The Day the Stormwater Fee Became a Tax in West Chester, PA

For nearly a decade, the Borough of West Chester has charged property owners a “stream protection fee” based on the impervious surface of their land. This fee funded the Borough's National Pollutant Discharge Elimination System (NPDES) Municipal Separate Storm Sewer System (MS4) permit compliance, supported capital improvements to its stormwater management system, and resulted in an annual invoice of approximately $132,000 to West Chester University. As a Commonwealth instrumentality, the University declined to pay, arguing that the charge was legally a tax and that it was therefore 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 rather than a fee for service, making the University immune. This decision affirmed a unanimous 2023 Commonwealth Court ruling and resolved a longstanding question in Pennsylvania utility law. More than 50 Pennsylvania municipalities and over 2,000 stormwater utilities nationwide are now assessing implications.

The case is significant not only for its outcome but for the framework the Court established. 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 over 150 years but never clearly stated. This framework will now govern fee and tax disputes for the foreseeable future and will apply beyond stormwater issues.

The Test the Court Built

The two-step test proceeds sequentially. The first question is decisive in most cases. The second question applies only if the first answered affirmatively. In the West Chester program, the Court did not reach step two.

Step one is the primary focus. Under the Court's framework, a charge may be precisely calibrated to impervious surface and justified at every stage of cost-of-service analysis, yet still be classified as a tax if the municipality provides the service out of duty rather than discretion, and if the relationship with the customer is imposed rather than voluntary.

Why the West Chester Charge Failed

The Court identified three reasons that the Borough acted in its public capacity. These reasons are not unique to West Chester, making the decision broadly applicable throughout Pennsylvania.

The program fulfills federal and state regulatory requirements. West Chester's ordinance states 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 places this duty directly on the Borough. The Court viewed this as evidence that the program is a governmental function, not a discretionary commercial service.

The benefits serve the entire community, not just individual ratepayers. The ordinance highlights public health, safety, general welfare, environmental quality, and flood risk reduction. The Court noted that stormwater affects all properties, and managing runoff primarily benefits downstream property owners and the broader environment rather than only the property where the rain falls.

There is no voluntary or contractual relationship. The ordinance imposes the charge on nearly all developed properties in the Borough, with no practical way to opt out except by removing all impervious surfaces or leaving the jurisdiction. The credit and appeal system does not establish consent; it only allows property owners to challenge a charge imposed unilaterally.

The Revenue Cliff for Tax-Exempt-Heavy Jurisdictions

Jurisdictions with a high concentration of tax-exempt properties face immediate financial challenges. Amicus briefs from municipal supporters provide estimates of this impact. For example, Philadelphia reports that 23% of its stormwater revenue is generated by tax-exempt customers. In Harrisburg, the Commonwealth owns approximately 41% of the property, not including additional holdings by 28 other tax-exempt entities. In smaller boroughs near state universities, prisons, or major institutional campuses, tax-exempt properties may represent more than half of the total impervious surface area.

The process is straightforward. Fixed program costs remain unchanged even if some customers cannot be billed. If 30% of the previously billed base becomes tax-exempt, the remaining 70% must cover the full revenue requirement. This results in approximately a 43% rate increase for those customers. In a borough with 50% tax-exempt customers, rates for the remaining base would need to double to maintain revenue.

Pennsylvania Becomes the Outlier

The Pennsylvania Supreme Court recognized that “the weight of decided law from other jurisdictions favor[s] a finding” that stormwater service charges are fees. However, the Court declined to follow this majority and instead applied Pennsylvania's longstanding legal framework. As a result, Pennsylvania aligns with the U.S. Court of Federal Claims in DeKalb County, Georgia v. United States (2013), and diverges from the Fourth Circuit, the Maine Supreme Judicial Court, the West Virginia Supreme Court of Appeals, and the Arizona courts.

The national context indicates that the West Chester reasoning is unlikely to be widely adopted in other states. Most state courts base their analyses on proportionality rather than capacity. Stormwater utilities are well established in jurisdictions with settled legal frameworks. According to the 2025 Western Kentucky University Stormwater Utility Survey, there are 2,147 stormwater utilities in the United States and 82 in Canada. Six states—Washington, Minnesota, Texas, Ohio, Iowa, and Florida—each have more than 100. The overall trend remains toward adoption, not retrenchment.

However, Pennsylvania utility clients operating in multiple states should monitor West Chester-style reasoning as a potential persuasive authority in jurisdictions where fee or tax doctrines are based on capacity rather than proportionality. The opinion's detailed review of 150 years of precedent may encourage other state high courts to reconsider their own established law.

Justice Mundy's Concurrence: A Roadmap

Justice Sallie Mundy's solo concurrence is particularly relevant for practitioners. Although she joined the majority, she wrote separately to reserve judgment on stormwater charges in other municipalities, suggesting that programs with different designs may be evaluated differently. While not binding precedent, her opinion identifies design choices that could help maintain fee status in future cases.

The four design choices that most influence the analysis are the scope of fund usage, calibration methodology, ordinance findings, and the structure of opt-out mechanisms. Justice Mundy observed that charges allocated exclusively to direct stormwater remediation, rather than to activities such as tree planting, street sweeping, public education, or general environmental program activities, are more defensible. Charges based on runoff burden from surrounding properties, instead of the impervious surface on the payor's property, more accurately reflect the specific benefit provided by the system.

For utility decision-makers, the key question is not whether to restructure, but what to address first. The McNees Land Use analysis states: “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 advises patience, recommending 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 approaches are reasonable. The best course for any utility depends on its current program structure, the proportion of tax-exempt customers, the regulatory stance of state and federal partners, and the organization's capacity for change.

What Stormwater Utility Clients Should Do Now

Respond promptly but thoughtfully. NewGen recommends a five-step diagnostic and response framework for any Pennsylvania utility operating a stormwater program subject to West Chester.

First, assess your exposure. Identify all tax-exempt customer accounts, quantify potential revenue loss, and estimate cost-shifting impacts under various assumptions about refund and relief requests. A thorough exposure analysis is essential for informed decision-making.

Second, review the ordinance. Compare the enabling ordinance or authority resolution to the principles in Justice Mundy's concurrence. Note language focused on regulatory compliance and public welfare, and identify provisions for restructuring, such as discrete benefit, voluntary opt-out, and limited fund usage.

Third, audit the fund usage. Document all stormwater fund expenditures and determine whether each supports direct stormwater remediation or broader public welfare activities. Reevaluate expenditures not directly related to remediation.

Fourth, model rate scenarios. Develop a cost-of-service analysis using different revenue requirements, customer bases, and rate structures. Focus on understanding trade-offs, affordability, and political consideration rather than selecting a single solution immediately.

Fifth, participate in the broader policy discussion. Work with the Pennsylvania Municipal Authorities Association, the Pennsylvania State Association of Boroughs, and other trade associations to explore legislative solutions. Only the General Assembly can address the conflict between regulatory compliance and tax-exempt sovereign immunity. Utility decision-makers should take an active role in these discussions.

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 would love to hear from you.