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Supreme Court Clarifies Proposition 218 Rules

By: Stephen N. Roberts
07/26/06

As in each new chapter of a good mystery novel, every court decision with respect to the limitations in Proposition 218 (Cal. Const., art. XIII C and XIII D) on how public agencies conduct their financing contains a new twist, but leaves enough ambiguity to keep the reader in suspense about how it will all turn out.  The Supreme Court’s latest decision is no exception: Bighorn-Desert View Water Agency v. Verjil (July 24, 2006) ___Cal.4th___ [S127535]. 

In Bighorn, the Supreme Court has decided that water district fees are subject to being limited or repealed by local initiative measure under Proposition 218, specifically California Constitution, article XIIIC, section 3.  An initiative measure had proposed to cut the water rates and other fees being charged by the water agency, and also required that any future increases be subject to voter approval.  The agency had refused to place the matter on the ballot, asserting that it would have been in violation of the law, largely because the agency was legally required to set rates, and this initiative seemed to undermine that authority.  A trial court and Court of Appeal agreed with that decision, but the Supreme Court agreed in part only.  On the one hand, although not necessary to what became the Court’s ultimate disposition of the case, it found that the proponents could submit an initiative that repealed or limited the water district’s fees and charges.  On the other hand, the Supreme Court ultimately affirmed the agency’s and lower courts’ decisions because it found the initiative’s requirement of subjecting all future rate increases to a vote not to be authorized by Proposition 218.

Prior decisions under Proposition 218 have largely dealt with whether a particular fee or charge was imposed as an "incident of property ownership" under California Constitution article XIII D.  If so, the fee or charge would be subject to the restrictions of that part of Proposition 218 which requires either a majority vote of the property owners or a 2/3 vote of all voters for passage.  (Art. XIII D, §6.)  If a fee were not imposed as an incident of property ownership, then XIII D would be irrelevant.  In Richmond v. Shasta Community Services District (2004) 32 Cal.4th 409, the Supreme Court held two years ago that a fee for new service connections to a domestic water supply was not a fee or charge incident of property ownership under XIII D, although it also said, arguably in dicta, that a fee or charge for ongoing water service was an incident of property ownership.  In contrast, in Bighorn, article XIII C, not D, was at issue, and XIII C does not contain the same dichotomy between fees that are and are not property related.

Article XII C, section 3, provides:

Initiative Power for Local Taxes, Assessments, Fees and Charges.  Notwithstanding any other provision of this Constitution, including, but not limited to, Sections 8 and 9 of Article II, the initiative power shall not be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge.  The power of initiative to affect local taxes, assessments, fees and charges shall be applicable to all local governments and neither the Legislature nor any local government charter shall impose a signature requirement higher than that applicable to statewide statutory initiatives.

Because in XIII C there was no limitation to a fee or charge that was an incident of property ownership, the Supreme Court concluded in Bighorn that the phrase "fee or charge" in XIII C was likely broader than similar language in XIII D—at any rate, it at least included anything that was a fee or charge under XIII D.  The Court declined, as unnecessary, to flesh out further the meaning under XIII C, because the fees or charges at issue in the case were fees or charges under the narrower definitions in XIII D, and therefore were logically included within XIII C.

In reaching its conclusion that the fees or charges were included within the narrower confines of XIII D, the Court considered an agency argument that user fees measured by consumption are not imposed as an incident of property ownership, but rather because of a voluntary decision to consume the water.  Rejecting that argument, the Court said squarely for the first time that a public water agency’s consumption-based fees or charges for ongoing water delivery are fees or charges within the meaning of article XIII D, because they are for a property related service; and it disapproved HJTA v. City of Los Angeles (2000) 85 Cal.App.4th 79, to the extent that prior case was inconsistent with this new decision.

The guidance from the Court about XIII D may have more long term impact than the final result of the case, which was to uphold the District’s decision to refuse to put the matter on the ballot.  That result came about because the initiative measure also required the District to subject any future increases to a vote of the people, and the Court found that nothing in XIII C gave such a power to the initiative process.  Anyway, as to fees or charges that are imposed as an incident of property ownership under XIII D, section 6 of that article already requires that increases, as well as the initial fees or charges themselves, be submitted to repeated votes, so the Bighorn court’s holding in this latter respect may not have a very great impact.

It may surprise some that any fees and charges, or in fact taxes and assessments, are subject to being changed by local initiative.  But that has been the law since Proposition 218’s passage.  It results in the seeming conundrum that such impositions require a 2/3 vote but can be repealed by a simple majority vote.  Presumably repeal would be limited by the Constitutional doctrine forbidding impairment of contract to the extent that the levies have been pledged to bonds or other uses.  But that is a later chapter in the saga.

Stephen N. Roberts is a Partner with Nossaman and has devoted his practice to general business litigation since 1974. The majority of his cases involve transportation, public agency law, real estate, construction and related infrastructure issues.  He can be reached at (415) 438-7213 or sroberts@nossaman.com.

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