Does the U.S. Navy have to pay Chesapeake's stormwater management fee, or is it really a tax that the federal government cannot be charged?

Plain-English summary

Chesapeake City Attorney Ronald Hallman had a standoff with the U.S. Navy. The City charges a stormwater management fee under § 15.2-2114 of the Virginia Code and § 26-401 of the City Code. The fee covers Chesapeake's costs of complying with its federal Clean Water Act NPDES permit for the municipal drainage system. Each parcel's fee scales with its impervious area: an "Equivalent Residential Unit" (ERU) is the average residential lot's impervious area, about 2,112 square feet, and nonresidential parcels (like naval facilities) get charged based on how many ERUs their impervious area represents. Undeveloped parcels are not charged. The Navy paid the fee from 2007 through 2010, and then stopped, claiming the fee was really a tax dressed up as a fee, from which it was constitutionally immune.

AG Cuccinelli sided with the City. The opinion applied the U.S. Supreme Court's Massachusetts v. United States three-part test for distinguishing a permissible user fee from an impermissible tax on the federal government:

(1) Nondiscriminatory. The fee structure treats Navy property the same as any other nonresidential property in Chesapeake. Same ERU rate. Same impervious-area math. No special category for federal facilities.

(2) Fair approximation of use. Stormwater runoff cannot be metered the way water consumption can. But the ERU-times-impervious-area calculation is a sound proxy for each parcel's contribution to runoff. The Supreme Court accepted the same kind of approximation in Massachusetts v. United States for aircraft registration fees, and the First Circuit upheld Maine's hazardous waste fund in Maine v. Department of Navy. The Fourth Circuit in United States v. City of Huntington explained the line between user fees and taxes.

(3) Revenue does not exceed total program cost. Chesapeake earmarks the fee revenue into a special stormwater fund used only for stormwater program expenses, not general government revenue.

That made the fee a "classic 'regulatory' fee" rather than a tax. The Navy was not constitutionally immune. And, as a closing belt-and-suspenders point, the AG noted that Congress in 33 U.S.C. § 1323(a) had already expressly waived federal immunity for "reasonable service charges" connected to "the discharge or runoff of pollutants." The opinion did acknowledge a contrary outcome in Cincinnati v. United States, 39 Fed. Cl. 271 (1997), but treated Chesapeake's fee structure as falling on the user-fee side of the line.

Currency note

This opinion was issued in 2010. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current § 15.2-2114 and the City of Chesapeake's current ordinance text before relying on any specific rule.

Common questions

Q: What is the user-fee-versus-tax test?
A: Per Massachusetts v. United States and the Fourth Circuit's City of Huntington: a user fee (1) does not discriminate against the federal government, (2) fairly approximates the federal user's actual use, and (3) is structured so revenues do not exceed total program cost.

Q: How is "fair approximation" measured if you can't meter runoff?
A: With a proxy that tracks the basic driver of runoff (impervious area). The Supreme Court has accepted approximations even when more accurate measurement was technically possible but more costly. Chesapeake's ERU model passed this test.

Q: Does the Clean Water Act help here?
A: Yes. 33 U.S.C. § 1323(a) waives federal sovereign immunity for "reasonable service charges" connected to pollutant discharge or runoff. That is an independent statutory ground for charging the Navy, on top of the constitutional user-fee analysis.

Q: What if the federal facility has its own NPDES permit and discharges directly into U.S. waters?
A: That fact pattern is different. The AG noted that federal facilities with their own NPDES permits discharging directly into U.S. waters typically are exempt from municipal stormwater fees because the municipality is not handling their runoff.

Q: What did the City of Cincinnati case say?
A: In Cincinnati v. United States, the Court of Federal Claims invalidated a city stormwater fee as a tax. The AG noted the case but distinguished it implicitly by relying on the Chesapeake fee's structure and the ERU-based proportionality.

Background and statutory framework

The Clean Water Act, 33 U.S.C. § 1342(p), requires certain municipalities to obtain NPDES permits to control stormwater pollutant discharges. Compliance costs money, and Virginia § 15.2-2114 authorizes localities to set up a stormwater utility or system of service charges to recoup those costs. The City of Chesapeake's ordinance, § 26-401, sets the fee schedule based on ERUs and impervious area. The federal government's intergovernmental tax immunity (McCulloch v. Maryland) bars state and local taxes on federal property, but does not bar bona fide user fees that satisfy the Massachusetts v. United States test.

