UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
decided: October 12, 1982.
MIDDLESEX COUNTY UTILITIES AUTHORITY
BOROUGH OF SAYREVILLE, ET AL., APPELLANTS V. WILLIAM FRENCH SMITH, UNITED STATES ATTORNEY GENERAL, ET AL.
On Appeal From The United States District Court for the District of New Jersey.
Gibbons and Hunter, Circuit Judges, and Pollak,*fn* District Judge.
Opinion OF THE COURT
POLLAK, District Judge.
The Middlesex County Utilities Authority ("MCUA") is a public body established, pursuant to New Jersey law, by the Board of Freeholders of Middlesex County.*fn1 In 1954, MCUA entered into an Agreement with twenty-four municipalities and several industrial enterprises in Middlesex, Somerset and Union Counties, pursuant to which MCUA undertook to build and operate a trunk sewer system together with a sewage disposal plant to be located at Sayreville. With the adoption in 1972 of the Federal Water Pollution Control Act, more commonly known as the "Clean Water Act," MCUA, like other public sewage treatment systems, became subject to comprehensive federal legislative prohibitions on discharging pollutants into waterways -- prohibitions which, together with those applicable to private pollution sources, are intended to "restore and maintain the chemical, physical, and biological integrity of the Nation's waters." 33 U.S.C. § 1251(a).
By 1975, it was apparent to MCUA that it would have to expand and modernize its trunk system and the Sayreville facility. To accomplish this, MCUA decided to apply to the Environmental Protection Agency (EPA) for a construction grant pursuant to Title II of the Clean Water Act, which, with a view to helping public sewage treatment systems achieve compliance with federal anti-pollution standards, authorizes the EPA Administrator to fund up to 75% of the cost of building or improving sewage systems. As a predicate for applying for a grant, MCUA and its customer municipalities and industries entered into a Supplemental Agreement amending the 1954 Agreement in the respects necessary "to obtain grants for the construction of wastewater facilities." Supplemental Agreement, p.2. Among the amendments were a provision that "the Authority and each Municipality represents and agrees that it will adopt a system of user charges . . . . which, at a minimum, complies with the rules and regulations of the EPA," and a companion provision obligating each municipality to "secure passage of a sewer use ordinance or resolution." Supplemental Agreement, pp. 4 and 5. These undertakings were intended to meet the directive of Section 204(b) (1) of the Clean Water Act that:
In 1976, the Administrator approved MCUA's grant application, thereby committing EPA to pay 75% of the multi-million dollar sewage treatment improvement project. But four years later, after having advanced 80% of the promised federal funds, EPA suspended further payments. The reason for the suspension was that Milltown and Sayreville had not adopted ordinances providing for user charges. The suspension triggered two law suits, of which this is the second.
The first law suit involved Milltown. Milltown is a municipality whose sewage is handled by MCUA but which is not a signatory to the 1954 Agreement or the 1975 Supplemental Agreement. The explanation for this apparent paradox traces to the fact that Milltown has, since 1914, had a contract with its larger neighbor, New Brunswick, under which the latter has seen to the collection and disposal of Milltown's sewage. Since the 'fifties, New Brunswick, a signatory of both MCUA agreements, has paid for MCUA's treatment and disposal of both New Brunswick's and Milltown's sewage. Because Milltown is not a signatory of the MCUA Agreements, it did not regard itself as bound by the provisions of the Supplemental Agreement calling for adoption and implementation of a user charge ordinance. But EPA took the position that Milltown is a "recipient of waste treatment services" within the meaning of Section 204(b) (1) of the Clean Water Act and hence obliged to put a user charge system into effect. MCUA and Milltown not only challenged EPA's reading of the statute but argued that the statute so read would work an unconstitutional impairment of Milltown's 1914 contract with New Brunswick. Judge Debevoise rejected these contentions. City of New Brunswick v. Borough of Milltown, 519 F. Supp. 878 (D.N.J. 1981). And this court, speaking through Judge Garth, affirmed. City of New Brunswick v. Borough of Milltown, 686 F.2d 120 (3rd Cir. 1982).
