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iStock_000010382621_LargeThe Federal Clean Water Act became law in 1972 with the goal of eliminating pollution of the nation’s rivers, lakes and coastal waters by 1985. Despite the intervening decades, there is widespread recognition that the goal line is still off in the distance. Although significant progress has been made in reducing pollution from “point source” discharges such as industrial facilities and municipal sewage treatment plants, it is generally recognized that considerably more needs to be done, particularly with respect to “non-point source” pollution from agriculture (fertilizers and livestock management are examples), urban stormwater runoff, and residential sources (e.g., lawn fertilizers, certain soaps and detergents, etc.).

Green leaf with water dropIn the non-fiction best-seller (and Hollywood film) A Civil Action a New England community confronts the very serious consequences that followed when a manufacturing company’s chemical waste contaminated the local water supply. While chemical wastes can continue to present health and environmental concerns, an increasing concern today focuses on a different type of contamination – “nutrient pollution,” which is affecting many of the nation’s waterways. The “civil war” metaphor referenced above reflects the fact that actions to address nutrient pollution can find state and local government entities squaring-off against each other. A recent example is in Iowa, where the City of Des Moines has issued formal notice that it intends to file a suit to enjoin nutrient pollution from neighboring communities.

Background. “Nutrient pollution” may sound like an oxymoron since plants and animals require nutrients as part of their food supply. But too much of a good thing can be bad, which in this case means the nutrients nitrogen and phosphorus. As the U.S. Environmental Protection Agency explains, excessive amounts of nitrogen and phosphorus in rivers, lakes, etc., cause significant increases in algae (“algal blooms”) that deplete the oxygen aquatic life requires. The algae also produce toxins and bacteria that can cause illness for humans through consumption of contaminated fish, shellfish or drinking water. In fact, for several days last summer Toledo, Ohio imposed water usage restrictions, which included a ban on all potable uses, due to nutrient pollution in the form of toxic algae in Lake Erie. In addition, nitrates (a form of nitrogen) in surface waters and groundwater pose a significant health concern because nitrates can lead to serious illness in adults and can be fatal for infants and small children. http://www2.epa.gov/nutrientpollution. Nutrient pollution from the Mississippi River basin (which drains all or portions of 31 states) is also responsible for the more than 5,000 square-mile “dead zone” in the Gulf of Mexico where hypoxia (oxygen deficiency) has excluded many forms of aquatic life. Given these facts, EPA’s admonition is not surprising: “Nitrogen and phosphorus pollution has the potential to become one of the costliest and the most challenging environmental problems we face.” http://www2.epa.gov/sites/production/files/documents/memo_nitrogen_-framework.pdf.

Nutrient pollution results from several factors. That includes urban stormwater runoff, residential sources (e.g., lawn fertilizers, yard and pet waste, certain soaps and detergents), fossil fuel use (increased air emissions of nitrogen) and sanitary wastes (from septic systems and sewage treatment). But while those sources can contribute to nutrient pollution, the primary source, as noted by the National Oceanic and Atmospheric Administration, is agriculture, including fertilizers and animal waste. See generally http://oceanservice.noaa.gov/-products/hypox_t3final.pdf. Paradoxically, however, when Congress enacted the Clean Water Act (CWA) in 1972 (the CWA is the primary federal law for controlling water pollution), it chose to exempt two agricultural categories, agricultural stormwater and return flows from irrigation. Absent the exemptions, those sources could be required to have permits under the Clean Water Act’s National Pollutant Discharge Elimination System (NPDES) program. Although the CWA does not require states to mirror the federal exemptions for agriculture, as a general rule states choose not to be more stringent than the CWA (to do otherwise would be akin to exporting jobs and tax revenue to more lenient states, a non-starter for state policymakers). That is the case with nutrient pollution from agriculture – state regulation is voluntary and generally regarded as inadequate. See https://www.nacwa.org/images/stories-/public/2012-03-06wp.pdf at 15 (voluntary control measures “have been unable to deliver reliable and sustained nutrient loading[] reductions from the agriculture sector”); see also http://www.gao.gov/assets/660/659496.pdf at 60-61 (water quality improvement is restricted nationally due to inadequate regulatory authority over non-point source pollution, which includes agriculture).

Emerging Battleground. Given the increasing concerns it presents, nutrient pollution has become a catalyst for testing the scope of the CWA’s agricultural exemptions. A recent example is the previously referenced pre-litigation notice the City of Des Moines issued to neighboring counties and their drainage districts last month (although CWA enforcement is primarily a state and federal government responsibility, individuals, organizations and local governments can also file enforcement actions – “citizen suits” – for which a 60-day notice of intent to sue is required). Des Moines’ would-be suit (which could be filed shortly) concerns groundwater the drainage districts remove artificially (using drainage tiles and other conveyances) from moisture laden agricultural lands and then discharge to local rivers. The result is a lower water table, which benefits agriculture through reduced interference with root growth and enhanced crop development. But there’s also a downside: discharging the groundwater to nearby rivers significantly increases the nitrate concentration in the rivers, which are the primary local water supply. That, in turn, requires Des Moines to augment its water treatment system – at considerable cost – to reduce nitrates to meet the federal Safe Drinking Water Act limit. Des Moines’ notice of intent concludes that the drainage districts’ discharges are not covered by the CWA’s agricultural exemptions because they are not stormwater or associated with irrigation, and as consequence are unpermitted discharges in violation of the CWA. There is very little precedent interpreting the CWA’s agricultural exemptions, and it does not appear to address facts such as those pertinent to Des Moines.