The opinion is a clean example of how to defend a municipal fee against a "really a tax" challenge: line up the structural features (proportionality, dedicated fund, nondiscrimination) with the Supreme Court framework.

Citations

• Va. Code Ann. § 15.2-2114 (locality stormwater utility authority)
• Chesapeake City Code § 26-401 (Chesapeake stormwater fee ordinance)
• 33 U.S.C. § 1342(p) (Clean Water Act NPDES stormwater provisions)
• 33 U.S.C. § 1323(a) (federal immunity waiver for reasonable service charges)
• Massachusetts v. United States, 435 U.S. 444 (1978) (three-part user-fee test)
• United States v. City of Huntington, 999 F.2d 71 (4th Cir. 1993) (user fees vs. taxes)
• Maine v. Dep't of Navy, 973 F.2d 1007 (1st Cir. 1992) (hazardous waste fund upheld)
• Cincinnati v. United States, 39 Fed. Cl. 271 (1997) (contrary outcome on stormwater fee)

Source

• Landing page: https://www.oag.state.va.us/annual-reports-opinions/official-opinions
• Original PDF: https://www.oag.state.va.us/files/Opinions/2010/09-098-Hallman.pdf

Original opinion text

COMMONWEALTH OF VIRGINIA
Office of the Attorney General
Kenneth T. Cuccinelli, II

900 East Main Street
Richmond, Virginia 23219
804-786-2071

Attorney General

March 4, 2010

Ronald S. Hallman, Esq.
Chesapeake City Attorney
306 Cedar Road
Chesapeake, Virginia 23322

Dear Mr. Hallman:

I am responding to your request for an official advisory opinion in accordance with § 2.2-505 of the Code of Virginia.

Issue Presented

You ask whether the stormwater fee set forth in § 26-401 of the Chesapeake City Code is permissible under § 15.2-2114 of the Virginia Code or constitutes an impermissible tax on the United States, which would exempt the United States Navy from paying the fee.

Response

Based on the facts you present, it is my opinion that the stormwater fee set forth in § 26-401 of the Chesapeake City Code is a service fee rather than a tax, and the United States Navy is not constitutionally exempt from paying the fee.

Background

To better regulate pollution conveyed by stormwater runoff, Congress enacted § 1342(p) of the Clean Water Act, which established the National Pollutant Discharge Elimination System (NPDES) Permit program. Section 1342(p) of the Act requires certain municipalities to obtain a NPDES permit to reduce the discharge of pollutants in stormwater runoff.[1] You advise that federal law mandates that localities control the water quality impact of stormwater discharges. In compliance with this mandate, you note that the city of Chesapeake ("City") has obtained a NPDES permit for its municipal drainage system. To recoup costs associated with this program, the City has established a "utility" that charges a stormwater management fee pursuant to § 15.2-2114 of the Virginia Code.

You relate that the fee is structured to ensure that the amount charged to particular properties is proportional to the properties' contribution to stormwater runoff. Undeveloped parcels are not charged a fee. The fee for developed parcels is based on Equivalent Residential Units (ERUs), which are the average impervious area of all residential dwelling units, approximately 2,112 square feet. Each owner is charged based on the number of ERUs on each parcel. Residential parcels are charged one ERU, and nonresidential parcels are charged a fee based on the number of ERUs represented by their total impervious area. You explain that nonresidential parcels typically are charged a higher fee than residential parcels because the nonresidential parcels have a greater impact on the stormwater system.

You relate that the United States Navy ("Navy") has refused to pay stormwater fees claiming that the City's fee structure is a tax-like assessment. Prior to 2007, you advise that the Navy paid the City's stormwater fee without question or complaint. You observe that typically only those federal facilities that have obtained the required NPDES permit from the Virginia Department of Conservation and Recreation and that discharge stormwater runoff directly into waters of the United States are exempt from municipal stormwater fees. You conclude that because the Navy properties located within the City discharge stormwater into the City's stormwater system, and not directly into United States waters, the Navy is not exempt from this fee.[2] You advise that the fee is not a tax because it mirrors the exact requirements contained in § 15.2-2114. Further, you advise that the fee is nondiscriminatory, is reasonable, is proportionate to the benefit conferred, and produces revenues that do not exceed the cost of the program. Therefore, you conclude that the stormwater fee is a valid service charge under § 15.2-2114 and not an impermissible tax.[3]

