When a Fee Becomes a Tax in West Chester, PA

Executive Summary

On April 30, 2026, the Pennsylvania Supreme Court ruled in Borough of West Chester v. Pennsylvania State System of Higher Education, No. 9 MAP 2023, that the Borough of West Chester's (Borough) stormwater management charge is a local tax, not a service fee. This decision affirmed a unanimous 2023 Commonwealth Court ruling and clarified how Pennsylvania courts will classify impervious-surface-based stormwater charges. NewGen's stormwater utility clients in Pennsylvania, and those in over 2,000 jurisdictions nationwide, should review this decision closely and consider a strategic response.

The Court's decision is fact-specific but establishes a broad framework. It addressed a home rule borough that imposed a stormwater charge by ordinance on a tax-exempt state university. The Court did not address charges from stormwater authorities under the Municipality Authorities Act (MAA) or the issue of refunds for past charges. However, it sets out a two-step test that will guide fee and tax classification in Pennsylvania municipal practice going forward.

The two-step test focuses on the municipality's capacity rather than proportionality. First, the court determines if the municipality acts in a public or quasi-private capacity by examining the purpose of the service and the relationship with recipients. If the municipality acts in its public capacity, serving the public benefit and without a voluntary, contractual relationship, the charge is a tax and no further analysis is needed. Only if the municipality acts in a quasi-private capacity does the court consider whether the charge is reasonably proportional to the service provided.

Application of the test depends on specific facts and program details. The Court determined that West Chester's stormwater program operates in a public capacity because it is mandated by federal and state laws (Clean Water Act, National Pollutant Discharge Elimination System (NPDES), Pennsylvania Storm Water Management Act), the ordinance prioritizes public health and welfare, benefits primarily serve the broader community, and the charge applies to nearly all developed properties without a voluntary, contractual relationship.

The financial impact for Pennsylvania municipalities is significant. The state has 1,061 designated Municipal Separate Storm Sewer Systems (MS4s) (1 Large, 1 Medium, 1,059 Small) with NPDES permit obligations, and about 50 municipalities have adopted impervious-surface-based stormwater charges. Exposure to tax-exempt properties varies by jurisdiction: amicus briefs note that approximately 23% of Philadelphia's stormwater revenue comes from likely tax-exempt customers, and roughly 41% of Harrisburg's property is owned by the Commonwealth, with additional holdings by 28 other tax-exempt entities. In jurisdictions with many tax-exempt properties, reclassification could shift substantial annual costs from large, high-impervious-surface payers to residential and commercial customers.

The legal landscape varies by jurisdiction. The Pennsylvania Supreme Court aligning with the U.S. Court of Federal Claims in DeKalb County, Georgia v. United States (2013), held that stormwater charges with general public benefits are taxes. In contrast, the Fourth Circuit (Virginia), the Maine Supreme Judicial Court, the West Virginia Supreme Court of Appeals, and the Arizona courts have reached the opposite conclusion. The 2025 Western Kentucky University Stormwater Utility Survey reports 2,147 stormwater utilities nationwide, and a 2011 federal statute (P.L. 111-378, 124 Stat. 4128) requires federal agencies to pay stormwater charges "even if denominated as a tax." This statute serves as a sovereign-immunity waiver and does not classify stormwater charges as fees. Congress intentionally avoided addressing the fee-versus-tax distinction.

Justice Mundy's concurrence provides a roadmap. Justice Mundy reserved judgment on stormwater charges in municipalities where proceeds are used only for direct stormwater remediation and where calculation method closely links charges to specific benefits. While not binding precedent, the concurrence highlights design choices such as ordinance findings, fund usage, calculation methods, and credit structures that may help maintain 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 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, creating the “stream protection fee,” also known as the “Stormwater Charge.” This charge applied to all owners of developed properties benefiting from the Borough System. “Developed” included any property with manmade impervious surfaces. The fee was set at $6.70 per 1,000 square feet of impervious surface per month for properties exceeding 3,000 square feet, with five lower tiers for smaller properties. All revenue was directed to a dedicated Stormwater Management Fund for program implementation, system construction and maintenance, debt service on stormwater capital projects, and regulatory compliance 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), established under the Public School Code, 24 P.S. § 20-2002-A(a), includes 14 public universities, including West Chester University of Pennsylvania (the University). Portions of the University's North Campus fall within the Borough's jurisdiction, and both parties agreed that some stormwater from North Campus enters the Borough System or nearby watercourse. The Borough invoiced PASSHE and the University for the Stormwater Charge in 2017, 2018, and 2019, totaling approximately $132,088.68 per year. The University did not pay, asserting immunity as a Commonwealth instrumentality on the grounds that the charge was a tax.

