Can a Maryland city use its stormwater 'system of charges' to build curbs, and can it bill tax-exempt property owners?

Plain-English summary

The Mayor of Hagerstown asked the Maryland Attorney General two questions about the "system of charges" that a local government may adopt to fund stormwater management under Environment Article § 4-204(d): could the city use that money to build and maintain curbs, and could it charge a tax-exempt property owner.

On the first question, the Attorney General said yes, with a condition. The statute lets stormwater charge revenue pay for the planning, design, and construction of "stormwater management systems and structures" and the operation and maintenance of "facilities." Curbs are structures through which stormwater flows and discharges from a site, so if curbs function as an integral part of a stormwater management system, they may be funded from § 4-204(d) charges.

On the second question, the answer turned on what kind of charge the city imposes. A prior 2006 opinion (91 Op. Att'y Gen. 152) had concluded that the phrase "system of charges" is broad enough to include both taxes and fees. Maryland courts sort charges into taxes (mainly to raise revenue), regulatory fees (funding a regulatory program), and user fees (paying for a service used). If the city imposes a property tax, entities exempt from property tax do not pay it. But a valid utility user fee, regulatory fee, or excise tax can reach many otherwise tax-exempt entities. State and local governments and their instrumentalities could be charged a user fee and may be subject to a regulatory fee or excise tax, because the Stormwater Management Act's definition of "person" expressly includes governmental entities. Federal agencies are generally exempt from state and local taxes absent congressional consent, but Section 313 of the Clean Water Act (33 U.S.C. § 1323(a)) waives federal immunity for reasonable stormwater service charges, whether called a fee or a tax.

Common questions

Q: Can stormwater fees pay for curbs?
A: Yes, if the curbs are an integral part of the stormwater management system. EN § 4-204(d) revenue can fund construction and maintenance of stormwater systems, structures, and facilities, and curbs channel and discharge stormwater.

Q: Do tax-exempt property owners have to pay a stormwater charge?
A: It depends on the charge. A property tax does not reach property-tax-exempt entities, but a valid user fee, regulatory fee, or excise tax can be assessed against many of them.

Q: Can the city charge state or county government properties?
A: The opinion says state, county, and municipal entities and their instrumentalities could be assessed a utility user fee and may be subject to a regulatory fee or excise tax, because the Act's definition of "person" includes governmental entities. Charges tied to State construction activities are excluded by § 4-205(a).

Q: What about federal property?
A: Federal agencies are generally exempt from state and local taxes without congressional consent, but the Clean Water Act (33 U.S.C. § 1323) waives that immunity for reasonable stormwater service charges, and federal agencies generally must pay reasonable user fees.

Q: What is the difference between a fee and a tax here?
A: A tax mainly raises revenue; a regulatory fee funds a regulatory program and must be reasonably related to it; a user fee pays for a service used and is based on the property's contribution to stormwater runoff.

Background and statutory framework

The Maryland Stormwater Management Act (Environment Article § 4-201 et seq.) requires each county and municipality to adopt a stormwater management program and permits, but does not require, each to fund it through a "system of charges" under § 4-204(d). The Environment Article at EN § 4-204(d)(1) lists the activities that revenue may support, including construction of stormwater management systems and structures and operation and maintenance of facilities. The authorization does not apply to State construction activities (EN § 4-205(a)). The Tax-Property Article (§ 7-210) exempts government-owned property used for governmental purposes from property tax. A local government may impose a charge only with the General Assembly's assent (Maryland Declaration of Rights, Article 14; Maryland Constitution, Article XI-E, § 5). The federal Clean Water Act, 33 U.S.C. § 1323, waives federal sovereign immunity for reasonable stormwater service charges. The opinion built extensively on the earlier 91 Op. Att'y Gen. 152 (2006), which analyzed the tax-versus-fee character of stormwater charges.

Citations and references

Statutes and constitutional provisions:
- Annotated Code of Maryland, Environment Article, §§ 4-201 et seq., 4-202, 4-203, 4-204(d), 4-205(a), 4-101.1, 9-705(8)
- Annotated Code of Maryland, Tax-Property Article, §§ 7-210, 7-201 to 7-243
- Federal Clean Water Act, 33 U.S.C. §§ 1251 et seq., 1323(a), 1323(c), 1342(b)
- Maryland Declaration of Rights, Articles 14 and 15
- Maryland Constitution, Article XI-E, § 5
- COMAR 26.17.02.02

