The U.S. Navy is challenging whether it must pay the governor's new "flush tax" at its numerous facilities in Maryland - a move that could prompt all military installations and federal agencies in the state to do the same and create a major funding shortfall for the landmark legislation.
The Navy contends that the surcharge, designed to raise about $65 million to pay for upgrades to sewage treatment plants statewide, is indeed a tax and not a user fee, as the Ehrlich administration insists. Navy officials say they are exempt from such taxes.
"Based upon our legal analysis, we believe that the environmental surcharge meets the definition of a classic tax," said Cmdr. Dominick Yacono, regional environmental counsel for the Navy's mid-Atlantic command in Norfolk, Va.
"If the environmental surcharge is a tax, the U.S. Supreme Court has clearly stated that the federal government is not subject to any form of taxation by a state or political subdivision in the absence of express congressional intent."
On behalf of both the Navy and the Army, Yacono asked lawyers for the Maryland Department of the Environment last week to clarify whether the Bay Restoration Fund is a tax or a fee and to document their reasoning.
State officials insist that it is a fee. MDE officials expect to provide the Navy its information in a few days.
Though MDE officials do not have exact numbers, a widespread refusal to pay the fee could lead to a significant shortfall. Under the legislation, homeowners would be charged $2.50 a month on their water bills. Business and industrial users would be charged more, depending on their size and the amount of sewage.
When Gov. Robert L. Ehrlich Jr. championed the bill during last year's General Assembly, activists cheered the Republican anti-tax governor for pushing legislation that should cut in half the nitrogen pollution seeping into the bay. That pollution, along with excess phosphorus, has led to algae blooms that cut off the bay's oxygen, degrading water quality and putting marine life in stress.
Maryland Department of the Environment spokesman Richard McIntire said his department expected questions about the fee, which homeowners should notice on their water bills beginning this month. But he said the department expected everyone to pay because everyone benefits.
"If you are contributing nitrogen and phosphorus to the Chesapeake Bay, and you're treating your wastewater, you are expected to be held accountable for this fee, regardless of who you are," McIntire said.
Ehrlich spokesman Henry Fawell said the governor also expected everyone to pay. The Ehrlich administration initially resisted including septic system owners in the bill, but the legislature insisted that everyone had to pay the fee.
Ehrlich signed a bill that included the septic users, saying the opportunity to enact such crucial legislation was too important to hold up.
Some military facilities operate their own sewage treatment plants. Among those are the Naval Surface Warfare Center in Southern Maryland and Fort Meade, which is also home to a large Environmental Protection Agency facility. EPA officials say those facilities will eventually have to pay for their own plant upgrades to get permits.
A far larger drain on state resources would be the roughly 700 federal facilities using local wastewater treatment plants. Those range from small branch offices to sprawling complexes with hundreds, if not thousands, of employees. Navy facilities without their own sewage-treatment plants include the National Naval Medical Center in Bethesda, the Naval Surface Warfare Center in Carderock and the Naval Recreation Center on Solomons Island.
If the Navy and Army can prove themselves exempt, many fear that all federal agencies will try to do the same.
"It would be difficult in the extreme for other federal facilities to pay this fee if the federal government, in the corporate person of the Department of Defense, says it's a tax, and we're not paying," said Mike Burke, an associate director for the multi-agency Chesapeake Bay Program.
Though Navy officials raised questions as the bill moved through the House and Senate last year, Yacono said it was clear upon final approval that federal agencies would be expected to pay the surcharge.
The issue was discussed again last week at a meeting of the Bay Restoration Fund Advisory Committee, a group that discusses how to implement the "flush tax." Kim Coble, the Maryland executive director of the Chesapeake Bay Foundation, described the reaction among the group as one of concern and shock.
"It would be our hope that the Navy wouldn't want to debate this, that every citizen in Maryland and every industry is willing to pay in to improve the health of the Chesapeake Bay," Coble said. "We would hope that the Navy and the Army would have the same perspective - that here's an opportunity, for a small price, to improve the bay."
The issue could reverberate throughout Virginia, a state with a huge Navy presence as well as many federal facilities. Virginia is also considering flush fee legislation this year. The bay foundation, which helped pass the Maryland law, is working on the legislation, and Coble said the Navy has already contacted its Virginia office to discuss an exemption.
Even supporters of the legislation have chided the anti-tax governor for his protests that the flush tax is merely a fee - arguing that it's a distinction without a difference.
Garrett Power, a constitutional law professor at the University of Maryland, said that murkiness could work in the Navy's favor.
He defines a tax as money that goes into a general fund to be used for whatever purpose the government deems necessary. A fee, on the other hand, is a direct payment for a service.
Though the state is collecting the flush surcharge to upgrade treatment plants, Power argues that it's not exactly a fee for service because it's going into a general pot to pay for all sewage upgrades, starting with the state's 66 major plants.
"The position of the naval establishment is very strong. They are not subject to the power of taxation by the state," Power said. "The flush fee, to me, is a tax."
According to Yacono, case law backs up the Navy's position. He pointed to a 1971 case where Maryland imposed an environmental surcharge to raise revenues for a power plant site-evaluation program. The federal government challenged the state in court, and won - the court declared the fee a tax.
But the bay program's Burke recalled a case six years ago in which federal agencies balked at paying a storm-water charge in the Washington, D.C., area. In that case, he said, the Clinton administration required that they pay the fee.
Another wrinkle in the discussion has nothing to do with the fee-or-tax question. It stems from the 2000 Chesapeake Bay Restoration Act, which both increased federal bay cleanup funding and demanded more cooperation in the restoration effort from federal facilities in the watershed.