The second law suit -- this one -- involves Sayreville. Sayreville is a signatory to the 1954 and 1975 Agreements. In February of 1981, MCUA brought an action against Sayreville and the members of the Sayreville Borough Council in the New Jersey Superior Court, seeking to mandamus the defendants to adopt a sewer use ordinance in fulfillment of Sayreville's 1975 commitment to do so. Sayreville impleaded Attorney General Smith, EPA Administrator Douglas M. Costle, and various subordinate officers of EPA and the Department of Justice, alleging, evidently in reliance on the Tenth Amendment, that EPA in promulgating rules enforcing the user charge system requirement "usurped the powers and perogatives [sic] not only of the United States Congress but also of the individual sovereign states and the political subdivisions thereof . . . .," and seeking damages or, in the alternative, "a declaration of the invalidity of the [EPA] rules . . . ." The federal defendants thereupon removed the litigation to the district court and moved for summary judgment dismissing the third-party complaint and declaring the validity of Section 204(b) (1) and its attendant regulations. MCUA moved for summary judgment against Sayreville. On December 1, 1981, Judge Debevoise entered an order which gave effect to a bench opinion delivered on November 16, 1981.*fn3 The order dismissed Sayreville's third-party complaint; declared that Section 204(b) (1) and the challenged regulations "are lawful and valid and authorize EPA to condition its award to MCUA of grant funds under Title II of the Clean Water Act . . . . upon the requirement that MCUA assure that Sayreville adopt a system of sewer user charges . . . .;" and, without ruling on MCUA's motion for summary judgment, remanded the balance of the case to the Superior Court.
On this appeal, Sayreville continues to press its claim that Congress by statute*fn4 and EPA by regulation*fn5 have breached the Tenth Amendment by conditioning the MCUA construction grant on MCUA's implementation of an undertaking to put into force a user charge system -- i.e., a system of charges which, in the words of Section 204(b) (1), is designed "to assure that each recipient of waste treatment services within the applicant's jurisdiction . . . . will pay its proportionate share . . . . of the costs of operation and maintenance (including replacement) of any waste treatment services provided by the applicant . . . ." In Sayreville's view, a grant so conditioned is calculated to coerce Sayreville to introduce a superfluous tax rather than pay its share of MCUA's services out of its happily sufficient general revenues. To force Sayreville to adopt an uncongenial tax is, Sayreville submits, in contravention of Sayreville's slice of New Jersey's sovereignty.
We note in passing that MCUA -- the public body to whom the federal grant was made, on whom the condition was imposed, and from whom federal funds are now being withheld -- has not raised a Tenth Amendment claim on its own or even acquiesced in the claim advanced by Sayreville.*fn6 Whether or not MCUA would have had standing to raise this Tenth Amendment claim, we are satisfied that Sayreville -- the municipality whose revenue system EPA seeks to modify through enforcement of the condition -- does have the requisite standing. Accordingly, we turn to the merits of the claim. This necessitates a consideration of what Congress intended the challenged condition to accomplish, and -- in the light of Congress' purposes -- the degree to which the congressional constraint would curtail fulfillment of those central values of statehood vindicated in National League of Cities v. Usery, 426 U.S. 833, 49 L. Ed. 2d 245, 96 S. Ct. 2465 (1976).
The purposes subserved by the challenged condition are not obscure. Judge Debevoise in City of New Brunswick v. Borough of Milltown, supra, 519 F. Supp. at 883, found that his "interpretation of the [Clean Water] Act's user charge requirements and its implementing regulations [was] consistent with the underlying purposes and policies of the Act" for the following reasons:
Legislative history reveals that Congress' purpose in providing for a user charge system was twofold: first, it was enacted "as a means of assuring that each federally assisted facility would have adequate operation and maintenance funds", and, second, the system was intended to be "a positive force in encouraging more efficient management of wastes discharged through a municipal system as well as an economic inducement to reduce excessive use". S.Rep. No. 95-370, 95th Cong., 1st Sess. (1977), reprinted in  U.S.Code Cong. & Ad. News 4326, 4352.
This court concurred in Judge Debevoise's analysis. City of New Brunswick v. Borough of Milltown, supra, 686 F.2d 120, slip opinion at pp. 23-5. And this court went on, id., at p. 25, to observe that Congress' action in 1977, amending section 204(b) (1) to authorize EPA to accept an ad valorem tax, if in place on December 27, 1977, as an alternative to a user charge, had not "'eviscerated' any conservation purpose to the user charge requirement" but was "intended simply to provide 'greater flexibility . . . . for the assessment of user charges' [U.S. Code Cong. & Ad. News at 4352], and not to undermine the user charge concept itself of its underlying purposes."*fn7
The question is whether the challenged condition, which reasonably implements Congress' incontestably valid purposes, infringes upon the sovereignty of New Jersey in the persona of the Borough of Sayreville. In Hodel v. Virginia Surface Mining & Reclamation Association, Inc., 452 U.S. 264, 287-88, 69 L. Ed. 2d 1, 101 S. Ct. 2352 (1981), the Court stated that:
In order to succeed, a claim that congressional commerce power legislation is invalid under the reasoning of National League of Cities must satisfy each of three requirements. First, there must be a showing that the challenged statute regulates the "States as States." [426 U.S.] at 854. Second, the federal regulation must address matters that are indisputably "attribute[s] of state sovereignty." Id., at 845. And third, it must be apparent that the States' compliance with the federal law would directly impair their ability "to structure integral operations in areas of traditional governmental functions." Id., at 852.