Cases:
- Eastern Diversified v. Montgomery County, 319 Md. 45, 570 A.2d 850 (1990)
- Mass Transit Administration v. Baltimore County Revenue Auth., 267 Md. 687, 298 A.2d 413 (1973)
- Maryland Theatrical Corp. v. Brennan, 180 Md. 377, 24 A.2d 911 (1942)
- Waters Landing Limited Partnership v. Montgomery County, 337 Md. 15, 650 A.2d 712 (1994)
- Leonardo v. Board of County Commissioners, 214 Md. 287, 134 A.2d 284 (1957)
- United States v. City of Huntington, West Virginia, 999 F.2d 71 (4th Cir. 1993)

Prior AG opinions referenced: 91 Op. Att'y Gen. 152 (2006); 91 Op. Att'y Gen. 14; 85 Op. Att'y Gen. 3 (2000); 73 Op. Att'y Gen. 238 (1988)

Source

• Opinions index: https://www.marylandattorneygeneral.gov/Pages/Opinions/index.aspx
• Original PDF: https://oag.maryland.gov/resources-info/Documents/pdfs/Opinions/2011/96oag61.pdf

Original opinion text

LOCAL GOVERNMENT

ENVIRONMENT – TAXATION – WHETHER MUNICIPALITY MAY USE REVENUES FROM "SYSTEM OF CHARGES" FOR STORMWATER MANAGEMENT PROGRAMS TO CONSTRUCT AND MAINTAIN CURBS – WHETHER THOSE CHARGES MAY BE ASSESSED AGAINST TAX-EXEMPT ENTITIES

August 22, 2011

The Honorable Robert E. Bruchey, II
Mayor, City of Hagerstown

On behalf of the City of Hagerstown ("City") you have requested our opinion regarding the "system of charges" that a local government may adopt to fund stormwater management programs under Annotated Code of Maryland, Environment Article ("EN"), §4-204(d). Specifically, you have asked:

(1) Whether the City may use the proceeds of a tax or fee under EN §4-204(d) to finance curb construction and maintenance.

(2) Whether such a charge may be assessed against a tax-exempt property owner. [Consistent with our policy concerning local government opinion requests, you included with your request a legal opinion from the City Attorney. The City Attorney determined that curb construction and maintenance could be appropriately funded by a system of charges established by the City under EN §4-204(d). The City Attorney also opined that charges for curb construction and maintenance would likely be considered a tax, which could not be levied upon a tax-exempt entity.]

For the reasons explained below, our opinion is as follows:

(1) Curbs, if functioning as an integral part of a stormwater management system, may be constructed and maintained with funds obtained through a system of charges imposed by a local governing body pursuant to EN §4-204(d).

(2) Whether such a charge may be assessed against a tax-exempt property owner depends on the nature of the particular charge assessed under EN §4-204(d). If a property tax is imposed, then tax-exempt entities would be exempt from the assessment. However, a valid utility user fee, regulatory program fee, or excise tax could be assessed against many tax-exempt entities.

I. Background

A. Evolution of Stormwater Management

Stormwater management initially focused on urban flood prevention, later evolved into resource management, and, more recently, has become an environmental and regulatory function. Maryland Department of the Environment, Report on Stormwater Management Act of 2007 (2008) (the "2008 MDE Report") at 1. Current stormwater management still addresses flood prevention (i.e., quantity control), but pollution control (i.e., quality control) is also of concern, because stormwater collects pollutants as it runs off developed properties. 2008 MDE Report at 5. What was once unregulated flood prevention is now a carefully regulated activity, requiring the planning, design, construction, and maintenance of a system that will ensure compliance with various laws, such as the Maryland Stormwater Management Act, EN §4-201 et seq., and the federal Clean Water Act, 33 U.S.C. §1251 et seq. See 2008 MDE Report at 4–5. [The General Assembly first enacted the Stormwater Management Act in 1982, Chapter 682, Laws of Maryland 1982, and has amended it several times in the intervening years. A review of the history of that statute through 2006 may be found in 91 Opinions of the Attorney General 152 (2006). Under the federal Clean Water Act (the "CWA"), State and local governments must meet certain water quality standards. For example, under the CWA's National Pollutant Discharge Elimination System ("NPDES") regulations, administered by the State pursuant to 33 U.S.C. §1342(b), certain counties and municipalities must comply with strict standards for stormwater runoff and ensure that certain minimum control measures are implemented. 40 CFR 122.26.]

