On October 18, 2013, the United States Court of Appeals for the Seventh Circuit issued its decision in Oneida Tribe of Indians of Wisconsin v. Village of Hobart, a case in which the Tribe sought a declaratory judgment that the Village lacks authority to assess stormwater management fees on parcels of tribal trust lands. The Village filed a third-party claim against the United States, asserting that if the Village cannot collect the fees from the Tribe, then the Unites States, as holder of the underlying fee title to the tribal trust lands, must pay the fees.
The Seventh Circuit held that the Clean Water Act (CWA) does not authorize a state or a subdivision of a state to regulate stormwater runoff on trust lands within an Indian reservation. The court also held, in the alternative, that the fee the Village sought to collect was in fact a tax rather than a service charge, and federal law expressly forbids a state or its subdivisions from taxing Indian trust land. See, e.g., 25 U.S.C. § 465. The court also ruled against the Village in its claim against the United States.
Hobart is a town of about 7,000 residents, within the boundaries of the Oneida Indian reservation. About 17 percent of Village residents are members of the Oneida Tribe. The trust land at issue comprises some 1400 acres, about 6.6 percent of the land within the village. The trust parcels are scattered throughout the village.
Stormwater runoff is a serious environmental problem. Pursuant to amendments to the CWA enacted in 1987, discharges from municipal separate storm sewer systems (MS4s) are required to obtain and comply with permits issued through the National Pollutant Discharge Elimination System (NPDES) pursuant to CWA section 402. The NPDES permit program is operated by the Environmental Protection Agency (EPA) in the first instance, but can be delegated to states and to those tribes that have been authorized to be treated like states. Wisconsin has been delegated authority to administer the NPDES permit program, but the delegation does not include Indian lands. So, the Village had applied to EPA for a permit for its MS4.
Regulations issued by EPA govern discharges from MS4s, including those of “small” municipalities – those with a population of less than 100,000 – for which an NPDES permit need only cover the “urbanized area.” For purposes of this program, tribes are included in the CWA definition of municipality. The Tribe had applied to EPA for a permit to cover the trust lands at issue.
The federal CWA program does not specifically provide for a mechanism for funding MS4s, but many states have enacted laws authorizing municipalities to establish stormwater utilities, and such a utility typically has authority to assess fees on properties within its jurisdiction to support construction and operation of an MS4. The Village of Hobart had established such a stormwater utility.
The Village’s claim against the United States was based on section 313 of the CWA, which provides that the departments, agencies, and instrumentalities of each of the three branches of the federal government “shall be subject to, and comply with, all Federal, State, interstate, and local requirements … to the same extent as any nongovernmental entity including the payment of reasonable service charges.” 33 U.S.C. § 1323. This section was first enacted in 1972. It has been the subject of litigation, including a Supreme Court decision that it does not require federal agencies to obtain state permits. EPA v. California, 426 U.S. 200 (1976). An amendment enacted in 1977 clarified that federal facilities are required to obtain state permits. An amendment enacted in 2011 added a new subsection (c) providing that “reasonable service charges” may include a “nondiscriminatory fee, charge, or assessment” associated with a stormwater management program.
In its complaint in federal district court, the Tribe had argued that the charge the Village seeks to collect from the Tribe is in fact a tax on trust land, which is specifically barred by federal law. In the alternative, the Tribe had argued that, if the Village’s ordinance is a regulation rather than a tax, it is preempted by operation of federal law, which broadly preempts state or local regulatory authority over tribal lands. The district court rendered summary judgment for the Tribe on the tax argument and did not reach the preemption argument. It also dismissed the claim against the United States.
The Seventh Circuit found the Village’s ordinance preempted, stating as a fact the proposition that tribal trust land is “for the most part not subject to state jurisdiction” and citing COHEN’S HANDBOOK OF FEDERAL INDIAN LAW for the proposition that “Federal preemption of state law in the field of Indian affairs has persisted as a major doctrine in the Supreme Court’s modern Indian law jurisprudence.” The court then framed the question as whether the federal government has authorized the Village to assess the fees on the trust lands at issue; found that the only premise the Village had advanced for such authority was CWA section 313; and rejected it, reasoning that, under the CWA, it is EPA that has regulatory authority over Indian trust lands. On the alternative ground that the fee at issue is a tax and not a service charge, the court reasoned that it is a tax because it is designed to raise revenue to pay for a project, not to compensate the local government for a service provided to particular landowners.
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