WASHINGTON -- The Supreme Court on the first day of its 1994-95 term upheld several environmental and tax rulings that have important ramifications for state and local governments.

The court, which refused to review about 1,800 cases, also heard oral arguments in Hess v. Port Authority, Trans-Hudson Corp., a case that is important to states because the justices could set forth general principles for determining whether single or bistate agencies and their subsidiaries are immune from suits in federal court.

In James City County, Va. v EPA, the court let stand a lower court ruling upholding the Environmental Protection Agency's ability under Section 404 of the Clean Water Act to block major public infrastructure projects on environmental grounds.

Virginia's James City County, with the support of the U.S. Army Corps of Engineers, proposed to build a reservoir on Ware Creek to head off water shortages and secure a new public water supply.

The county and the corps found that no practical alternative existed and the reservoir should therefore be built. Under its Section 404 authority, EPA vetoed the corps and dismissed the county's permit application on the basis that a net loss in wetlands would occur. EPA was upheld by the U.S. Court of Appeals for the Fourth Circuit.

In its petition for review to the high court, James City County said the EPA is using its veto power under Section 404 to target large public infrastructure projects undertaken by state and local governments, including water resource, transportation improvement, and municipal waste management projects.

Section 404 guidelines allow issuance of a permit to fill in only those areas deemed the single least damaging alternative, regardless of other public-purpose needs of a project.

A group of public and private entities providing water and road services intervened in the case, saying the Fourth Circuit ruling "gives EPA absolute power to ignore carefully considered public resource objectives underlying many needed public works and infrastructure projects," and it violates basic principles of federalism.

In another environmental case, the high court let stand a ruling by the U.S. Court of Appeals for the Ninth Circuit that held two California agencies liable under the Clean Water Act for actions they took to clean up an abandoned copper and zinc mine.

Idaho and South Dakota intervened in the case, Members of California Regional Water v. Committee to Save Mokelumne River, saying that the Ninth Circuit decision would hurt their efforts to clean up pollution from abandoned properties.

The Appeals Court ruling affects all sites where states may remedy pollution caused by others, but abandoned mines are a national problem and "are particularly difficult to remediate," Idaho and South Dakota said. They said studies show that it will cost states between $32.7 billion and $71.5 billion to clean up about 557,650 abandoned mine sites nationwide.

The case involves the decision of the California Regional Water Quality Control Board, Central Valley Region, and the East Bay Municipal Utility District to clean up continuing pollution at the abandoned Penn Mine through regulatory actions after the owners failed to comply with the agencies' clean-up orders.

The agencies built various structures to control drainage out of the site. But an environmental group, the Committee to Save the Mokelumne River, sued the agencies on grounds that their actions made them owners-operators of the mine and that therefore they must obtain discharge permits under Section 402 of the Clean Water Act.

The Ninth Circuit ruled that the two agencies are liable because the structures they built and operated "collected and channeled" polluted surface runoff containing acid mine drainage into a pollution control facility that is then discharged into navigable waters.

Also yesterday, the high court declined to review Tracy v. MCI, a case in which the Ohio Supreme Court sided with MCI Telecommunications Corp. in a dispute with the Ohio tax commissioner.

The lower court ruling, which will force the state to lower MCI's property tax rate, could cost Ohio $200 million in corporate tax refunds and interest, a sum that was collected at the local level and already spent, the state said.

MCI had complained that Ohio distinguished it from other public utilities for tax purposes but treated it similarly to the other utilities for regulatory purposes, thus denying the company equal protection under the Constitution.

The high court also refused to hear an appeal by Washington, D.C., of a lower court ruling on how the district taxes long-distance telephone companies. The case, Mayor Kelly v. Sprint, involved the district's extension in 1987 of its gross revenue tax covering local utilities to long-distance telephone companies, raising an estimated $18.5 million in potential annual revenue.

A group of 10 phone companies led by Sprint Communications Co. objected to the scheme, saying it was discriminatory. They were upheld by the U.S. Circuit Court of Appeals for the District of Columbia.

In another case, Tom Mistick & Sons Inc. v. Pennsylvania, the justices declined to review a deduction allowed by Pennsylvania for C corporations but not S corporations for federal income taxes in fixing the valuation of capital stock.

And in Schenley Press Inc. v. Maryland Comptroller, the high court let stand a Maryland sales and use tax exemption for daily and weekly newspapers that is not enjoyed by monthly newspapers.

In yesterday's oral argument, Justice Antonin Scalia told an attorney representing two railroad workers that he is "wrong" in arguing that the Port Authority Trans-Hudson Corp., also known as PATH, is not immune from suits in federal court.

Lawrence Katz of Bala Cynwyd, Pa., argued that because PATH, which is a subsidiary of the Port Authority of New York and New Jersey, does not pledge the credit of New York or New Jersey to back its debt or rely on the treasuries of the two states to pay any judgments, it is not a state arm or agency.

Katz represents Albert Hess and Charles Walsh, two railroad employees who sued PATH in federal court on grounds that injuries they received were due to PATH's negligence.

Because the states are not liable for the port authority's revenues or judgments, neither it nor PATH is entitled to sovereign immunity as are the underlying states under the Constitution's 11th Amendment, Katz said.

The New York-New Jersey compact that formed the port authority in 1921 does not show that the states intended for such immunity to exist, and one state cannot act without the other in actions affecting the authority, he said.

But Scalia said "two sovereigns are better than one" in analyzing sovereign immunity. "Why does the fact that two sovereigns are involved eliminate sovereign immunity" for PATH, he asked.

Sovereign immunity depends on the functions that an entity performs, Scalia said. "We would like to see what the function was," agreed Justice Anthony Kennedy.

Welsh said the bistate legislation that created PATH in 1961 established a public purpose for PATH by having it run a public transit system, and it therefore merits the sovereign immunity to which the port authority is entitled as an arm of New York and New Jersey.

The legal and political control of the port authority, and not just its impact on the state treasuries, provides grounds for sovereign immunity of the authority and PATH, Welsh said. In any case, the financial ties between the authority and PATH and the two states is "close," he said. For example, the authority's Surplus revenues are used to support various state projects, he said, although both states must approve the specific uses.

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