B. Stormwater Management Act

1. Local Stormwater Management Programs

In the Stormwater Management Act ("the Act"), the Legislature found that "the management of stormwater runoff is necessary to reduce stream channel erosion, pollution, siltation and sedimentation, and local flooding" in order to protect the State's water and land resources. EN §4-201. The Act is intended "to reduce as nearly as possible the adverse effects of stormwater runoff ...." Id. To achieve this goal, the Act requires, among other things, that each county and municipality have an ordinance implementing a stormwater management program that is consistent with flood management plans and that meets certain minimum requirements. EN §§4-202, 4-203.

2. Local System of Charges

A key provision of the Act authorizes each county and municipality to adopt a "system of charges" to fund the implementation of stormwater management programs. EN §4-204(d). The revenues generated by the system of charges may be used for: (i) Reviewing stormwater management plans; (ii) Inspection and enforcement activities; (iii) Watershed planning; (iv) Planning, design, land acquisition, and construction of stormwater management systems and structures; (v) Retrofitting developed areas for pollution control; (vi) Water quality monitoring and water quality programs; (vii) Operation and maintenance of facilities; and (viii) Program development of these activities. EN §4-204(d)(1). The charges take effect upon enactment by the local governing body and may be collected in the same manner as county and municipal property taxes. EN §4-204(d)(2), (3).

Although the Act requires local governments to adopt an ordinance implementing a stormwater management program, the grant of authority to establish a system of charges is permissive. Accordingly, a local governing body can choose to pay the costs of the program with general revenue funds or with the proceeds of a "system of charges."

3. State Guidance and Assistance

The General Assembly has charged the Maryland Department of the Environment ("MDE") with various duties related to the administration and enforcement of the Act. Among other things, MDE is to adopt regulations that establish criteria and procedures for stormwater management. EN §4-203(b). MDE has suggested that, although regulatory fees or taxes could be charged to fund stormwater management programs, local governments may also impose stormwater utility user fees based on the runoff contribution of a property. 2008 MDE Report at 13. [The statute does not apply to the construction activities of State or federal agencies. EN §4-205(a). Stormwater management plans for such activities are administered through the Maryland Department of the Environment. EN §4-205(b)-(c).]

II. Analysis

A. Whether Curb Construction and Maintenance May be Funded

You first ask whether the City may finance curb construction and maintenance through a system of charges authorized under EN §4-204(d). The statute does not explicitly mention curb construction and maintenance. But it states that the revenues resulting from a system of charges may be used for the planning, design, and construction of "stormwater management systems and structures" and the operation and maintenance of "facilities." EN §4-204(d)(1)(iv), (vii). Thus, curb construction and maintenance may be funded under EN §4-204(d) if curbs are an integral part of a stormwater management system.

In its regulations, MDE has defined "stormwater management" to include, inter alia, quantitative control through "a system of vegetative and structural measures that control the increased volume and rate of surface runoff caused by man-made changes to the land." COMAR 26.17.02.02(B)(36)(a). A "stormwater management system" is comprised of "natural areas, [environmental site design] practices, stormwater management measures, and any other structure through which stormwater flows, infiltrates, or discharges from a site." COMAR 26.17.02.02(B)(38).

Curbing is a structure through which stormwater flows and is discharged from a site. See 2000 Maryland Stormwater Design Manual (rev. 2009) at p. 1.4. There appears little doubt that curb construction and maintenance can be an integral part of a stormwater management program. Thus, in our view, revenues generated from a system of charges adopted pursuant to EN §4-204(d) may be used for that purpose.

B. Whether a Charge for Curb Construction and Maintenance May be Assessed Against Tax-Exempt Entities

You also ask whether a charge for curb construction and maintenance established under the authority of EN §4-204(d) may be assessed against a tax-exempt property owner. EN §4-204(d) itself does not specify any exemptions. Thus, any exemption from such an assessment derives from other authority that may vary according to the type of charge assessed and the type of tax-exempt entity.

1. Potential Types of Charges

In EN §4-204(d), the General Assembly authorized local governments to establish a "system of charges" to fund their stormwater management programs. [Under the State Constitution, a local government may assess a tax, fee, or other charge only with the assent of the General Assembly. Maryland Declaration of Rights, Article 14; Maryland Constitution, Article XI-E, §5 (municipality may not levy new fee without express authorization of General Assembly); see also River Walk Apts, LLC v. Twigg, 396 Md. 527, 544, 914 A.2d 770 (2007).] In a prior opinion, this Office conducted a comprehensive review of the statute's legislative history and purpose and concluded that the broadly-worded phrase "system of charges" includes both taxes and fees. See 91 Opinions of the Attorney General 152, 157–60 (2006) ("2006 Opinion").

