CCCA - Proposition 218: Rules, Regulations And Requirements

THE RULES, REGULATIONS AND THE RULES, REGULATIONS AND REQUIREMENTS OF REQUIREMENTS OF

PROPOSITION 218 COMPLIANCEPROPOSITION 218 COMPLIANCE

Patricia Quilizapa – Aleshire & Wynder, LLPPatricia Quilizapa – Aleshire & Wynder, LLPChris Fisher – Wildan Chris Fisher – Wildan

James Ciampa - Lagerlof, Senecal, Gosney James Ciampa - Lagerlof, Senecal, Gosney & Kruse, LLP& Kruse, LLP

California Contract Cities AssociationCalifornia Contract Cities AssociationFall SeminarFall Seminar

October 15, 2011October 15, 201111

Prop. 218 – Intro & BackgroundProp. 218 – Intro & Background

Background – evolution from Prop. 13Background – evolution from Prop. 13

What is Prop. 218?What is Prop. 218?

To whom does Prop. 218 apply?To whom does Prop. 218 apply?

Why should I care about Prop. 218?Why should I care about Prop. 218?

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LEGAL REQUIREMENTSLEGAL REQUIREMENTS

Assessments – Article 13, Section 4Assessments – Article 13, Section 4** Procedural RequirementsProcedural Requirements

1.1. NoticeNotice

2.2. HearingHearing

3.3. Ballot ProcedureBallot Procedure

** Substantive Requirements:Substantive Requirements:

1.1. Engineer’s ReportEngineer’s Report

2.2. Segregation of Special Segregation of Special Benefits Benefits and General Benefitsand General Benefits

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LEGAL REQUIREMENTSLEGAL REQUIREMENTS

Fees & Charges – Article 13, Section 6Fees & Charges – Article 13, Section 6 Procedural RequirementsProcedural Requirements

• 1.1. NoticeNotice• 2.2. HearingHearing• 3.3. No Majority Protest (no ballot)No Majority Protest (no ballot)

Substantive RequirementsSubstantive Requirements• 1.1. ProportionalityProportionality• 2.2. Not Exceed Cost of ServiceNot Exceed Cost of Service• 3.3. Not for General Governmental ServicesNot for General Governmental Services

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OTHER PROP. 218 ISSUESOTHER PROP. 218 ISSUES

Initiative Power under Art. 13C, Sec. 3Initiative Power under Art. 13C, Sec. 3

Burden of Proof ShiftedBurden of Proof Shifted

Statutory ClarificationsStatutory Clarifications Mailing to customer baseMailing to customer base Flow-through rate increases and inflationFlow-through rate increases and inflation

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IntroductionIntroductionChris FisherChris Fisher – Willdan Financial Services: – Willdan Financial Services:

Utility Rate StudiesUtility Rate Studies Water, WastewaterWater, Wastewater

Special District FormationsSpecial District Formations Assessments, CFDs, BIDsAssessments, CFDs, BIDs

User Fee Studies, Cost Allocation PlansUser Fee Studies, Cost Allocation Plans Economic and Fiscal AnalysisEconomic and Fiscal Analysis Impact FeesImpact Fees

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Proposition 218 – Practitioner's PerspectiveProposition 218 – Practitioner's Perspective

Substantive RequirementsSubstantive Requirements Spell out the need to identify special benefitSpell out the need to identify special benefit Outline requirements for utility rates and property Outline requirements for utility rates and property

related feesrelated fees

Procedural RequirementsProcedural Requirements Describes steps that must be followed in order to Describes steps that must be followed in order to

impose assessments, rates, fees, etc.impose assessments, rates, fees, etc.

