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