The Borough petitioned the Commonwealth Court for a declaratory judgment that the Stormwater Charge was a fee for service. Both parties sought summary relief. In 2023, the Commonwealth Court unanimously ruled in favor of PASSHE, determining that the Stormwater Charge was a general tax from which the Appellees were immune. The Borough appealed this decision. Borough of W. Chester v. Pa. State Sys. of Higher Educ., 291 A.3d 455 (Pa. Cmwlth. 2023).

The Stakes

The dispute attracted substantial amicus participation. In support of the Borough, several organizations and municipalities, including the Chesapeake Bay Foundation, Citizens for Pennsylvania's Future, multiple municipal associations, and the cities of Philadelphia, Lancaster, Lock Haven, and Franklin, filed amicus briefs. The Pittsburgh Water and Sewer Authority also filed independently in support of the Borough. The municipal amici argued that classifying stormwater charges as taxes would require non-tax-exempt property owners to subsidize the costs of tax-exempt entities, disproportionately impacting cities and boroughs with substantial Commonwealth, university, or institutional property holdings.

In support of the University, several organizations, including 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, rather than local governments or courts, should determine whether tax-exempt status is subject to stormwater management cost-sharing.

The Two-Step Framework: A Codified Test

The Court dedicated much of its opinion to clarify the framework for distinguishing fees and taxes under Pennsylvania law, aiming to provide “the bench and bar with a clearer understanding through a consolidation of our precedent.” The Court traced this framework 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 clear two-step test grounded established precedent.

Step One: Public Capacity or Quasi-private Capacity?

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

Public capacity is defined by duty, generality of benefit, and the absence of contract. A municipality is acting in its public capacity when it provides a service as part of a non-delegable duty. The key question is whether the municipality is acting in a public or quasi-private capacity, which depends on the service's purpose and the relationship between the municipality and the service recipients. 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 services are tied to the welfare of the entire community.

Quasi-private capacity is characterized by discretion, individual benefit, and a contractual relationship. A municipality acts in its quasi-private capacity when it offers discretionary service for private benefit under contract. The Court identified quasi-private services such as supplying and distribution of commodities, ash collection, garbage removal, and sanitary sewer services (Supervisors of Manheim Twp., 38 A.2d at 276). These are optional services that could be provided by private entities and involve a clear 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 the municipality is acting in its quasi-private capacity, the court considers whether the charge is proportional to the service provided. Under the Supervisors of Manheim Township, a charge is a fee if it is reasonably proportional to the use or value received. If there is “no necessary or likely connection between the amount of the charge and the services rendered,” it is considered a tax. In this case, the Court did not address proportionality with respect to the Stormwater Charge because it resolved the matter at step one.

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

Public Capacity: The Purpose of the Program

The Court began by reviewing the Borough's stated purposes for the Stormwater Charge. Despite the Borough's claim that the program aimed to relieve individual landowners of stormwater management obligations, the ordinance indicated otherwise. The Ordinance stated that “[f]ederal and state regulations require the Borough to implement a program of stormwater controls.” It 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 this language “indisputable[e]” evidence that the program was at least partly driven by federal and state mandates imposed on the Borough.

The Court also found that the ordinance described the program's benefits in terms of public health, safety, and general welfare. It stated that comprehensive stormwater management was “fundamental to the public health, safety, and general welfare of the residents of the Borough,” and that inadequate stormwater management increased flood risks, harmed the environment and water quality, and threatened public health and safety. The Court concluded these findings showed an intent to address the negative impacts of stormwater runoff on the environment and community, rather than to benefit individual landowners.

The Court emphasized that this characterization was inherent to the subject matter, not just a result 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 next examined the relationship between the Borough and property owners subject to the Stormwater Charge. It applied the established rule that quasi-private 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 identified three reasons why no such contract existed.

First, stormwater management is not a service property owners typically request. The Court noted that stormwater is transient and, unless there is immediate liability or property damage risk, owners do not actively seek stormwater management. Citing 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.” It also observed that the relationship between impervious surface and benefit is not symmetrical: properties with large impervious areas on a hill may impose a significant burden but receive little benefit, while small homes downhill may benefit greatly while imposing little burden.