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Assessment PrinciplesAssessment Principles Must identify and quantify special benefits vs. general benefitsMust identify and quantify special benefits vs. general benefits

Heightened scrutiny of assessments with recent court casesHeightened scrutiny of assessments with recent court cases Develop methodology to apportion specific costs to properties Develop methodology to apportion specific costs to properties

that receive benefitthat receive benefit Methodology based on Methodology based on special benefits special benefits that properties that properties

receive from services and improvementsreceive from services and improvements Assessments must be proportional to benefits receivedAssessments must be proportional to benefits received Assessments must not exceed any parcel’s proportional benefitAssessments must not exceed any parcel’s proportional benefit

Supported by Engineer’s report, simple majoritySupported by Engineer’s report, simple majority General benefit must be identified, quantified and General benefit must be identified, quantified and

excludedexcluded

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Assessments (more from Article XIIID)Assessments (more from Article XIIID) Identify parcels which have a special benefitIdentify parcels which have a special benefit

Particular and distinct benefit over and above general benefits conferred Particular and distinct benefit over and above general benefits conferred on real property located in the district or to the public at large on real property located in the district or to the public at large

General enhancement of property value is General enhancement of property value is not a special benefitnot a special benefit Determine parcels’ proportionate special benefit relative to cost of Determine parcels’ proportionate special benefit relative to cost of

improvements or maintaining and operating improvementsimprovements or maintaining and operating improvements

Assessment may not exceed cost of proportional special benefitAssessment may not exceed cost of proportional special benefit

Be reasonable & justified by engineer's reportBe reasonable & justified by engineer's report Only special benefits are assessable. Costs associated with general Only special benefits are assessable. Costs associated with general

benefit must be paid from other resources of the local agencybenefit must be paid from other resources of the local agency

Recent case law strengthens this requirement – Santa Clara, Beutz, Recent case law strengthens this requirement – Santa Clara, Beutz, West Point, Golden HillWest Point, Golden Hill

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Assessment Notice RequirementsAssessment Notice Requirements 45 day mailed notice to record owner of each parcel45 day mailed notice to record owner of each parcel Hearing notice must also follow statutory provisions under which Hearing notice must also follow statutory provisions under which

assessment is being leviedassessment is being levied Typically mailed at same time as ballotTypically mailed at same time as ballot Notice must contain:Notice must contain:

total assessment for entire assessment district; total assessment for entire assessment district; assessment chargeable on owner’s parcel; assessment chargeable on owner’s parcel; duration of proposed assessment; duration of proposed assessment; reason for assessment; reason for assessment; basis on which amount of proposed assessment was calculated; basis on which amount of proposed assessment was calculated; date, time and place of public hearing; date, time and place of public hearing; summary of voting procedures and effect of majority protestsummary of voting procedures and effect of majority protest

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Assessment Ballot ProvisionsAssessment Ballot Provisions Property owners may express support or opposition to a Property owners may express support or opposition to a

proposed assessment by ballotproposed assessment by ballot Ballots must be returned before conclusion of public hearingBallots must be returned before conclusion of public hearing Ballots may be tabulated at public hearing; or after at Ballots may be tabulated at public hearing; or after at

designated time and placedesignated time and place No assessment imposed if a “majority protest” existsNo assessment imposed if a “majority protest” exists Majority protest exists if ballots submitted in opposition Majority protest exists if ballots submitted in opposition

exceed ballots submitted in favor of assessmentexceed ballots submitted in favor of assessment Weighted according to proportional financial obligationWeighted according to proportional financial obligation

Provisions do not apply to annual renewals (with previously Provisions do not apply to annual renewals (with previously approved inflator)approved inflator)

Provisions do apply when increasing assessmentProvisions do apply when increasing assessment

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Things to consider before ballotingThings to consider before balloting Determine needsDetermine needs

Analyze extent, nature and location of improvementsAnalyze extent, nature and location of improvements Develop thorough budgetDevelop thorough budget Identify long-term service requirements, development potentialIdentify long-term service requirements, development potential Analyze longer term financial needsAnalyze longer term financial needs

Have a clear understanding of benefitHave a clear understanding of benefit Clear nexus between properties and improvements/servicesClear nexus between properties and improvements/services Account for general benefit, develop methodology accordinglyAccount for general benefit, develop methodology accordingly

Clear, concise, easy to understand materialsClear, concise, easy to understand materials Political factors, public perception, values, supportPolitical factors, public perception, values, support

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More considerations…More considerations… Evaluate potential alternativesEvaluate potential alternatives