In categorizing the types of charges assessed by local governments, Maryland courts have distinguished taxes from regulatory fees and user fees depending on the function of the particular charge. Generally, a tax is designed primarily to raise revenue, a regulatory fee funds a regulatory measure, and a user fee pays for a commodity consumed or a service rendered. See Eastern Diversified v. Montgomery County, 319 Md. 45, 52-53, 570 A.2d 850 (1990); Mass Transit Administration v. Baltimore County Revenue Auth., 267 Md. 687, 694-95, 298 A.2d 413 (1973); Maryland Theatrical Corp. v. Brennan, 180 Md. 377, 380–81, 24 A.2d 911 (1942); Home Owners' Loan Corp. of Washington, D.C. v. Mayor of Baltimore, 175 Md. 676, 681, 3 A.2d 747 (1939). Within the category of taxes related to property, a distinction is made between a tax based on the value of the property – often called a "property tax" – and a tax based on the use of the property – often referred to as an "excise tax." See Waters Landing Limited Partnership v. Montgomery County, 337 Md. 15, 26, 650 A.2d 712 (1994); Weaver v. Prince George's County, 281 Md. 349, 358-59, 379 A.2d 399 (1977).

a. User Fee

A user fee for curb construction and maintenance might be charged by a stormwater utility. A stormwater utility provides the service of stormwater management, much as public water and waste water utilities provide those services. A user fee would be based on the contribution of a given parcel of property to the total volume of stormwater that must be managed. A parcel developed with impervious structures, driveways, and patios does not retain stormwater as well as undeveloped land and thus contributes more runoff. The Court of Appeals has relied on a similar rationale to uphold a special assessment in a similar context. Leonardo v. Board of County Commissioners, 214 Md. 287, 306-9, 134 A.2d 284 (1957); see also Sarasota County v. Sarasota Church of Christ, Inc., 667 So.2d 180, 185 (Fla. 1995).

MDE has developed a model ordinance that includes a stormwater utility user fee. Under MDE's model ordinance a local government would create a stormwater utility and impose user fees to finance stormwater management programs. MDE's model standard for assessment of a stormwater utility user fee is similar to that required for water and sewer utility user fees. See West Capital Associates Limited Partnership v. City of Annapolis, 110 Md. App. 443, 452-53, 677 A.2d 655 (1995).

b. Regulatory Fee

The 2006 Opinion concluded that a local government may impose a regulatory fee as part of a system of charges under EN §4-204(d). As explained in that opinion, a regulatory measure generally imposes requirements on the regulated person beyond the mere payment of a fee. 2006 Opinion at 156. The fee must be reasonable and the amount of revenue generated must bear some relation to the purpose of the regulation. Id. While a regulatory fee may raise revenue, its predominant purpose should be regulatory, such as defraying the expense of regulation. Eastern Diversified, 319 Md. at 53–55; Maryland Theatrical Corp., 180 Md. at 380–81.

We are not aware of any Maryland cases concerning the use of regulatory fees to finance stormwater management, but courts in other states have upheld such regulatory fees. See Twietmeyer v. City of Hampton, 497 S.E.2d 858, 859, 861 (Va. 1998); Teter v. Clark County, 704 P.2d 1171, 1180 (Wash. S. Ct. 1985); Smith v. Spokane County, 948 P.2d 1301, 1306–7 (Wash. App. 1997).

c. Taxes

The 2006 Opinion also concluded that a local government could impose a property tax or excise tax as part of a system of charges under EN §4-204(d). 2006 Opinion at 161. A tax, generally, is an enforced contribution "in return for the general benefits of the government, and it promises nothing to the persons taxed, beyond what may be anticipated from an administration of the laws for individual protection, and the general public good." Brooks v. Baltimore, 48 Md. 265, 268–69 (1878). In other words, the primary purpose of a tax is to raise revenue for general public purposes. Although a revenue raising measure might include some regulatory elements, generally, an act is a revenue raising measure when it appears from the act itself that revenue is its main objective. Eastern Diversified, 319 Md. at 53; Maryland Theatrical Corp., 180 Md. at 381-82.

As noted in the 2006 Opinion, if a charge is assessed as a tax, there may be different consequences if the tax is an excise tax rather than an ad valorem property tax. 2006 Opinion at 161. A property tax would need to be implemented in accordance with the uniformity requirement of Article 15 of the Maryland Declaration of Rights. In addition, certain exemptions from a property tax do not extend to an excise tax.

