact in the enabling ordinance should articulate the discrete, individualized benefit each payor receives, and should de-emphasize regulatory compliance and general public welfare. Findings should acknowledge that property owners would otherwise bear individual stormwater management costs and that the program transfers a portion of those costs to a shared infrastructure model.
4. Build genuine opt-out and credit mechanisms. The credit system should provide a meaningful, accessible mechanism for property owners to demonstrate that they do not benefit from the system, with credits proportional to actual on-site mitigation. Properties that demonstrably do not drain to the system should be excluded entirely from the charge.
5. Document the customer relationship. Where feasible, programs should structure the customer relationship around discrete service deliverables — for example, conveyance, treatment, attenuation, or floodplain protection — that the utility provides to specific properties pursuant to a service agreement.

Authority Structure Considerations

The express statutory authorization for stormwater authorities under the Municipality Authorities Act offers a potentially stronger structural footing than direct municipal ordinance authority. NewGen recommends that municipalities operating direct ordinance-based stormwater programs evaluate the costs and benefits of transitioning to an authority structure under the MAA. Key considerations include the cost of creating an authority, the governance and political-control implications of the separation, the financing flexibility (including the ability to issue revenue bonds against fee streams), and the legal posture under the West Chester framework.

For municipalities already operating stormwater authorities, the priority is to ensure that ordinance language, fund usage, and rate methodology comport with the principles outlined above. The express statutory authorization does not provide blanket immunity from the Court's framework, but combined with disciplined program design, it offers the strongest available defensive posture.

Legislative Action

Both the Pennsylvania Municipal Authorities Association (PMAA) and the Pennsylvania State Association of Boroughs (PSAB) have signaled support for legislative clarification. The Susquehanna Area Regional Airport Authority and other amici in West Chester urged that “it is for the General Assembly to determine prospectively, not local municipalities or the courts, whether an exception to such exempt status should exist relating to costs associated with stormwater management programs.” A legislative fix could take the form of an explicit statutory authorization for stormwater authorities to charge fees on tax-exempt property pursuant to specified design requirements, a Stormwater Funding Act establishing a state-level cost-sharing mechanism, or an amendment to the Public School Code addressing the tax-exempt status of Commonwealth instrumentalities for purposes of stormwater management.

The legislative path is uncertain. Prior efforts to clarify stormwater authority funding have moved slowly through the General Assembly, and the political economy of imposing fee obligations on tax-exempt property — including state universities, the Commonwealth, and nonprofit institutions — is complex. NewGen recommends that municipal stormwater utilities engage with trade associations and legislative offices early to shape the conversation, while planning for the contingency that no legislative fix arrives in the near term.

Rate Design Adjustments

For utilities that conclude they cannot bill tax-exempt customers, the rate design response should be a deliberate combination of revenue requirement adjustment, rate restructuring, and equity analysis. Specific considerations include:

• Revenue requirement segmentation. Identify the portion of the revenue requirement attributable to regulatory compliance, system maintenance, capital projects, and program administration. Costs that exist regardless of tax-exempt customer participation must be recovered from the remaining base.
• Customer class restructuring. Where the rate structure includes residential, commercial, industrial, and institutional classes, the class definitions and cost allocation methodology may require revision to reflect the new billed base.
• Affordability protection. The cost-shifting from tax-exempt customers to residential customers can produce sharp increases that disproportionately affect low- and moderate-income households. Customer assistance programs, tiered rate structures, and partial cost recovery through general fund subsidy may be warranted.
• Capital deferral analysis. Some capital projects that were financially supportable under the prior billed base may need to be deferred or rescoped under the new base.
• Communication strategy. Affected residential and commercial customers will require clear, honest communication about why their charges are increasing and where the cost-shift is coming from. Transparent communication is essential to maintain customer trust and political support.

Appendix A: State Court Comparison Matrix

The following matrix expands on the cross-border comparison in Section VII, presenting representative cases and additional contextual information for each jurisdiction.

Appendix B: Two-Step Test Detail and Application

The following detailed breakdown of the two-step test is intended to support program-level diagnostic review.