Level of General Fund subsidyLevel of General Fund subsidy Increase assessments (Including an inflationary Increase assessments (Including an inflationary

formula?)formula?) Reduce the current level of serviceReduce the current level of service Out-source services (contract services)Out-source services (contract services) When re-engineering – possible enhancementsWhen re-engineering – possible enhancements Consider alternative revenue mechanismsConsider alternative revenue mechanisms

• Special Tax, CFDSpecial Tax, CFD

• Consolidation, expansion Consolidation, expansion or re-engineeringor re-engineering

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Things to keep in mindThings to keep in mind Engineer’s reports should account for latest case law – Engineer’s reports should account for latest case law –

reports older than reports older than Silicon Valley Silicon Valley should be rewrittenshould be rewritten

Special/general benefit requirements are more exactingSpecial/general benefit requirements are more exacting Thank you Santa Clara, Beutz, Golden Hill, West PointThank you Santa Clara, Beutz, Golden Hill, West Point

Assessing agencies should allow time for legal review of Assessing agencies should allow time for legal review of engineer’s reportsengineer’s reports

Important for agencies to track legal developments, there Important for agencies to track legal developments, there have been numerous in assessments over past five yearshave been numerous in assessments over past five years

All of above even more critical in assessments for servicesAll of above even more critical in assessments for services

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Proposition 218 and UtilitiesProposition 218 and Utilities Prop. 218 requires mailed notice to property owners of new or Prop. 218 requires mailed notice to property owners of new or

increased property-related fees and means for property owner increased property-related fees and means for property owner rejection of fees via majority protest at public hearingrejection of fees via majority protest at public hearing

Except for sewer, water and refuse collectionExcept for sewer, water and refuse collection services, fees services, fees subject to requirements of article XIIID require majority vote of subject to requirements of article XIIID require majority vote of property ownersproperty owners

Revenues may not be used for any purpose other than that for Revenues may not be used for any purpose other than that for which the fee was imposedwhich the fee was imposed

Revenues may not exceed the funds required to provide serviceRevenues may not exceed the funds required to provide service The amount of the fee may not exceed the proportional cost of The amount of the fee may not exceed the proportional cost of

service attributable to the parcelservice attributable to the parcel

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Procedural Requirements for Utility FeesProcedural Requirements for Utility Fees Identify parcels upon which a fee or charge is proposedIdentify parcels upon which a fee or charge is proposed Calculate amount of the fee to be imposed on each parcelCalculate amount of the fee to be imposed on each parcel Provide written notice by mail to the record owner of each Provide written notice by mail to the record owner of each

identified parcelidentified parcel Conduct public hearing on the proposed fee not less than Conduct public hearing on the proposed fee not less than

45 days after the mailing45 days after the mailing Consider all protests against the proposed fee or chargeConsider all protests against the proposed fee or charge If written protests against the fee are presented by a If written protests against the fee are presented by a

majority of owners of the identified parcels, the fee cannot majority of owners of the identified parcels, the fee cannot be imposedbe imposed

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Overview of Rate SettingOverview of Rate Setting

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Overview of Revenue RequirementsOverview of Revenue Requirements Goal is a comprehensive financial plan and modelGoal is a comprehensive financial plan and model Review or develop budgets and financial projectionsReview or develop budgets and financial projections Project demand for and cost of waterProject demand for and cost of water

Analyze custumer demandAnalyze custumer demand

Review sources and associated costs for waterReview sources and associated costs for water

Incorporate O&M, treatmentIncorporate O&M, treatment Identify capital needs, cost and timingIdentify capital needs, cost and timing Incorporate provision for debt service and bond covenantsIncorporate provision for debt service and bond covenants Incorporate reserve policies and funding levels in modelIncorporate reserve policies and funding levels in model

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Cost of Service AnalysisCost of Service Analysis Distribute revenue requirements based on function:Distribute revenue requirements based on function:

― Fixed vs. Variable – most basic allocationFixed vs. Variable – most basic allocation― Customer Cost – cost associated with individual customers and Customer Cost – cost associated with individual customers and

typically fixedtypically fixed― Special Categories – special classes derived from service, such as Special Categories – special classes derived from service, such as

fire protection costs, recyclingfire protection costs, recycling

• Allocate functional costs to customer classes - (i.e. residential, Allocate functional costs to customer classes - (i.e. residential, commercial, etc) based upon demand characteristicscommercial, etc) based upon demand characteristics