Because the challenged condition relates to the ways in which Sayreville and other affected state sub-entities are to raise and allocate revenues, it arguably addresses "States as States" and in relation to "attributes of state sovereignty." But what the condition does not do is "directly impair" the freedom of states "'to structure integral operations in areas of traditional governmental functions.'" It does not "directly impair" Sayreville's -- let alone New Jersey's -- freedom at all. What the condition does is to state a limitation on the expenditure of federal funds -- funds which, as MCUA notes in its brief, "MCUA and its constituent municipalities were free not to apply for."*fn8
In City of New Brunswick v. Borough of Milltown, supra, this court observed: "As a general rule, it is clear that 'Congress may fix the terms on which it shall disburse federal money to the States,' Pennhurst State School & Hospital v. Halderman, 451 U.S. 1, 17, 67 L. Ed. 2d 694, 101 S. Ct. 1531 (1981); see King v. Smith, 392 U.S. 309, 333 n.34, 20 L. Ed. 2d 1118, 88 S. Ct. 2128 (1968). Moreover, while that power is not without limits, see 451 U.S. at 17 n.13, it is indisputable that the power to fix terms lies essentially with the Congress, and not with the federal courts." Slip opinion, pp. 134. In FERC v. Mississippi, 456 U.S. 742, 102 S. Ct. 2126, 2141, 72 L. Ed. 2d 532 (1982), the Supreme Court had recent occasion to develop the same theme, in terms which are dispositive of Sayreville's Tenth Amendment claim:
The Court has recognized that valid federal enactments may have an effect on state policy -- and may, indeed, be designed to induce state action in areas that otherwise would be beyond Congress' regulatory authority. Thus in Oklahoma v. Civil Service Comm'n, 330 U.S. 127, 67 S. Ct. 544, 91 L. Ed. 794 (1947), the Court upheld Congress' power to attach conditions to grants-in-aid received by the States, although the condition under attack involved an activity that "the United States is not concerned with, and has no power to regulate." Id., at 143, 67 S. Ct., at 553. The Tenth Amendment, the Court declared, "has been consistently construed 'as not depriving the national government of authority to resort to all means for the exercise of a granted power which are appropriate and plainly adapted to the permitted end,'" ibid, quoting United States v. Darby, 312 U.S. 100, 124, 61 S. Ct. 451, 462, 85 L. Ed. 609 (1941) -- the end there being the disbursement of federal funds.
As the Chief Justice made plain, speaking for the unanimous Court in United Transportation Union v. Long Island Railroad Company, 455 U.S. 678, 102 S. Ct. 1349, 1354-55, 71 L. Ed. 2d 547 (1982), what National League of Cities v. Usery requires of a court seized of a Tenth Amendment claim is to conduct "an inquiry into whether the federal regulation affects basic State prerogatives in such a way as would be likely to hamper the state government's ability to fulfill its role in the Union and endanger its 'separate and independent existence.'" We hold that the federal regulation challenged here does not impinge on New Jersey's sovereignty.
As an alternative to its Tenth Amendment claim, Sayreville argues that in lieu of adopting a user tax, as Sayreville promised to do in the 1975 Supplemental Agreement, it should be permitted to satisfy EPA's requirements through an ad valorem tax dedicated to sewage costs. That option would have been open to Sayreville under the 1977 amendments to Section 204(b) (1), provided Sayreville had had a dedicated ad valorem tax in force as of December 27, 1977. Sayreville argues that distinguishing between communities which had a dedicated ad valorem tax in force in 1977 and those communities which, like Sayreville, were thereafter prepared to adopt such a tax, deprives the latter group of "the equal protection of the laws."*fn9
The federal defendants argue that Sayreville should not be heard to raise an equal protection claim here, because it made no such claim in the district court. As a general matter, this court will not entertain claims not made below. However, while not condoning Sayreville's failure to bring all its federal claims to Judge Debevoise's attention, we are reluctant to conclude that this municipality, representing the aggregate interests of its inhabitants, is thereby foreclosed from presenting to this court what it perceives as a serious constitutional claim. Therefore, we turn to an examination of the genesis of the 1977 amendments in order to determine whether Congress' limitation of ad valorem taxes to those in force in 1977 had some rational foundation.
