Court: Supreme Court of the United States; April 25, 1989; Federal Supreme Court; Federal Appellate Court
Section 7005 of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) mandates that the Secretary of Transportation establish and collect annual user fees from operators of hazardous pipelines under the Hazardous Liquid Pipeline Safety Act of 1979 (HLPSA) and the Natural Gas Pipeline Safety Act of 1968 (NGPSA). These fees are intended to make the administration of the HLPSA and NGPSA self-financing, capped at 105% of congressional appropriations for the fiscal year. Mid-America Pipeline Company, subject to the HLPSA, paid these fees under protest and sought declaratory and injunctive relief, arguing that Section 7005 unconstitutionally delegated Congress's taxing power to the Executive Branch. The District Court ruled in favor of the company, suggesting the fees were taxes and that Congress failed to provide sufficient guidance to the Secretary.
The Supreme Court reversed this ruling, asserting that Section 7005 does not constitute an unconstitutional delegation. It found that Congress imposed adequate restrictions on the Secretary's discretion, which satisfy the nondelegation doctrine by providing clear standards for fee assessment and limiting the use of the collected funds. The Court also determined that the characterization of the fees as taxes does not necessitate a stricter nondelegation standard, emphasizing that Congress retains broad authority to delegate power under its taxing authority without differing treatment compared to its other powers.
Congress entrusts the implementation of its legislative will to administrators and the courts, acknowledging that it cannot foresee all potential issues or manage daily oversight. This reliance is underscored by prior Supreme Court rulings, which emphasize that Congress must clearly express its intent to delegate discretionary authority to the Executive for recovering administrative costs through fees or taxes. Section 7005 of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) explicitly demonstrates Congress’ intention to recover the total costs associated with administering the Hazardous Liquid Pipeline Safety Act (HLPSA) and the Natural Gas Pipeline Safety Act (NGPSA) through user fees imposed on regulated entities.
The Supreme Court, led by Justice O'Connor, ruled that Section 7005, which mandates the Secretary of Transportation to establish a user fee system linked to the usage of natural gas and hazardous liquid pipelines, does not unconstitutionally delegate Congress's taxing power to the Executive. Under Section 7005, fees are to be collected annually from operators of pipeline facilities subject to the HLPSA and NGPSA, and these fees must be used for specific activities authorized under the respective acts, including regulatory and enforcement costs. The fees collected cannot exceed 105% of the total appropriations for the fiscal year related to these activities.
Section 7005 of COBRA aims to establish self-financing mechanisms for federal regulatory programs, mirroring similar initiatives from recent congressional acts. The Secretary published fee schedules for the fiscal year (FY) 1986 after consulting major pipeline industry trade associations, which recommended using pipeline mileage as the basis for fee assessment. Despite objections from one-third of commenters advocating for volume-miles to better reflect usage and enforcement costs, the Secretary maintained the mileage-based system for its administrative simplicity and equity in enforcement efforts across pipeline sizes.
Cost allocation for the pipeline safety program was set at 80% for operators under the Natural Gas Pipeline Safety Act (NGPSA) and 20% for those under the Hazardous Liquid Pipeline Safety Act (HLPSA). Costs related to grants were allocated at 95% for NGPSA and 5% for HLPSA. Additionally, a small number of operators with limited mileage were exempted from fees due to the administrative burden exceeding the fee value. For FY 1986, fees were established at $23.99 per mile for gas pipelines and $6.41 for hazardous liquid pipelines, with lump sum fees for LNG facilities ranging from $1,250 to $7,500.
The total program costs for FYs 1986, 1987, and 1988 were approximately $7.773 million, $8.523 million, and $8.550 million, respectively, with FY 1989 expenses estimated at $9.3 million. Mid-America Pipeline Company, which operates hazardous liquid pipelines, was assessed $3,023.52 under the new fee schedule on July 28, 1986, which it paid under protest while seeking declaratory and injunctive relief in court against the Secretary.