― Volume/Flow Cost – normal delivery of water (includes treatment)Volume/Flow Cost – normal delivery of water (includes treatment)― Peaking Cost – delivery of water during peak conditionsPeaking Cost – delivery of water during peak conditions

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Cost Causation and Cost Causation and Conservation RatesConservation Rates

To justify tiers, costs must be further allocated to To justify tiers, costs must be further allocated to demonstrate cost basis for progressively higher ratesdemonstrate cost basis for progressively higher rates Groundwater vs purchased water vs purchased recycled Groundwater vs purchased water vs purchased recycled

water vs purchased water at penalty rateswater vs purchased water at penalty rates Increasing commodity charge based upon water allocationIncreasing commodity charge based upon water allocation

Goal is to marry intent of AB 2882 (sec 372) with Goal is to marry intent of AB 2882 (sec 372) with intent of Prop 218intent of Prop 218

Palmdale case specifically addressed this issuePalmdale case specifically addressed this issue

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More on AB 2882 (Water Code 372)More on AB 2882 (Water Code 372) Water use must be meteredWater use must be metered Basic allocation of water must be established based Basic allocation of water must be established based

on basic needs and property characteristicson basic needs and property characteristics Water used must be based upon volumetric rate (as Water used must be based upon volumetric rate (as

opposed to fixed rate)opposed to fixed rate) A conservation charge can be imposed on excess useA conservation charge can be imposed on excess use

Also volumetricAlso volumetric Designed to encourage conservation and recover costs of Designed to encourage conservation and recover costs of

conservation measure and overuseconservation measure and overuse

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Conservation RatesConservation Rates Conservation rates are legal under Prop. 218Conservation rates are legal under Prop. 218 AB 2882 (2009) amended Water Code (sections 370 – AB 2882 (2009) amended Water Code (sections 370 –

375) to allow conservation based pricing375) to allow conservation based pricing Must have a clear rationale for the ratios of rate tiersMust have a clear rationale for the ratios of rate tiers Must also have rationale for rates for residential and Must also have rationale for rates for residential and

other customersother customers Rationale must be related to the cost of serviceRationale must be related to the cost of service

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• Rate Design should address the following criteria:Rate Design should address the following criteria: Financial sustainability – minimize volatility of revenueFinancial sustainability – minimize volatility of revenue Equitable to all customer classes, and customers within classesEquitable to all customer classes, and customers within classes Environmental soundness –reflect resource scarcityEnvironmental soundness –reflect resource scarcity Administrative ease - easy to administer and simple to explainAdministrative ease - easy to administer and simple to explain

Fixed Charge:Fixed Charge: With no demand - still inherent operating costsWith no demand - still inherent operating costs CUWCC BMP targets 30% for fixed chargeCUWCC BMP targets 30% for fixed charge

Consumption charge (three basic types for water):Consumption charge (three basic types for water): Decreasing blockDecreasing block Uniform blockUniform block Increasing block, tiers, budget-based ratesIncreasing block, tiers, budget-based rates

Rate designRate design

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SUBSEQUENT PROP. 218 SUBSEQUENT PROP. 218 DEVELOPMENTSDEVELOPMENTS

Initially, cases supported the conclusion Initially, cases supported the conclusion that Prop. 218 was not applicable to water that Prop. 218 was not applicable to water ratesrates Water charges based on the amount Water charges based on the amount

consumed consumed Not levied as an incident of property Not levied as an incident of property

ownershipownership

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CASE DEVELOPMENTSCASE DEVELOPMENTS

2000 – 2000 – HJTA v. City of L.A. HJTA v. City of L.A. (Court of (Court of Appeal decision) Appeal decision) Challenge to water rates charged by L.A.Challenge to water rates charged by L.A. Court: “The charges for water service are Court: “The charges for water service are

based primarily on the amount consumed, based primarily on the amount consumed, and are not incident to or directly related to and are not incident to or directly related to property ownership.”property ownership.”

