PA Court Finds “Special Assessment Fee” is Actually an Improper “Tax” Assessed Against a Non-Profit University
Earlier this month, the Pennsylvania Commonwealth Court handed down its decision in Borough of West Chester v. Pa. State System of Higher Education and West Chester University of Pa. of the State System of Higher Education, No. 260 M.D. 2018 (Pa. Cmwlth. Jan. 4, 2023), finding that a stormwater charge, created and charged to the University by the Borough of West Chester (Borough), actually constituted a tax, rather than a fee or special assessment.
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The court found that the stormwater charge was a tax and not a fee or special assessment because the charge provided benefits enjoyed by the general public, rather than individualized services provided to particular residents.
The Borough, like many municipalities across the Commonwealth, operates a municipal separate storm sewer system, or “MS4.” An MS4 is a separate storm sewer system made up of a collection of structures, including retention basins, ditches, roadside inlets and underground pipes, designed to gather stormwater from built-up areas and discharge it, without treatment, into local streams and rivers. All developed properties in the Borough that benefited from the MS4 had a stormwater charge levied against them. The monies collected were then deposited into a stormwater management fund for maintenance of the MS4 system, stormwater improvement projects and pollution remediation measures. As a result, West Chester University of Pennsylvania (the University), which is part of the Pennsylvania State System of Higher Education (PASSHE), was assessed charges of over $130,000 yearly, starting in 2017.
The Borough acknowledged in its filings that the University and PASSHE were immune from local taxation; however, the Borough argued that the stormwater charge constituted a fee for service rather than a tax. The University and PASSHE refused to pay the charges from the Borough, arguing that the charge was a tax, and not a fee, therefore making them immune from payment. The Borough subsequently filed a lawsuit against the University and PASSHE.
The court found in favor of the University and PASSHE and held that the stormwater charge was indeed a tax and not a fee. The court came to its holding after discussing in detail the difference between a tax – which is imposed upon all residents of the Borough and is spent for the benefit of the entire community – and a fee that is paid to a public agency for a benefit which is not shared by the general members of the community and is paid by choice.
Since the findings of the Borough stated the stormwater charge was for the general health, safety and general benefit of the residents, and not related to a specific project or time duration, the court found that the work funded by the stormwater charge provided a benefit to the entire Borough, as opposed to a benefit to individual properties, therefore reinforcing its status as a tax and not a fee. As such, the court entered judgment in favor of the University and PASSHE.
If your non-profit entity or education institution has been charged any special fees or assessments by municipalities, you should consult with counsel to determine whether the fee may be an improper tax under the Borough of West Chester case.
The Klehr Harrison education practice can assist you with this issue and other issues that affect your institution. We look forward to hearing from you.
Co-authors Bill Matthews and Lisa Lori are co-chairs of the education practice group at Klehr Harrison. Co-author Leonard Alieri is an associate in the Real Estate and Finance Department at Klehr Harrison.