As this court pointed out in City of New Brunswick v. Borough of Milltown, supra, 686 F.2d 120, 133 n.19, EPA regarded dedicated ad valorem taxes as satisfying Section 204(b) (1) as originally written, but the Comptroller General in a 1974 ruling disagreed, concluding that a typical ad valorem tax would not adequately advance the statute's "conservation purpose." 54 Comp. Gen. 1. Accordingly, when Congress, in 1976, took up proposals to amend the Clean Water Act, one of the items pressed by EPA Administrator Russell E. Train was liberalization of Section 204(b) (1). By letter of April 17, 1976 to Chairman Robert E. Jones of the House Committee on Public Works and Transportation, Mr. Train made the following recommendations under the heading "User Charges" (Brief for Federal Defendants, appendix C):
H.R. 9560 would amend section 204(b) of the Federal Water Pollution Control Act to allow municipalities to use an ad valorem tax for funding operation and maintenance costs.
Unless an amendment to section 204 is enacted, the decision by the Comptroller General that ad valorem taxes are not a proper basis for levying user charges will have a severe impact on the implementation of the construction grant program as well as upon municipal compliance with the requirements of the Act.
Numerous cities and districts, including many large metropolitan areas, presently finance operation and maintenance costs through ad valorem taxes. Considering the substantial costs involved, many of these cities are understandably unwilling to revise their systems. Moreover, in those cases where there is willingness to comply with the requirements of section 204(b) (1), the compliance will cause considerable delays before we accomplish any measure of progress in waste treatment plant construction.
As you know, the Environmental Protection Agency has also made a proposal to amend this section. The principal difference between the two amendments lies in the eligibility of municipalities to apply this tax. Our proposal would limit the use of the ad valorem tax to those municipalities where sewage treatment costs have traditionally been paid through such a user charge system and where a change to a direct charge would be inordinately disruptive. H.R. 9560, on the other hand, does not apply such limitations.
We believe that federally assisted sewer systems involving new collections systems should not use ad valorem tax as a matter of course to serve as a basis for assessing user charges. We, therefore, support the ad valorem user charge, but believe its application should be limited to historical use of this tax by municipalities or to instances where direct user charges would be inordinately disruptive.
As the legislative process went forward, EPA continued to support enlargement of Section 204(B) (1) to encompass ad valorem taxes, but also continued to couple this with insistence that the ad valorem tax -- a tax less well attuned to the "conservation purpose" than a user charge geared precisely to the amount of sewage generated -- be one which was in "previous use . . . . and that we do not in any way indicate to any community that ad valorem system can now be implemented as a substitute for user charges. It must be one that is presently supporting the O. & M. [operation and maintenance] expense." Testimony of Assistant Administrator Thomas J. Jorling, Legislative History of the Clean Water Act of 1977, 95th Cong., 2d Sess., p. 1126. See generally id. at 439, 549, 1284, 1288, 1296, 1297, 1307-09, 1358-60.
As adopted, the 1977 amendment to Section 204(b) (1) followed EPA's strong submission that ad valorem taxes should be sanctioned only where they were already in place and utilized for, inter alia, sewage charges. That this was a rational limitation seems hardly open to debate. Accordingly, it is a limitation which is proof against Sayreville's "equal protection" challenge.
Finally, Sayreville argues here (brief, pp. 38-40) a position very tentatively urged before Judge Debevoise on November 16, 1981 (App. 48a-49a) -- namely, that Sayreville in 1977 did have in force what EPA, under the 1977 amendments and the implementing regulations, could regard as a dedicated ad valorem tax. Judge Debevoise did not deal with this quasi-contention -- presumably for the very good reason that it had never been communicated to EPA so there was no administrative determination to review. See App. 36a-37a, 49a. On April 22, 1982 -- a week after filing its brief here -- counsel for Sayreville wrote to the Regional Administrator of EPA and the Raritan Basin Manager of the New Jersey Department of Environmental Protection. The burden of the letter was to argue that, in light of Sayreville's contractual commitment to pay MCUA for sewage services pursuant to the 1954 and 1975 Agreements, Sayreville's existing taxes constitute dedicated ad valorem taxes, in force as of December 27, 1977, within the meaning of Section 204(b) (1) as amended and the implementing regulations. Whether that submission has merit is a matter which should be considered in the first instance by EPA, not by a court of appeals.
For the foregoing reasons, the judgment of the district court will be affirmed.