Second, property owners do not take any specific action to trigger use of the stormwater system. Unlike water or sanitary sewer service, where a customer's action initiates a transaction, rainfall occurs regardless of customer behavior. The Court rejected the Borough's argument that having impervious surfaces indicates consent, noting that the Ordinance's broad definition of “developed” included in all habitable and commercial properties, leaving owners with no real alternative to paying the charge. The Court also noted that many properties were developed 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 that the Ordinance's broad terms were 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 compared this to its earlier decision in the sanitary sewer context, where it distinguished between “actual use of” the system and “the privilege of using” it, and held that a charge applied to vacant lots, unconnected buildings, and properties not actually using 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 claimed that the Ordinance's credit and appeal system, which let property owners lower their charges by implementing on-site stormwater management, showed their system was voluntary. The Court disagreed, stating 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 also noted that the only practical ways to avoid the charge were to install a private stormwater management system, remove all impervious surfaces, refrain from development, or leave the Borough.

The Court also dismissed the Borough's cost-of-alternatives analysis. The Borough presented expert testimony estimating the University would spend about $4.2 million in capital costs (or $178,500 per year) to construct and operate its own stormwater facilities, compared to an annual Stormwater Charge of $132,088.68. The Court found this argument irrelevant to whether a voluntary, contractual relationship existed.

The Court's Conclusion

The Court concluded that the Borough provided stormwater management services as a public duty, for the public benefit, and without a contractual relationship. Therefore, the Borough acted in its public capacity, the Stormwater Charge was a local tax, and PASSHE and the University were immune. The Court did not address the proportionality issue.

Concurrences and Dissents: Where the Court Disagreed

Justice Kevin Brobson wrote the majority opinion, 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 opinions concurring in part and dissenting in part, with Justice Christine Donohue joining Justice McCaffery. The decision was reached by a four-justice majority, with three justices dissenting. Justice Wecht agreed with the majority's two-step framework but disagreed with its application to the West Chester case, making him a partial dissenter. Justices McCaffery and Donohue dissented on both the framework and the outcome.

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. Her concurrence is significant because it highlights design choices that could preserve fee status under the Court's framework. Justice Mundy noted that charges used solely for direct stormwater remediation, rather than for broader environmental activities, may be more defensible. She also suggested that calculation methods tying the charge to the runoff burden from surrounding properties, rather than just the impervious surface on the payor's own property, may better reflect the specific benefit provided.

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 emphasized fairness and the practical impact: other ratepayers, including residents, would now bear the Borough System's costs, while the University, whose North Campus drains into the system under its MS4 permit, would not contribute. Justice McCaffery cited a University deposition confirming its stormwater plan assumed some runoff would enter the Borough System. The majority replied that “perceived ‘fairness,’ alone, cannot be the driving factor in this Court's decision” and that the issue was a matter of law, not policy.

Justice Wecht's Concurring and Dissenting Opinion

Justice Wecht filed a separate concurring and dissenting opinion. He agreed with the majority's two-step framework but disagreed with parts of its application to the West Chester program. His concurrence confirmed that the two-step test now has support from at least five justices, even though only four supported the result West Chester.

Implications for Pennsylvania Municipalities

The Scope of Exposure

Pennsylvania has 1,061 designated MS4s under the Department of Environmental Protection's PAG-13 General Permit framework: one Large MS4 (Philadelphia), one Medium MS4 (Allentown), and 1,059 Small MS4s. Approximately 50 municipalities have adopted stormwater charges based on impervious-surface area, and roughly a dozen have established formal stormwater authorities under the MAA amendments of 2013 and 2014 (Act 68 of 2013 and the 2014 follow-on amendments).

The degree of exposure varies widely by jurisdiction. Amicus briefs submitted in the West Chester appeal highlight several examples. In Philadelphia, approximately 23% of stormwater management revenue is generated from customers likely to be tax-exempt, totaling tens of millions of dollars in annual recovery. In Harrisburg, the Commonwealth owns approximately 41% of property by ownership or assessed value, while 28 tax-exempt entities hold the remaining 59%. Stormwater charges are based on impervious surface area, not ownership share or assessed value, so the actual proportion Commonwealth-held impervious surface may differ and should be confirmed before projecting revenue exposure. In smaller jurisdictions near state university campuses, prisons, large nonprofit hospitals, or major churches, the proportion of tax-exempt impervious surface area can exceed half of the total.