Step One: Capacity Determination

Factor 1: Purpose Underlying Municipal Participation

The court considers whether the municipality is acting out of a non-delegable duty to the public or providing a discretionary service. Indicia of public-capacity participation include:

• Service performed pursuant to federal or state statutory mandate
• Service required to discharge a regulatory obligation imposed on the municipality itself (e.g., NPDES permit obligations under the Clean Water Act)
• Service of a kind not generally engaged in by private firms or other municipalities
• Service identified in ordinance findings as essential to public health, safety, or welfare
• Service that cannot be lawfully delegated to a private contractor or another municipality

Indicia of quasiprivate-capacity participation include:

• Service performed under discretionary statutory authority (the municipality “may” not “shall” provide)
• Service of a kind routinely provided by private firms or other municipalities
• Service identified in ordinance findings as conferring discrete benefit on specific property owners
• Service that can be lawfully discontinued at the municipality's discretion

Factor 2: Nature of the Service Relationship

The court considers whether the relationship between the municipality and the recipients of the service is contractual. Indicia of a contractual relationship include:

• Express service agreements between the municipality and each customer
• Implied contracts arising from the customer's voluntary application for service
• Customer-initiated triggers for use of the service (e.g., opening a tap, flushing a toilet)
• Discretionary opt-in or opt-out mechanisms
• Charges that vary with actual customer use of the service

Indicia of the absence of a contractual relationship include:

• Charges imposed on essentially all property in the jurisdiction
• Charges imposed regardless of customer use of the service
• Charges imposed regardless of whether the service is even available to the specific customer
• Charges imposed in invitum, with no customer action triggering each instance of service
• Credit and appeal mechanisms that do not amount to consent to the charge in the first instance

Step Two: Proportionality Analysis (Only If Reached)

If, and only if, the municipality is acting in its quasiprivate capacity, the court asks whether the charge is reasonably proportional to the extent of use or the value of the service rendered. Indicia of reasonable proportionality include:

• Charges that vary with metered customer use
• Charges based on hydraulically modeled runoff contribution
• Charges based on a defensible engineering analysis of cost causation
• Cost-of-service studies that allocate costs among customer classes based on rigorous methodology

Appendix C: Pennsylvania Stormwater Funding Mechanisms

Pennsylvania municipalities have several available mechanisms for funding stormwater management programs. The West Chester decision affects some of these mechanisms more than others.

References

Primary Authorities

• Borough of West Chester v. Pennsylvania State System of Higher Education and West Chester University of Pennsylvania of the State System of Higher Education, No. 9 MAP 2023, ___ A.3d ___, 2026 WL 1204133 (Pa. April 30, 2026)
• Borough of W. Chester v. Pa. State Sys. of Higher Educ., 291 A.3d 455 (Pa. Cmwlth. 2023)
• Supervisors of Manheim Township v. Workman, 38 A.2d 273 (Pa. 1944)
• In re Petition of City of Philadelphia, 16 A.2d 32 (Pa. 1940)
• Shirk v. City of Lancaster, 169 A. 557 (Pa. 1933)
• American Aniline Products, Inc. v. City of Lock Haven, 135 A. 726 (Pa. 1927)
• Jolly v. Monaca Borough, 65 A. 809 (Pa. 1907)
• Borough of McKeesport v. Fidler, 23 A. 799 (Pa. 1892)
• In re Park Ave. Sewer, 32 A. 574 (Pa. 1895)
• Olive Cemetery Co. v. City of Philadelphia, 93 Pa. 129 (1880)
• In re Washington Avenue, 69 Pa. 352 (1871)
• Hammett v. City of Philadelphia, 65 Pa. 146 (1869)
• Philadelphia Association for Relief of Disabled Firemen v. Wood, 39 Pa. 73 (1861)
• DeKalb County, Georgia v. United States, 108 Fed. Cl. 681 (Fed. Cl. 2013)
• National Cable Television Association v. United States, 415 U.S. 336 (1974)
• City of Lewiston v. Gladu, 40 A.3d 964 (Me. 2012)
• Shannon v. City of Hurricane, 2012 W. Va. LEXIS 17 (W. Va. 2012)
• Norfolk Southern Railway Co. v. City of Roanoke, 916 F.3d 315 (4th Cir. 2019)

