Appellate Court Strikes Down Capistrano Tiered Rates; Governor Issues Angry Statement

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On Monday, an appellate court struck down Capistrano’s Tiered-Rate System, a case that was being watched closely locally, when the city of Davis was developing its rate structure. But the decision in Capistrano Taxpayers Association vs. City of San Juan Capistrano now has much broader implications than just Davis’ water rate system.

Governor Jerry Brown views it as a huge setback to his efforts to cut back on water consumption by 25 percent in urban usage.

“The practical effect of the court’s decision is to put a straitjacket on local government at a time when maximum flexibility is needed,” the governor said in a release late on Monday. “My policy is and will continue to be: employ every method possible to ensure water is conserved across California.”

The ruling states, “We conclude the trial court erred in holding that Proposition 218 does not allow public water agencies to pass on to their customers the capital costs of improvements to provide additional increments of water – such as building a recycling plant.”

However, the appellate court adds, “The trial court did not err in ruling that Proposition 218 requires public water agencies to calculate the actual costs of providing water at various levels of usage.”

In language that should be familiar, the court notes that Article XIII D, section 6, subdivision (b)(3) “of the California Constitution, as interpreted by our Supreme Court in Bighorn-Desert View Water Agency v. Verjil (2006) 39 Cal.4th 205, 226 (Bighorn) provides that water rates must reflect the ‘cost of service attributable’ to a given parcel.”

He writes, “While tiered, or inclined rates that go up progressively in relation to usage are perfectly consonant with article XIII D, section 6, subdivision (b)(3) and Bighorn, the tiers must still correspond to the actual cost of providing service at a given level of usage.”

In this case, the water agency failed to “calculate the cost of actually providing water at its various tier levels. It merely allocated all its costs among the price tier levels, based not on costs, but on pre-determined usage budgets.”

As such, the three judge appellate court unanimously ruled that “the trial court correctly determined the agency had failed to carry the burden imposed on it by another part of Proposition 218.”

This was a central argument raised in Davis. However, Judge Dan Maguire in 2014 ruled that the city adhered to Prop. 218 requirements on the proportionality of cost.

Judge Maguire noted in his final ruling that the relevant portion of Proposition 218 provides that “[t]he amount of fee or charge imposed upon any parcel or person as an incident of property ownership shall not exceed the proportional cost of the service attributable to the parcel.”

He wrote, “At first blush, this provision would appear to require the City to show, on a parcel-by-parceI6 basis, that its rates are proportional to the costs for that parcel, since the provision refers to the ‘proportional cost of the service attributable to the parcel.’”

However, “But the Court of Appeal has rejected this interpretation, and found instead that ‘proportionality is not measured on an individual basis,’ but instead is ‘measured collectively, considering all rate payers.’”

Thus, as the city argues, proportionality is established by “grouping similar users together” and “then charging members of the group according to their usage.”

Judge Maguire’s ruling was essentially rendered null and void later in 2014. The voters in June invalidated the rates by passing Measure P. The council would then create a new rate structure that ultimately all sides agreed to.

However, with the drought, the issue at the state level has shifted to statewide conservation efforts and, while this ruling no longer is germane to Davis municipal water issues, at the statewide level, things are vastly different.

As the Bee reports this morning, “Tim Quinn, executive director of the Association of California Water Agencies, called the ruling a potentially major blow to water conservation efforts in California. Quinn said two-thirds of urban water agencies in the state use some form of tiered or block pricing, mainly as a way of encouraging users to refrain from overusing water.”

However, Benjamin Benumof, an attorney for taxpayer advocates who filed the lawsuit, argued that promoting water savings while meeting the court’s standards should not be in conflict. Instead, he told the Bee that the court “simply invalidated arbitrary tiered rates.”

He added, “There are lots of ways to conserve, and if anything, (the ruling) provides a better road map for governments to become compliant and have a real conservation program that attains real conservation goals.”

The appellate court ruling would seem to back that view. The judges wrote, “Neither the voters nor the Constitution say anything we can find that would prohibit tiered pricing.”