On cross-motions for summary judgment, a United States Magistrate recommended striking down Section 7005 of COBRA, asserting it unconstitutionally delegated Congress' taxing power to the Department of Transportation. Citing precedents from *National Cable Television Assn. Inc. v. United States* and *FPC v. New England Power Co.*, the Magistrate determined that assessments under Section 7005 should be classified as taxes, not fees. Furthermore, referencing *J.W. Hampton, Jr. Co. v. United States* and *American Power Light Co. v. SEC*, the Magistrate concluded that Congress failed to provide adequate guidance to the Secretary, leading to an unconstitutional delegation of taxing authority to the Executive Branch. The District Court accepted these findings and ruled in favor of Mid-America on February 9, 1988. The Secretary appealed directly to the Court, which retained jurisdiction due to the timing of the District Court's judgment relative to the repeal of 28 U.S.C. 1252. In a related case, *Mistretta v. United States*, the Court reaffirmed that valid delegations of authority require Congress to provide specific standards for agency actions. Mid-America did not contest that Congress had established sufficient guidelines for the Secretary under Section 7005, which were more detailed than prior upheld delegations.
Under Section 7005, the Secretary is restricted from collecting fees from firms exempt from the Pipeline Safety Acts, using collected funds for non-administrative purposes, or establishing fees on a case-by-case basis. Fees must be based solely on criteria related to volume-miles, miles, or revenues, and any fee schedule must maintain a reasonable relationship to these factors. Additionally, the Secretary cannot exceed a budget cap set at 105 percent of the appropriations made by Congress for the fiscal year, limiting his discretion in managing pipeline safety user fees.
Mid-America argues that these user fees should be subjected to a stricter nondelegation scrutiny, positing that they effectively constitute tax assessments rather than user fees. They assert that the constitutional delegation of Congress’ taxing power requires more stringent guidelines compared to other powers. Article I, § 8 of the Constitution grants Congress the power to levy taxes, and while all revenue-related bills must originate in the House, this does not restrict Congress’s ability to delegate authority post-enactment. Mid-America does not dispute that Section 7005 originated in the House and acknowledges historical variations in the specificity of tax legislation and the corresponding discretion granted to the Executive.
The Act of July 6, 1797, allows the Secretary of the Treasury to negotiate an annual fee equivalent to one percent of a bank's annual dividend as an alternative to collecting stamp duty. The delegation of authority from Congress to the Executive under the Taxing Clause has been recognized as a longstanding practice, affording the Executive the power to establish regulations for enforcing the Internal Revenue Code (IRC), including determining the applicability of rulings and regulations. Courts uphold that the IRS has the primary responsibility for interpreting the IRC, while Congress retains the authority to modify IRS rulings and courts review IRS actions. There is no basis for a stricter nondelegation doctrine concerning Congress’s delegation of taxing authority compared to other powers. The court rejected the argument that user fees under Section 7005 should be classified as taxation, asserting that any delegation of authority under the Taxing Clause does not face greater constitutional scrutiny. The court clarified that while Congress may opt for caution in delegating tax authority, this does not impose a constitutional requirement for heightened scrutiny. Prior cases regarding the collection of fees by agencies based on governmental costs and public interest do not contradict this conclusion.
The Federal Communications Commission and the Federal Power Commission attempted to recover their regulatory costs through fees assessed on the parties they regulated. However, it was questioned whether Congress intended for these agencies to recover costs that benefited the public rather than just the regulated entities. The court noted that such fees might be classified as taxes, which could raise constitutional issues under the Taxing Clause. To avoid these issues, the court interpreted the Independent Offices Appropriation Act (IOAA) narrowly, rejecting the agencies' attempts to recover costs for public benefits. In the case of FEA v. Algonquin SNG, Inc., the court clarified that Congress must explicitly indicate its intention to delegate authority to the Executive for imposing fees that are not directly beneficial to regulated parties. In this case, Section 7005 of the HLPSA and NGPSA was found to clearly show Congress's intent to recover administrative costs through assessments on regulated entities, providing sufficient guidelines for such charges. The court ultimately reversed the District Court's decision, finding no unconstitutional delegation of authority.