The Municipal Authority Question

The Court did not address charges imposed by stormwater authorities established under the Municipality Authorities Act. Act 68 of 2013 expanded municipal authorities' power to include “stormwater planning, management, and implementation,” and the 2014 amendment specifically authorized stormwater fees. The key question is whether this express statutory authority changes the legal analysis. Practitioners note that authorities can charge fees to tax-exempt properties because of this explicit authorization, while municipalities operating under their general home rule or municipal authority cannot impose taxes on Commonwealth property.

The West Chester framework does not explicitly exempt municipal authorities. The Court's test considers whether the entity acts in a public or quasi-private capacity. A stormwater authority operating under express statutory authority to meet regulatory obligations is arguably acting in a public capacity. However, this issue remains unresolved. Practitioners may argue that statutory authorization, along with the corporate separation between the authority and its parent municipality, creates a distinct legal position 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 notes this is one of “the unresolved questions posed by the impact of West Chester” and advises 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 likely for charges collected under a presumptively valid ordinance, but tax-exempt entities that paid under protest may have stronger refund claims. NewGen recommends consulting municipal counsel on refund exposure before adjusting reserve or rate-setting practices.

Rate Recovery and Cost Shifting

If utilities cannot bill tax-exempt customers, costs must be shifted to others. Because MS4 program operating costs are fixed, these expenses must be recovered from the remaining customer base or from another funding source. In jurisdictions with many tax-exempt properties, residential and commercial rates may rise significantly. For example, if tax-exempt properties account for 41% of the stormwater billed base, remaining customers would face about a 70% rate increase to maintain revenue (1 ÷ 0.59 ≈ 1.69). The actual impact in any jurisdiction depends on the proportion of impervious surface owned by tax-exempt entities, which may differ from property ownership or assessed value figures cited in amicus briefs. This example is illustrative and should be refined with jurisdiction-specific impervious-surface data.

The Cross-Border Question: How Other States Have Ruled

The West Chester decision places Pennsylvania in the minority. Most state courts have classified impervious-surface-based stormwater charges as fees rather than taxes. The Court acknowledged that “the weight of decided law from other jurisdictions favor[s] a finding” that stormwater service charges are fees, but declined to follow this majority view, choosing instead to apply Pennsylvania's longstanding legal framework from cases such as 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, as well as the 2025 Western Kentucky University Stormwater Utility Survey.

What Distinguishes the Pennsylvania Approach

The main doctrinal difference between the Pennsylvania approach and that of most other state courts is the initial focus. Federal and other state precedents typically assess whether stormwater charges are proportional to runoff contribution or impervious surface. In contrast, Pennsylvania first considers whether the municipality is acting in its public capacity, addressing proportionality only if it is not. As a result, under the Pennsylvania approach, a charge may be proportional yet still qualify as a tax.

A second distinction concerns voluntariness. The Fourth Circuit and Maine courts have rejected the argument that high alternative costs make a charge involuntary. In contrast, the Pennsylvania Supreme Court, viewed the broad application of the West Chester ordinance to nearly all developed properties as evidence that no voluntary contractual relationship existed.

National Stormwater Utility Landscape

The 2025 Western Kentucky University Stormwater Utility Survey reports 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 stormwater utilities. The median monthly residential charge is approximately $4.75. The first U.S. stormwater utility began in Bellevue, Washington, in 1974, and the model has since expanded nationwide. While legal challenges are common, utilities prevail in most cases, largely because state courts use a proportionality-focused framework.

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

Program Restructuring: The Mundy Roadmap

For Pennsylvania utilities aiming to maintain fee status, Justice Mundy's concurrence and the McNees Land Use analysis identify key design principles. While these principles do not ensure fee status under the Court's framework, they better align program structures with the Court's criteria for quasi-private capacity services.