Statutes and Regulations

• Clean Water Act, 33 U.S.C. §§ 1251 et seq.
• 40 C.F.R. § 122.26(b)(16), (17) (defining small and large MS4s)
• Pennsylvania Storm Water Management Act, Act of October 4, 1978, P.L. 864, as amended, 32 P.S. §§ 680.1 to .17
• The Clean Streams Law, Act of June 22, 1937, P.L. 1987, as amended, 35 P.S. §§ 691.1 to .1001
• Pennsylvania Municipality Authorities Act, 53 Pa. C.S. § 5601 et seq.
• Act 68 of 2013 (amending the Municipality Authorities Act to authorize stormwater planning, management, and implementation as a power of municipal authorities)
• 2014 Amendments to the Municipality Authorities Act (specifically authorizing stormwater fees)
• Home Rule Charter and Optional Plans Law, 53 Pa. C.S. §§ 2901-3171
• Second Class Township Code
• 25 Pa. Code Chapter 92 (NPDES permitting, monitoring, and compliance)
• 25 Pa. Code Chapter 111 (Stormwater Management — Grants and Reimbursement)
• West Chester Borough Code Chapter 94A (Stream Protection Fee Ordinance), as adopted by Ordinance No. 5-2016 (June 2016)

Industry and Agency Sources

• Pennsylvania Department of Environmental Protection, Municipal Stormwater Program (1,061 MS4s identified in Pennsylvania), available at pa.gov/agencies/dep/programs-and-services/water/clean-water/stormwater-management
• Pennsylvania DEP, PAG-13 General Permit for Discharges of Stormwater from Small MS4s
• Pennsylvania State Association of Township Supervisors (PSATS), “Pennsylvania Supreme Court Rules Municipal Stormwater Fee is a 'Tax'” (May 2026)
• Western Kentucky University, Stormwater Utility Survey 2025 (Warren Campbell) (2,147 U.S. stormwater utilities)
• Black & Veatch, 2018 Stormwater Utility Survey
• Chesapeake Bay Foundation, “Pennsylvania Supreme Court's Stormwater Decision Is a Gut-Punch to Clean Water Efforts” (April 30, 2026)

Legal Analysis

• Babst Calland, “Pa. Supreme Court Holds Stormwater Management Fees Are Taxes” (Lisa Bruderly and Mackenzie Moyer, May 4, 2026)
• McNees Land Use Blog, “Pennsylvania Supreme Court Strikes Down Municipal Stormwater Charge” (Brigid Khuri and Scott Gould, May 8, 2026)
• Eckert Seamans, “Now What? The Impact of the Pennsylvania Supreme Court's Decision in West Chester Borough v. PASSHE” (Brett Flower, May 5, 2026)
• K&L Gates, “PA Supreme Court Holds That Municipal Stormwater Charge Is a Tax, Not a Fee” (May 2026)
• Fitzpatrick Lentz & Bubba, “New Tax Implications in Pennsylvania Stormwater Fees Court Decision”
• CGA Law Firm, “Formation of a Stormwater Authority”
• HRG Engineering, “Considering a Stormwater Authority? 12 Steps to Help Townships Make the Decision” (Township Engineer newsletter, Winter 2014)

Trade Press

• Altoona Mirror, “Pennsylvania Supreme Court rules stormwater fee a tax” (John Finnerty, CapitolWire, May 4, 2026)
• Hello, West Chester, “It's Plan B for West Chester's Stream Protection Fee” (February 17, 2023; updated)

This report 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. Last updated May 2026.

At NewGen Strategies & Solutions, helping utilities navigate complex regulatory and rate design challenges is what we do every day. If your utility is reassessing its stormwater program in light of the West Chester decision and needs a defensible cost-of-service analysis, exposure assessment, or rate redesign, we'd love to hear from you.