Lawsuit Invalidates the Often Misunderstood “Rain Tax”

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By Neil Saunders

A Montgomery County judge invalidated the county’s so-called “rain tax,” the stormwater runoff fee program used to fund projects that would reduce polluted runoff from contaminating the Chesapeake Bay. While the holding in the case is limited to the county’s program, many anticipate that it will lead to similar decisions in other Maryland counties and the city of Baltimore. The program, which forms part of Maryland’s overall Watershed Implementation Plan to achieve the reductions required by the Bay TMDL, was designed to reduce urban and suburban stormwater runoff that continues to be a leading source of pollution in the Chesapeake Bay. Without the fee program Montgomery County will have to come up with alternative ways to fund its federally and state-mandated Bay restoration programs.

The Water Quality Protection Charge (WQPC), or “rain tax” as opponents label it, has been hotly debated in Maryland since the law was passed in 2012. That law, which mandates stormwater fees in the nine largest counties and the City of Baltimore be assessed to property owners whose land contributes pollution runoff to nearby streams and the Bay, has been opposed by many Republicans and Governor Hogan, who pledged to repeal it during his campaign. The Democrat-led General Assembly, however, refused to repeal the law outright, and instead amended the law earlier this year to remove the fee mandate and permit the counties to decide for themselves how to fund their stormwater management programs. Some counties, including Montgomery County, chose to keep the fee program in place. Other counties are required to demonstrate how their stormwater management programs will be funded in the absence of a fee program.

The WQPC was created as part of Maryland’s overall strategy for Bay TMDL compliance. In counties that use the fee structures, residential and commercial property owners are assessed annually based on the amount of impervious surfaces on their property. For many homeowners, the fees range from under $30 for Baltimore County to up to $90 for some Howard County residents. Commercial property owners with larger tracts of land that have greater areas of impervious surfaces are assessed larger fees. While the fee structure serves to fund new measures to reduce pollution, it also acts as an economic incentive for homeowners and business owners to take remedial steps to reduce polluted runoff. Additionally, off-set credits are available for individuals or businesses who show that reduction efforts are being taken.

The lawsuit was brought by a commercial developer owner who had been assessed an $11,000 stormwater fee to his 34-acre development. The owner argued that he shouldn’t be assessed any fees because he had built two ponds on his property to collect stormwater runoff from his property, effectively eliminating pollution from reaching the Bay. He also argued that the fee was unlawful under state law. In the lawsuit, the circuit court judge agreed on both issues, holding that the fee was not properly assessed in this case, because it did not fully take into account the remedial actions taken by the landowner (the landowner was only given a 50% credit reduction), and the calculation methodology used by the County did not limit the fee to what the actual services rendered to the property.

The effect of this second point could make it more difficult to manage pollution from stormwater runoff if lawsuits in the other counties and the City of Baltimore reach the same conclusion. While the County was permitted to base its fees on the amount of impervious surface on a property, the circuit court held that the County failed to adhere to the law’s mandate that “a county or municipality shall set a stormwater remediation fee for a property in an amount that is based on the share of stormwater management services related to the property and provided for by the county or municipality.” Env. Art. sec. 4-202(e)(3)(i). Under this provision, the court maintains that a county may charge a fee based on the actual cost of stormwater management services to that property only. In other words, the County is not permitted to use the WQPC to fund other stormwater remediation projects because the law only permits the County to set a charge to cover its costs.

It is not yet clear whether Montgomery County will appeal this narrow interpretation of the law or seek alternative options to fund its stormwater management practices. If this result does extend to the other counties and Baltimore it will likely result in a greatly reduced source of funding for important water quality programs; stormwater runoff remains one of the critical sources of Bay pollution. Hopefully, if similar lawsuits are brought, those courts will apply a much more practicable interpretation of the law, and give the counties the flexibility they require to meet the requirements of the Bay TMDL. Otherwise, the state would have to rely on changes at the legislative level, which is often difficult and moves at a much slower pace.

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