1. Limit fund usage to direct stormwater remediation. Ordinance language and accounting practices should restrict stormwater charge proceeds to the construction, operation, and maintenance of physical stormwater management facilities that serve the payor's property, drainage area, or hydraulically-connected subwatershed. Spending on tree planting, public education, curb extensions, and general beautification, even if related to stormwater management, undermines the fee characterization.
2. Calibrate charge to runoff burden each property imposes on the system. The methodology links charges to the volume or rate of runoff each property is expected to contribute, rather than only to impervious surface area. Hydraulic models, runoff coefficients, and time-of-concentration analyses provide more defensible approaches than equivalent residential unit (ERU) systems based solely on impervious area.
3. Reframe ordinance findings to clearly state the specific, individualized benefit each payor receives, and place less emphasis on regulatory compliance and general public welfare. Findings should recognize that property owners would otherwise incur individual stormwater management costs, and that the program shifts some of these costs to a shared infrastructure model.
4. Establish effective opt-out and credit mechanisms. The credit system should offer a clear and accessible way for property owners to show they do not benefit from it, with credits reflecting the actual on-site mitigation. Properties that do not drain to the system should be fully exempt from the charge.
5. Document the customer relationship. Where possible, programs should define the customer relationship based on specific service deliverables, such as conveyance, treatment, attenuation, or floodplain protection, provided to individual properties pursuant to a service agreement.

Authority Structure Considerations

Statutory authorization for stormwater authorities under the MAA provides a stronger structural foundation than direct municipal ordinance authority. NewGen recommends that municipalities with ordinance-based stormwater programs evaluate the costs and benefits of transitioning to an authority structure under the MAA. Key factors include the cost establishing an authority, governance and political-control implications, financing flexibility such as issuing revenue bonds against fee streams, and the legal position under the West Chester framework.

Municipalities that already operate stormwater authorities should ensure that ordinance language, fund use, and rate methodology align with the principles outlined above. While statutory authorization does not guarantee immunity from the Court's framework, it offers the strongest defense when paired with disciplined program design.

Legislative Action

The PMAA and the Pennsylvania State Association of Boroughs (PSAB) support legislative clarification. The Susquehanna Area Regional Airport Authority and other amici in West Chester emphasized 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.” Potential legislative solutions include explicit statutory authorization for stormwater authorities to charge fees on tax-exempt property, a Stormwater Funding Act to establish a state-level cost-sharing mechanism, or an amendment to the Public School Code to address the tax-exempt status of Commonwealth instrumentalities for stormwater management.

The legislative path remains uncertain. Previous attempts to clarify stormwater authority funding have progressed slowly in the General Assembly, and the political considerations of imposing fees on tax-exempt entities such as state universities, the Commonwealth, and nonprofit institutions are complex. NewGen recommends that municipal stormwater utilities engage early with trade associations and legislative offices to help shape the discussion, while preparing for the possibility that no legislative solution will be enacted soon.

Rate Design Adjustments

If utilities determine they cannot bill tax-exempt customers, they should adjust revenue requirements, restructure rates, and conduct equity analysis. Key considerations include:

• Revenue requirement segmentation. Identify revenue requirements for regulatory compliance, system maintenance, capital projects, and program administration. Costs that remain regardless of tax-exempt customer participation must be recovered from the remaining customer base.
• Customer class restructuring. If the rate structure includes residential, commercial, industrial, and institutional classes, revise class definitions and cost allocation methods to reflect the new billed base.
• Affordability protection. Shifting costs from tax-exempt to residential customers can cause significant increases, especially for low- and moderate-income households. Consider customer assistance programs, tiered rates, or partial cost recovery through general fund subsidies.
• Capital deferral analysis. Some capital projects that were financially viable under the previous billed base may need to be deferred or revised under the new base.
• Communication strategy. Clearly explain to affected residential and commercial customers the reasons for increased charges and the source of the cost shift. Transparent communication is essential to maintain customer trust and support.

Appendix A: State Court Comparison Matrix

The following matrix expands on the cross-border comparison in Section VII and provides representative cases and relevant context for each jurisdiction.

Appendix B: Two-Step Test Detail and Application

This detailed breakdown of the two-step test supports program-level diagnostic review.

Step One: Capacity Determination

Factor 1: Purpose Underlying Municipal Participation

The court determines whether the municipality is fulfilling a non-delegable public duty or providing a discretionary service. Indicators of public-capacity participation include:

• Service performed pursuant to federal or state statutory mandates.
• 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.

Indicators of quasi-private 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 service recipients is contractual. Indicators 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.

Indicators 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 the municipality is acting in its quasi-private capacity, the court determines whether the charge is reasonably proportional to the extent of use or the value of the service provided. Indicators 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 options for funding stormwater management programs. The West Chester decision impacts certain mechanisms more significantly 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 June 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.