Everyone knows California is in a long-term drought. And many know that Governor Brown recently issued an executive order requiring Californians to reduce their water use, and water agencies are tackling the task of making that happen. Many water suppliers either currently have, or are planning on implementing, tiered rates to deal with the water usage cuts. However, the Court of Appeal out of Santa Ana just issued a decision in Capistrano Taxpayers Assoc., Inc. v. City of San Juan Capistrano, that could complicate matters, and may have far-reaching implications on any future use of tiered water rates.
In 2011, the city of San Juan Capistrano adopted a new water rate structure that created four tiered water rates, with substantially higher rates as the water use increases. The Capistrano Taxpayers Association (CTA) filed a lawsuit challenging the tiered rates as violating Proposition 218’s limit on fees that a government agency can charge for services.
The trial court agreed with the CTA and held that the rates were not compliant with Proposition 218.
The Court of Appeal agreed and upheld the trial court’s ruling. The Court of Appeal held that Proposition 218 requires water agencies to justify their tiered rates based on the costs of service for those tiers. Agencies cannot use legislative, discretionary power to attribute percentages of total costs to the various tiers. In addition, the agencies must have evidence to back up their claims that the rates are tied to the costs of service.
So what does that mean for the future of tiered rates? The Court of Appeal specifically stated that tiered rates are not prohibited by Proposition 218. However, if agencies choose to institute tiered rates, they have to do so based on the actual costs of service for those tiers. That means that agencies cannot implement tiered rates as a penalty, and that they must have data, studies, or analysis to back up their tiered rates. If agencies fail to meet their burden, courts appear willing to find their rates illegal, despite the drought or the government’s orders.
If you have any questions about water rates, please contact Greg Woodard at (949) 769-6602.