It is not yet known whether Des Moines will proceed with litigation. Although extension of the NPDES permit program to a presumably vast number of agricultural sources could be daunting, that concern must be juxtaposed with the increasing national focus on the adverse impact of nutrient pollution from agricultural sources. These concerns far transcend Des Moines’ individual circumstances and implicate a number of additional states, broad agricultural interests and a considerable number of municipalities as well. Developments in this matter will be very useful to monitor.

Michigan road signCounty of Jackson vs. City of Jackson, 2013 WL 3957695 (Mich. App.) involved defendant’s attempt to raise revenue for certain city services such as street sweeping, catch basin cleaning, leaf pickup, and mulching by a storm water management utility charge on all property owners.  The Headlee Amendment to the Michigan Constitution prohibited imposition of a tax on property without an affirmative popular vote.  Before the imposition of the utility charge, the city had funded its obligations under the federal Clean Water Act through property and gas taxes from the general fund and road fund, respectively, as well as certain surcharges on water and sewer bills.  By ordinance, the city created a storm water utility to manage surface and storm water through an annual charge imposed on all property, whether developed or not, in the city and limiting the revenue derived from the charge to storm water facility construction operation and maintenance.  The charge was computed based on an estimate of storm water runoff from each parcel which charge considered whether the surface is all or partially impervious (although it had a uniform charge on small, single family residential lots).  The ordinance also provided for various credits for reducing the amount of storm water and surface water discharge, provided for administrative appeals in the computation of charges, and allowed for enforcement through civil actions, discontinuation of water service and the like.  Plaintiff local government and various private entities brought an action for declaratory, and for monetary and injunctive relief against the ordinance.

The Court found that plaintiffs bore the burden of proof to show the ordinance was invalid or unconstitutional and required plaintiffs to show that the fee was a “tax,” and thus not permitted without a popular vote.  In Bolt v. City of Lansing, 221 Mich App 79, 561 NW2d 423 (1997), a similar scheme was found invalid by the Michigan Supreme Court, which used a 3-factor analysis to distinguish a fee from a tax, i.e.: (1.) a fee serves a regulatory purpose; (2.) a fee is proportional to services rendered; and 3. a fee is voluntary.  Neither of the first two factors were met, especially as two-thirds of parcels in the city already had a separated sewer and storm water system which those owners had already paid for through general taxes or individual assessments.  The Bolt ordinance failed to distinguish between charges based on services provided as to the relationship between the charges and benefits conferred.  Moreover, the ordinance in that case and this, while relating to rainfall on a parcel, did not deal with the treatment of pollutants from which parcels discharge into navigable waters.  Finally, the fees in both cases were neither voluntary nor avoidable.  Also important in Bolt were the following: (1.) the fee revenues were to be used on projects which had been financed by the general fund; (2.) the indebtedness from the fee could be secured by a lien; and (3.) the fee was sent along with property tax statements.

The Bolt court concluded:

We conclude that the storm water service charge imposed by Ordinance 925 is a tax and not a valid user fee.  To conclude otherwise would permit municipalities to supplement existing revenues by redefining various government activities as “services” and enacting a myriad of “fees” for those services.  To permit such a course of action would effectively abrogate the constitutional limitations on taxation and public spending imposed by the Headlee Amendment, a constitutional provision ratified by the people of this state.  In fact, the imposition of mandatory “user fees’ by local units of government has been characterized as one of the most frequent abridgments “of the spirit, if not the letter,” of the amendment.

The danger to the taxpayer of this burgeoning phenomenon [the imposition of mandatory user fees] is as clear as are its attractions to local units of government.  The “mandatory user fee” has all the compulsory attributes of a tax, in that it must be paid by law without regard to the usage of a service, and becomes a tax lien of the property.  However, it escapes the constitutional protections afforded voters for taxes.  It can be increased any time, without limit.  This is precisely the sort of abuse from which the Headlee Amendment was intended to protect taxpayers.  [Headlee Blue Ribbon Commission Report, supra, § 5, pp-26-27.] [Bolt, 459 Mich at 169.]

Turning to the case at hand, the Court found the fee served a dual purpose – financing treatment of solid pollutants in storm and surface water runoff, as well as supplementing general revenue-raising efforts by shifting funding of those activities already provided from the city’s general and street funds to a charge-based system that augments the city’s general fund.  The Court concluded that the “minimal” regulatory purpose was far outweighed by its revenue-raising features.  In fact, there was no effective regulation of discharge from an individual parcel (aside from the ordinance’s credit scheme).  The background of the challenged ordinance shows its primary rationale was revenue raising and thus violates Bolt by allowing the city to supplement its existing revenue streams by redefining a governmental activity as a “service” for which a user fee may be charged.  Moreover, there was no relationship or proportionality between the service and the fee – rather the charge resulted in a benefit to the general public.  While larger parcels were more susceptible to proportionality under the city’s fee schedule, the bulk of parcels in the city (83%) were single family residential lots for which a uniform single charge was imposed.  Finally, the ordinance in this case, as in Bolt, was compulsory and effectively enforced through various means.  Given these attributes, the ordinance was deemed to be a tax and thus invalid without a popular vote.

This case deals with the details of property tax limitation measures, which differ from state to state.  As a matter of logic, the case makes a great deal of sense and distinguishes fees from taxes. County of Jackson vs. City of Jackson 2013 WL 3957695 (Mich App).

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