Applicable Law and Discussion

The traditional role of this Office regarding requested opinions has been to interpret applicable statutes to the extent possible utilizing the pertinent rules of statutory construction and general application of statutory provisions. Attorneys General have a longstanding policy of responding to official opinion requests only when such requests concern an interpretation of federal or state law, rule, or regulation.[4] In instances when a request: (1) involves application of facts to the law, and does not involve a question of law; (2) requires the interpretation of a matter reserved to another entity; (3) involves a matter currently in litigation; and (4) involves a matter of purely local concern or procedure, this Office traditionally has declined to render an opinion.[5] Accordingly, I limit my comments to the interpretation of § 26-401 of the Chesapeake City Code ("City Code") as authorized by § 15.2-2114. Further, the analysis in this opinion is based entirely upon the facts that you provide. I refrain from commenting on matters that would require additional facts or the application of facts to the appropriate provisions of law.

In § 15.2-2114(A), the General Assembly permits any locality to adopt a stormwater control program consistent with Article 1.1, Chapter 6 of Title 10.1 by establishing a utility or enacting a system of service charges. Pursuant to § 15.2-2114, the City adopted a stormwater management fee ordinance.[6] The key question is whether this fee truly is a user fee or service charge or whether it is an impermissible tax disguised as a fee.

One of the oldest constitutional principles is that a state may not tax the United States.[7] Consequently, the City, a political subdivision of the Commonwealth, may not tax the Navy. Although local governments may not tax the United States, they may charge the federal government user fees for services provided by the locality. Such a fee, however, must clearly be a fee, not a tax disguised as a fee. The United States Fourth Circuit Court of Appeals has explained that "[u]ser fees are payments made in return for a government-provided benefit. Taxes, on the other hand, are 'enforced contribution[s] for the support of government.'"[8]

The fees imposed by the City are akin to fees for sewage. The City is processing stormwater runoff that emanates from the naval facility. The Supreme Court of the United States has held that if a fee (1) does not discriminate against the federal government, (2) is a fair approximation of use by the federal government, and (3) is structured to produce revenues that will not exceed the total costs of benefits supplied, then the federal government cannot assert its sovereign immunity from taxes.[9]

First, it is clear from the facts provided that the City's stormwater fee does not discriminate against the federal government. The Navy is assessed with a fee based on ERUs, the same as the fee assessed to other nonresidential properties. The fee per ERU is set, and the owner is charged with the fee based on the number of ERUs. Under the City's fee scheme, residential properties are charged a lesser fee because they are judged to have less impact on the stormwater system. Because the Navy is charged the same fee as other nonresidential properties, there is no discrimination against the federal government.

Second, the fee represents a "fair approximation" of the use by the particular lot. Of course, it is impossible to install a meter to measure the stormwater runoff for a particular parcel of land. You relate, however, that each lot is assessed based on the ERU, which is then multiplied by an impervious area calculation. This level of precision satisfies the "fair approximation" test. The United States Supreme Court has provided guidance concerning the meaning of "fair approximation."[10] The Court analyzed a fee that was a flat registration tax for all civil aircraft, which was introduced to help finance federal aviation programs.[11] The amount of the fee was based on the size and type of aircraft,[12] but not the aircraft's actual use of the airways or the facilities and services supplied by the United States.[13] Similarly here, even if the service charges do not correlate exactly with the stormwater flowing from the naval property at issue, that does not render the service charge an impermissible tax. As the United States Court of Appeals for the First Circuit has noted, "the law does not require a precise correlation between regulatory fees collected and regulatory services provided."[14] The fee at issue represents a constitutionally permissible "fair approximation" of the use by the naval facility.[15]

The fees are structured to produce revenues that will not exceed the total costs of benefits supplied. You note that the fees, charges and other revenue collected for stormwater runoff are dedicated to special revenue and used only to finance the stormwater program. Therefore, "[t]he fees are not designed simply to raise money for general revenue purposes."[16] Instead, they represent "a 'classic "regulatory" fee … imposed by an agency upon those subject to its regulation,' and used, for example, to 'raise money placed in a special fund to help defray the agency's regulation-related expenses.'"[17]

Finally, I note that in the Clean Water Act, Congress has waived any immunity of the federal government with respect to "reasonable service charges" that arise in connection with activities that result "in the discharge or runoff of pollutants."[18]

Conclusion

Accordingly, based on the facts you present, it is my opinion that the stormwater fee set forth in § 26-401 of the Chesapeake City Code is a service fee rather than a tax, and the United States Navy is not constitutionally exempt from paying the fee.