Court rejected HJTA’s challengeCourt rejected HJTA’s challenge

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2001 – 2001 – Apartment Association of Los Angeles County, Apartment Association of Los Angeles County, Inc. v. City of L.A. Inc. v. City of L.A. (Cal. Supreme Court decision)(Cal. Supreme Court decision) Challenge to inspection fee imposed by City of L.A. Challenge to inspection fee imposed by City of L.A.

on landlordson landlords In depth review of origins of Prop. 218 and its In depth review of origins of Prop. 218 and its

relationship to Prop. 13relationship to Prop. 13 Court’s conclusion: Prop. 218 only applies to a fee or Court’s conclusion: Prop. 218 only applies to a fee or

charge charge “levied solely by virtue of property “levied solely by virtue of property ownership.”ownership.”

The inspection fee was not subject to Prop. 218 The inspection fee was not subject to Prop. 218 because it was levied on landlords by reason of their because it was levied on landlords by reason of their renting of their property; not just their ownership.renting of their property; not just their ownership.

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2002 - 2002 - HJTA v. City of Roseville HJTA v. City of Roseville Challenge to City of Roseville’s flat Challenge to City of Roseville’s flat

percentage in-lieu franchise fee charged to percentage in-lieu franchise fee charged to City utilitiesCity utilities

The Court of Appeal invalidated that fee – no The Court of Appeal invalidated that fee – no data for City’s costs incurred as a result of the data for City’s costs incurred as a result of the utilities; the fee was just an arbitrary utilities; the fee was just an arbitrary percentage the City selectedpercentage the City selected

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2004 – 2004 – HJTA v. City of San DiegoHJTA v. City of San Diego San Diego initiative that sought to impose San Diego initiative that sought to impose

heightened voter approval requirement on heightened voter approval requirement on general taxesgeneral taxes

Prop. 218 (Art. 13C, Sec. 2(b)) requires only a Prop. 218 (Art. 13C, Sec. 2(b)) requires only a majority vote to enact a general taxmajority vote to enact a general tax

Court rules that Prop. 218 preempts (i.e., Court rules that Prop. 218 preempts (i.e., controls over) any local initiative that would controls over) any local initiative that would attempt to enact a higher vote requirementattempt to enact a higher vote requirement

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2004 – 2004 – Richmond v. Shasta Community Richmond v. Shasta Community Services District Services District (Cal. Supreme Court)(Cal. Supreme Court)

• Signals shift in Supreme Court’s view of and Signals shift in Supreme Court’s view of and application of Prop. 218application of Prop. 218

• Challenge to a CSD water connection chargeChallenge to a CSD water connection charge• Mixed bag:Mixed bag:

• Good: connection charges NOT subject Good: connection charges NOT subject • Bad: in dicta, the Court stated that a fee for ongoing Bad: in dicta, the Court stated that a fee for ongoing

water service through an existing connection is water service through an existing connection is subject to Prop. 218subject to Prop. 218

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CASE DEVELOPMENTSCASE DEVELOPMENTS 2006 – 2006 – Bighorn Desert-View Water Agency v. Bighorn Desert-View Water Agency v.

Verjil Verjil (Cal. Supreme Court)(Cal. Supreme Court)

Everything changed with Bighorn!!!Everything changed with Bighorn!!! Background: local voter initiative to reduce rates and Background: local voter initiative to reduce rates and

to subject future increases to voter approval to subject future increases to voter approval requirementrequirement

Victory for the Agency at trial court and Court of Victory for the Agency at trial court and Court of AppealAppeal

California Supreme Court – actually affirmed the California Supreme Court – actually affirmed the Court of Appeal, but . . . .Court of Appeal, but . . . .

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BIGHORN IMPACTSBIGHORN IMPACTS

Reduction of water rates - water service Reduction of water rates - water service determined to be a property-related charge that determined to be a property-related charge that is provided as an incident of property ownership; is provided as an incident of property ownership; thus, water rates are subject to the notice, thus, water rates are subject to the notice, hearing and majority protest requirements.hearing and majority protest requirements.