However, “The tiers must be based on usage, not budgets.”

Meanwhile, filing an Amicus Curiae here was Best, Best & Krieger, with Kelly Salt representing the Association of California Water Agencies, League of California Cities and California State Association of Counties.

Best, Best & Krieger employs Davis City Attorney Harriet Steiner and the city frequently called on Kelly Salt to advise during water rate discussion.

She told the Bee that the ruling could be sufficiently narrow to allow agencies to maintain tiered rates.

The Bee reports, “She said the court ruled that the city of San Juan Capistrano did not do enough to show that its pricing structure is based on the cost to the the city to provide water, but some other water agencies may feel that they can show, if challenged, their pricing structure meets Proposition 218’s ‘nexus’ requirements.”

“It’s hard to say at this point,” she said. “The court didn’t provide a great deal of guidance.”

“Many water agencies may feel they already meet the standard stated in the courts opinion. Others may want to take a second look” at their pricing structure, she said. Ms. Salt added: “It is unfortunate that this decision came down during the worst drought in California history.”

The governor’s office is now reviewing the ruling by the Fourth Appellate District Judge. They are encouraging Californians to continue conservation efforts despite this ruling.

—David M. Greenwald reporting

About The Author

David Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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4 thoughts on “Appellate Court Strikes Down Capistrano Tiered Rates; Governor Issues Angry Statement”

  1. Davis Progressive

    which leads us to the question – there have been stories that the state has given away more in water rights than there is water – in a normal year – so if that’s the case, did we just spend all of this money on the water project and have no ability to gain water from it?

    1. Don Shor

      there have been stories that the state has given away more in water rights than there is water

      Yes, far more. But that isn’t really an issue. People who hold water rights know that they are conditional on water supply. Water deliveries to water districts are based on available supply, in the sequence of ‘seniority’ of those rights. For everybody to get 100%, it would probably have to be a flood year (remember those? Probably coming again soon…).Thanks to Mayor Krovoza and other local officials in 2012, Davis has water rights at two levels, including senior rights. That was quite a coup, actually, to get those.

    2. paul Brady

      That is a valid point, and we raised it often, arguing that our deep aquifer, the huge reservoir of Tehama formations, was all we needed.  Even today the DWR monitoring wells show that this aquifer is more than 90% full.  The formations are as deep as 2500 feet under Davis although our 5 or 6[?] deep wells only go to around ~1800 feet, I recall.  The formations rise as one goes up the valley and surface – are exposed – over several million acres in Tehama and surrounding counties. Red Bluff is sort of the center of it all.  They get more rain, on  average, and did so this year, surpassing our ~16 inches.  The Sacramento Valley is a huge watershed – close to 150 million Af it looks like.

      The point is, we are sticking our straws [wells] into the bottom of a huge “tank” or reservoir of water, and few other agencies are.  We take about 12,000 acre-ft, UCD maybe 4000 Af.   Dixon, Vacaville and Sacramento are taking amounts in that range, totalling maybe 100,000 Af.   Surface water from rivers, creeks, canals and reservoirs is available and less hard, and used for most of Sac, etc. The deep  aquifer Tehama formations hold close to 50 million Af, I estimate, based on my geophysical training and work in the oil business.

      The City did not have a very thorough study done at the time, and told the voters that we were “mining” this deep aquifer/reservoir, ie, that it was not being recharged and of limited life [capacity], and that we needed the river  water.  We were also told the latter would be better for the waste-water plant.  Now we learn we are up-grading that plant and deep-aquifer water , or even the intermediate well water now mixed with the deep water would have been OK!

      I think we do have to be thankful to the City staff and Council that the deep aquifer was tapped with the more expensive deep wells!   It was always planned that they would supplement the river water in the summer; now we know it may have to be used as the mains supply!

       

       

  2. Napoleon Pig IV

    Good to see the State harbors at least one intelligent, thoughtful, and honest judge. Politicians and pigs love capricious, unconstrained, vague, and opaque – whether at the national, state or local level. Let’s hear it for rational and transparent. Oink!

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