2. Charges Assessable As to Particular Types of Tax-Exempt Entities

a. State and Local Government Entities

In general, property owned by the State, a county, or a municipal corporation and used for governmental purposes is not subject to a property tax. Annotated Code of Maryland, Tax-Property Article ("TP"), §7-210(a). Property owned by an instrumentality of the State or local government may be exempt, to the extent that a law exempts the property from property tax. See TP §7-210(b). Therefore, if a municipality establishes a property tax as part of the system of charges under EN §4-204(d), then property owned by State and local governments would not be subject to the charge, but property owned by their instrumentalities would be, unless specifically exempt by law.

The assessment of other types of charges against State and local entities is less straightforward. The authorization to create a system of charges in EN §4-204(d) does not apply to construction activities of the State. EN §4-205(a). In addition, as a general principle, the State is not subject to regulation under an enactment of the General Assembly unless there is "a clear and indisputable intention" that the State be subject to that regulation. See Mayor and City Council of Baltimore v. State, 281 Md. 217, 223, 378 A.2d 1326 (1977). Similarly, a county would ordinarily not be subject to regulation by a municipality. See 73 Opinions of the Attorney General 238 (1988). Consistent with these principles, the term "person" in a statute is ordinarily construed not to apply to the State or political subdivisions. See 85 Opinions of the Attorney General 3 (2000).

In the Stormwater Management Act, the General Assembly has indicated an intention to cover State and local entities. For example, the definition of "person" applicable to the Act explicitly includes governmental entities. EN §4-101.1 ("'Person' includes the federal government, the State, any county, municipal corporation, or other political subdivision of the State, or any of their units"). Finally, even when a State entity is exempt from taxes or other local government charges, it may be subject to a fee for services provided by a local government. See, e.g., Mass Transit Administration, 267 Md. at 697. Thus, in our view, the State, a county, or a municipal corporation, or their instrumentalities could be assessed a utility user fee, and may be subject to a regulatory fee or an excise tax that is part of a system of charges under EN §4-204(d).

b. Federal Government Entities

As a general rule, federal agencies are exempt from State and local taxes unless Congress expressly consents. United States v. City of Huntington, West Virginia, 999 F.2d 71, 73 (4th Cir. 1993), cert. denied, 410 U.S. 1109 (1994). On the other hand, federal agencies are generally liable to pay reasonable user fees assessed by State or local agencies. Id.; see also United States v. Harford County, 572 F.Supp. 239, 241 (D.Md. 1983).

With particular application to stormwater programs, in Section 313 of the federal Clean Water Act, Congress has waived sovereign immunity and accepted liability as to all reasonable stormwater program service charges assessed against federal property regardless of whether such a charge is denominated a fee or a tax. 33 U.S.C. §1323(a). The statute defines "reasonable service charge" to include "any reasonable nondiscriminatory charge ... that is [both] based on some fair approximation of the proportionate contribution of the property" to stormwater pollution and "used to pay or reimburse the costs associated with any stormwater management program ...." 33 U.S.C. §1323(c). Thus, whether a regulatory fee could be assessed against a federal governmental entity would likely depend on whether it related to a service provided to the federal entity and met the standard in §1323(c) for a reasonable service charge.

c. Non-Governmental Entities

The tax-exempt status of a non-governmental property owner is irrelevant with regards to regulatory fee or user charge as such fees are neither taxes nor charges in the nature of taxes. See Mass Transit Authority, 267 Md. at 696; West Capital Assocs., 110 Md. App. at 450. Thus, a regulatory or user fee could be assessed against an otherwise tax-exempt non-governmental entity.

Even if a non-governmental entity is exempt from federal income taxation, it is not automatically exempt from State taxation in Maryland. Excise taxes are not a general tax category subject to exemption under State law. Thus, whether a charge established pursuant to EN §4-204(d) is assessable against a non-governmental tax-exempt property owner will likely depend on whether the charge would be considered a property tax. An entity exempt from property taxes in Maryland would not be required to pay a property tax imposed to fund stormwater management under EN §4-204(d). TP §§7-201 to 7-243. The same entity, however, would be required to pay a valid excise tax, utility user fee, or regulatory fee.

III. Conclusion

Our opinion is as follows:

(1) Curbs, if functioning as an integral part of a stormwater management system, may be constructed and maintained with funds obtained through a system of charges imposed by a local governing body pursuant to EN §4-204(d).

(2) Whether such a charge may be assessed against a tax-exempt property owner depends on the nature of the particular charge assessed under EN §4-204(d). If a property tax is imposed, then tax-exempt entities would be exempt from the assessment. However, a valid utility user fee, regulatory program fee, or excise tax could be assessed against many tax-exempt entities.

Douglas F. Gansler
Attorney General

Robert N. McDonald
Chief Counsel
Opinions and Advice