Open issue with respect to a voter initiative to Open issue with respect to a voter initiative to reduce rates to a level below ability to operate reduce rates to a level below ability to operate systemsystem

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2008 – 2008 – Silicon Valley Taxpayers Assn. v. Silicon Valley Taxpayers Assn. v. Santa Clara County Open Space Authority Santa Clara County Open Space Authority (Cal. Supreme Court)(Cal. Supreme Court) Challenge to flat rate assessment imposed on all Challenge to flat rate assessment imposed on all

parcels, regardless of locationparcels, regardless of location Assessment held to violate Prop. 218 because Assessment held to violate Prop. 218 because

inadequate segregation of special benefits provided to inadequate segregation of special benefits provided to specific parcels specific parcels

Supreme Court used independent judgment test; no Supreme Court used independent judgment test; no deference given to local agency revenue decisionsdeference given to local agency revenue decisions

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2009 – 2009 – Dahms v. Downtown Pomona Property & Dahms v. Downtown Pomona Property & Business Improvement DistrictBusiness Improvement District

Challenge to assessments imposed in a business Challenge to assessments imposed in a business improvement districtimprovement district

Assessments to non-profit entities were discountedAssessments to non-profit entities were discounted

Court held that discounts are permissible so long as Court held that discounts are permissible so long as other properties do not fund them through payment of other properties do not fund them through payment of higher assessmentshigher assessments

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2009 – 2009 – Town of Tiburon v.Town of Tiburon v. BonanderBonander

Court clarified that all properties that receive Court clarified that all properties that receive any special benefit from the project being any special benefit from the project being funded by the assessments must be included funded by the assessments must be included in the assessment districtin the assessment district

Prop. 218 proportionality = value of the Prop. 218 proportionality = value of the special benefit; not cost of the improvement.special benefit; not cost of the improvement.

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2010 – 2010 – Greene v. Marin County Flood Control Greene v. Marin County Flood Control District District (Cal. Supreme Court)(Cal. Supreme Court) Challenge to a new storm drainage feeChallenge to a new storm drainage fee

Storm drainage fee not exempt from voter approval Storm drainage fee not exempt from voter approval requirement under Prop. 218requirement under Prop. 218

Challenge to non-secret ballot used in the voter Challenge to non-secret ballot used in the voter approval electionapproval election

Prop. 218 election is not an “election” to which secret Prop. 218 election is not an “election” to which secret ballot requirement appliesballot requirement applies

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2011 – 2011 – California Farm Bureau v. State California Farm Bureau v. State Water Resources Control Board Water Resources Control Board (Cal. (Cal. Supreme Court)Supreme Court) Challenge to SWRCB water rights feesChallenge to SWRCB water rights fees Important issue as to Prop. 218 is Court’s Important issue as to Prop. 218 is Court’s

statement that proportionality is to be statement that proportionality is to be measured by the costs to all ratepayers measured by the costs to all ratepayers collectivelycollectively

Uncertainty as to future applicationUncertainty as to future application

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CASE DEVELOPMENTSCASE DEVELOPMENTS 2011 – 2011 – City of Palmdale v. Palmdale City of Palmdale v. Palmdale

Water DistrictWater District District adopted water budget rate structureDistrict adopted water budget rate structure Different tier widths among its three customer Different tier widths among its three customer

classes; irrigation class had narrowest tiersclasses; irrigation class had narrowest tiers City challenged the District’s compliance with City challenged the District’s compliance with

Prop. 218, both procedurally and on Prop. 218, both procedurally and on proportionalityproportionality

Court ruled District did not meet its burden in Court ruled District did not meet its burden in having increased cost justification in the having increased cost justification in the record for the difference in tier widthsrecord for the difference in tier widths

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GROUNDWATER CHARGESGROUNDWATER CHARGES Pajaro Valley Water Management Agency v. Pajaro Valley Water Management Agency v.