With kindest regards, I am

Very truly yours,

Kenneth T. Cuccinelli, II
Attorney General

1. Id.
2. Section 2.2-505(B) requires that an opinion request from a county attorney "shall itself be in the form of an opinion embodying a precise statement of all facts together with such attorney's legal conclusions."
3. Id.
4. See Op. Va. Att'y Gen.: 1998 at 71, 72; 1997 at 105, 107; 1991 at 237, 238; 1989 at 288, 293 n.1; 1986-1987 at 347, 348; 1977-1978 at 31, 33; 1976-1977 at 17, 17.
5. The authority of the Office of the Attorney General to issue advisory opinion is limited to questions that are legal in nature. See, e.g., Op. Va. Att'y Gen.: 2008 at 141, 144 n.14; 2006 at 95, 97; 2002 at 144, 147; 1999 at 215, 217; 1997 at 195, 196; 1996 at 207, 208; 1991 at 122, 124; 1982-1983 at 100, 101 n.3; 1977-1978 at 31, 33; 1976-1977 at 17, 17.
6. Section 26-401 of the Chesapeake City Code, titled "[s]tormwater utility fees," provides that: "(a) The city council, by this article, shall set appropriate levels of utility fees so that sufficient revenues will be generated to provide for a balanced budget for the stormwater management system. Effective after approval of this article, utility fees shall be charged to owners of all developed property in the city. "(b) For the purpose of determining the utility fee, all properties in the city shall be classified by the director into one of the following categories: "(1) Residential; "(2) Nonresidential; and "(3) Undeveloped property. "(c) The monthly utility fee for residential shall be the ERU [Equivalent Residential Unit] rate of $4.45 per month for one ERU for the year of 2007, $6.35 per month for one ERU for the year of 2008, and increased by an additional $0.50 per month for one ERU for every year thereafter until further consideration by City Council. "(d) The monthly utility fee for nonresidential shall be the ERU rate of $4.45 per month for one ERU for the year of 2007, $6.35 per month for one ERU for the year of 2008, and increased by an additional $0.50 per month for one ERU for every year thereafter until further consideration by City Council, multiplied by the numerical factor obtained by dividing the total impervious area of a nonresidential property by one ERU (2,112 square feet). The director shall determine impervious area considering data supplied by the real estate assessor, other city staff and/or the property owner. The assessed utility fee shall be updated by the director based on any change in impervious area. The minimum utility fee for any nonresidential property shall be equal to one ERU rate. "(e) The utility fee for vacant developed property, both residential and nonresidential, shall be the same as that for occupied property of the same class. "(f) Undeveloped property shall be exempt from the utility fee." http://library1.municode.com/default-test/home.htm?infobase=10529&doc_action=whatsnew.
7. See U.S. CONST. art. VI, cl. 2; see also United States v. County of Allegheny, 322 U.S. 174, 177 (1944) (noting that state or local governmental body may not tax federal entity in absence of congressional consent); McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316, 436-37 (1819) (declaring that Maryland could not tax Bank of the United States; such tax was unconstitutional and void).
8. United States v. City of Huntington, 999 F.2d 71, 74 (4th Cir. 1993) (citation omitted) (second alteration in original).
9. Massachusetts v. United States, 435 U.S. 444 (1978).
10. Id. at 467-70.
11. Id. at 446, 449-50.
12. Id. at 450.
13. Id. at 463. The Court also acknowledged that a fee based on actual use would measure the benefit to the user more accurately. The Court emphasized, however, that an actual use measurement method would be more costly to administer. Id. at 468-69.
14. Maine v. Dep't of Navy, 973 F.2d 1007, 1014 (1st Cir. 1992) (upholding Hazardous Waste Fund as reasonable fee rather than impermissible tax).
15. See N.Y. State Dep't of Envtl. Conserv. v. United States Dep't of Energy, 850 F. Supp. 132, 139-43 (N.D.N.Y. 1994) (upholding waste water facility fees imposed by New York on United States), aff'd sub nom., Jorling v. United States Dep't of Energy, 218 F.3d 96 (2d Cir. 2000); but see Cincinnati v. United States, 39 Fed. Cl. 271 (1997) (invalidating storm water drainage fee as an impermissible tax), aff'd on other grounds 153 F.3d 1375 (Fed. Cir. 1998).
16. Maine, 973 F.2d at 1012.
17. Id. (citations omitted) (alteration in original).
18. 33 U.S.C.S. § 1323(a) (LexisNexis 2001).