AmrheinAmrhein• Involved groundwater augmentation fee imposed Involved groundwater augmentation fee imposed

primarily on persons who used the water produced primarily on persons who used the water produced on their own landon their own land

• Initial decision, issued while Initial decision, issued while BighornBighorn decision was decision was pending, was Prop. 218 was NOT applicable to the pending, was Prop. 218 was NOT applicable to the groundwater chargegroundwater charge

• After After Bighorn, Bighorn, court granted rehearing and changed court granted rehearing and changed its mind, holding Prop. 218 was applicableits mind, holding Prop. 218 was applicable

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Pajaro Pajaro (continued)(continued)

The court based its decision largely on the The court based its decision largely on the fact that the overlying well owners fact that the overlying well owners possessed special rights to the reasonable possessed special rights to the reasonable use of groundwater under their land and use of groundwater under their land and those rights were appurtenant to the landthose rights were appurtenant to the land

The court found such use was more The court found such use was more intimately connected with property intimately connected with property ownership than just receiving water ownership than just receiving water service, as in service, as in BighornBighorn

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Pajaro – Pajaro – What’s Next?What’s Next?

Pending Appeal – Pending Appeal – Great Oaks Water Great Oaks Water Company v. Santa Clara Valley Water Company v. Santa Clara Valley Water DistrictDistrict 2010 – trial court upheld Great Oaks’ 2010 – trial court upheld Great Oaks’

challenge to the District’s groundwater challenge to the District’s groundwater charge, which was imposed primarily on retail charge, which was imposed primarily on retail water producerswater producers

Pending appeal will, in part, likely determine Pending appeal will, in part, likely determine how broadly how broadly Pajaro Pajaro will applywill apply

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PENDING TRIAL CASEPENDING TRIAL CASE

L. A. Superior Court – numerous cases now L. A. Superior Court – numerous cases now pending; initial case: pending; initial case: Cities of Cerritos, Cities of Cerritos, Downey & Signal Hill v. Water Downey & Signal Hill v. Water Replenishment District of Southern CaliforniaReplenishment District of Southern California

• Primarily based on Primarily based on Pajaro, Pajaro, the court decision in April the court decision in April ruled that Prop. 218 applied to WRD’s replenishment ruled that Prop. 218 applied to WRD’s replenishment assessmentsassessments

• Court’s decision not yet final and in effect Court’s decision not yet final and in effect • Status – determination of what, if any, refunds are Status – determination of what, if any, refunds are

owed to the Cities is pending; Feb. 2012 trial date owed to the Cities is pending; Feb. 2012 trial date

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CONSTITUTIONAL ADDITIONCONSTITUTIONAL ADDITION Proposition 26 adopted in November 2010Proposition 26 adopted in November 2010

““Tax” now encompasses “any levy, charge or Tax” now encompasses “any levy, charge or exaction of any kind proposed by a local exaction of any kind proposed by a local government.” [Article 13C, Section 1(e)]government.” [Article 13C, Section 1(e)]

Seven possible exceptionsSeven possible exceptions• Benefit conferred or privilege granted - charge can’t exceed Benefit conferred or privilege granted - charge can’t exceed

reasonable cost of providingreasonable cost of providing• Service or product provided – charge can’t exceed reasonable Service or product provided – charge can’t exceed reasonable

cost of providingcost of providing• Regulatory costs for issuing licenses, etc.Regulatory costs for issuing licenses, etc.• Entrance or lease of local gov’t propertyEntrance or lease of local gov’t property• Fines, penalties, etc. for violating the lawFines, penalties, etc. for violating the law• Property development chargesProperty development charges• Prop. 218 assessments and property-related feesProp. 218 assessments and property-related fees

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Recent LegislationRecent Legislation Govt. Code § 53755Govt. Code § 53755 – effective Jan. 1, 2008 – effective Jan. 1, 2008

Authorizes notice of a proposed rate increase to be Authorizes notice of a proposed rate increase to be given by including with regular billing statementgiven by including with regular billing statement

BUT, if the agency desires to preserve its ability to BUT, if the agency desires to preserve its ability to lien the parcel to which service is provided, it must lien the parcel to which service is provided, it must also mail notice to the record owner at the address also mail notice to the record owner at the address shown on assessment rollshown on assessment roll

Clarifies only one protest per parcelClarifies only one protest per parcel

Attempt for one year statute of limitations rejectedAttempt for one year statute of limitations rejected

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Recent LegislationRecent Legislation Govt. Code § 53756 – Govt. Code § 53756 – effective Jan. 1, 2009 effective Jan. 1, 2009

Allows non-voter-approved inflation adjustments and Allows non-voter-approved inflation adjustments and wholesale rate pass-throughs, but they must be approved wholesale rate pass-throughs, but they must be approved by the Board at a public hearing and no majority protestby the Board at a public hearing and no majority protest

5 year limit; then must hold new protest hearing5 year limit; then must hold new protest hearing

The formula for inflation must be clearly defined and cannot The formula for inflation must be clearly defined and cannot exceed the cost of providing the serviceexceed the cost of providing the service

Must give at least 30 days’ notice prior to adjustment taking Must give at least 30 days’ notice prior to adjustment taking effect (can do this via bill insert)effect (can do this via bill insert)

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Recent LegislationRecent Legislation Water Code §§ 370 et seq. - Water Code §§ 370 et seq. - effective Jan. 1, 2009effective Jan. 1, 2009

Specific legislative intent not to limit the design of rate Specific legislative intent not to limit the design of rate structures to be used to promote water conservationstructures to be used to promote water conservation

Authorizes “allocation-based conversation water Authorizes “allocation-based conversation water pricing”pricing”

Legislature’s declaration that such pricing is an Legislature’s declaration that such pricing is an effective means to prevent unreasonable waste of effective means to prevent unreasonable waste of water and increase efficient use of waterwater and increase efficient use of water

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Water Code Sections 370 et seq.Water Code Sections 370 et seq.

How it works:How it works: Establish basic use allocation for each customer’s Establish basic use allocation for each customer’s

needs and property characteristicsneeds and property characteristics Basic charge applies to water used within the basic Basic charge applies to water used within the basic

use allocationuse allocation Conservation charge applies to use in excess of the Conservation charge applies to use in excess of the

basic use allocationbasic use allocation Conservation charge determined by the “incremental Conservation charge determined by the “incremental

costs,” but “incremental costs” + “basic costs” cannot costs,” but “incremental costs” + “basic costs” cannot exceed the reasonable cost of water serviceexceed the reasonable cost of water service

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Water Code Sections 370 et seq.Water Code Sections 370 et seq.

Incremental Costs can include:Incremental Costs can include: Conservation devices & conservation BMPsConservation devices & conservation BMPs Water system retrofitting, dual plumbing Water system retrofitting, dual plumbing

facilities; recycled water usesfacilities; recycled water uses Securing dry-year water suppliesSecuring dry-year water supplies Runoff prevention programsRunoff prevention programs Procuring water supplies to satisfy demands Procuring water supplies to satisfy demands

in excess of the basic use allocations, in excess of the basic use allocations, including water rights or entitlements and including water rights or entitlements and related energy costsrelated energy costs

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THE FUTURE . . .THE FUTURE . . .

Groundwater FeesGroundwater Fees

Initiatives – resulting in sufficient revenuesInitiatives – resulting in sufficient revenues

Refund IssuesRefund Issues

Water Conservation IssuesWater Conservation Issues

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TRIAL COURTS APPLY PROP.218 TO TRIAL COURTS APPLY PROP.218 TO GROUNDWATER EXTRACTION FEESGROUNDWATER EXTRACTION FEES

City of Cerritos, et al. v. WRDFinal Order on Writ of Mandate – Trial on Refund in February 2012

Great Oaks Water Co. v. Santa Clara Valley Water Dist.Final Judgment re: Refund of Groundwater Extraction Fees

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TRIAL COURTS APPLY PROP.218 TO TRIAL COURTS APPLY PROP.218 TO GROUNDWATER EXTRACTION FEESGROUNDWATER EXTRACTION FEES

Excerpt from April 25, 2011 Hearing – Excerpt from April 25, 2011 Hearing – Judge Chalfant:Judge Chalfant:

““I can’t issue the writ until there’s a final I can’t issue the writ until there’s a final judgment; that means no writ until your judgment; that means no writ until your damages case is over. You understand that damages case is over. You understand that I will have made a ruling here, but there is I will have made a ruling here, but there is no writ; they don’t have to do anything until no writ; they don’t have to do anything until there’s a judgment in the case.”there’s a judgment in the case.”

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CCCA - Proposition 218: Rules, Regulations And Requirements

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Transcript of CCCA - Proposition 218: Rules, Regulations And Requirements