December 7, 2017 -- Client Alert: California Supreme Court Holds Groundwater Pumping Charges for Conservation Activities are Not Subject to Proposition 218 and Remands to the Court of Appeal Proposition 26 Constitutionality
On December 4, 2017, the California Supreme Court published its decision in City of San Buenaventura v. United Water Conservation District, holding that the statutorily authorized groundwater pumping charges imposed on the City of Buenaventura by a local water conservation district, the United Water Conservation District, to fund conservation activities such as replenishing groundwater stores and preventing degradation of water supply, are not subject to Proposition 218. The Court also held that Proposition 26 is the proper framework for evaluating the constitutionality of the groundwater pumping charge. The Court also remanded the matter to the Court of Appeal to determine whether the groundwater pumping charges bear a fair or reasonable relationship to the City’s burden on or benefit from the District’s conservation activities, as required by Proposition 26.
California Supreme Court Proceedings
The City of San Buenaventura v. United Water Conservation District case involves a challenge to the United Water Conservation District’s (“District”) groundwater pumping charges imposed on the City of Buenaventura (the “City”). The California Water Code (the “Code”) authorizes water conservation districts to finance their activities by imposing a “ground water charge” on “the production of ground water from all water-producing facilities” within the district. Under the Code, a district may establish different zones for rate setting purposes, but the district must charge a uniform rate for all water pumped for agricultural use and a uniform rate for all water pumped for nonagricultural purposes. The rate for nonagricultural use must be between three to five times the rate for agricultural use. Consistent with these provisions of the Code, the District imposed a volume based charge on groundwater pumping within its territory. The City pumps large quantities of groundwater for delivery to residential customers, and is subject to the higher three-to-one pumping rate for nonagricultural groundwater extractors, pursuant to Code.
The City first argued that the groundwater pumping charges violated article XIII D of the California Constitution (“Proposition 218”). Specifically, the City contended that the groundwater pumping charges it pays to the District are disproportionate to the share of costs of the District’s conservation activities by virtue of the three-to-one ratio. Thus, the City alleged that the District’s groundwater pumping charges violated Proposition 218’s requirement that charges imposed “as an incident of property ownership” do not “exceeded the proportional cost” of the service that is “attributable to the parcel.” Important to the future of groundwater pumping charges, the City argued that the Legislature had already “implicitly concluded” that groundwater pumping charges are property-related charges under Proposition 218 when it enacted the Sustainable Groundwater Management Act (“SGMA”). The Court commented in a footnote that it is unclear if the Legislature intended to express any judgment on the interpretative question before the Court.
The California Supreme Court rejected the City’s first argument. The Court held that the groundwater pumping charges are not property-related pursuant to Proposition 218. The Court maintained that a fee charged for a property-related service is subject to Proposition 218 if it is imposed on a property owner, in his or her capacity as a property owner, to pay for the cost of providing a service to a parcel of property. The Court explained that not all fees associated with obtaining water are property-related fees within the meaning of Proposition 218. Moreover, the District does not “deliver” water “via groundwater” to any particular parcel or set of parcels. Instead, the District conserves and replenishes groundwater that flows through an interconnected series of underground basins that do not correspond to any parcel boundaries. The District manages the basins for the benefit of the public, not merely for the benefit of the owner of the land. Thus, the District’s services are not directed at any particular parcel or set of parcels. When the District fulfills its statutory functions it is not providing a service to the City in its capacity as a property owner of the lands, but rather in the City’s capacity as an extractor of groundwater.
In the alternative, the City argued that the groundwater pumping charges violated article XIII C of the California Constitution (“Proposition 26”), which provides that local government charges are taxes that generally must be approved by voters, unless they are exempt. The City took the position the groundwater pumping charges did not satisfy the criteria for exempt charges and therefore should be considered unapproved taxes imposed in violation of the California Constitution.
Proposition 26 exempts certain categories of exactions from its reach, including certain charges imposed for specific government benefits, privileges, services, or products provided directly to the payor. The local government has the burden of proving that a charge is not a tax, that (1) is no more than necessary to cover the reasonable costs of providing the activity, and (2) the manner in which the costs are allocated bears a fair or reasonable relationship to the benefit to the payor of, or the payor’s burden on, the government activity.
The City did not contest that the groundwater pumping charges are imposed for a government benefit or service. Instead, the City argued that it does not benefit from the District’s activities to the same extent as other pumpers, and that the Code’s three-to-one ratio requires the City to assume a disproportionate share of the fiscal burden of supporting the District’s activities. Thus, the City maintained that the pumping charges violate both requirements of Proposition 26.
The Court of Appeal declared that both requirements were satisfied, holding that groundwater pumping charges were not a tax pursuant to Proposition 26 because in the aggregate they do not exceed the reasonable costs of regulating the District’s groundwater supply. However, the California Supreme Court declared that the Court of Appeal only addressed the first requirement, finding that the Court of Appeal’s aggregate costs analysis did not answer the separate question of whether “the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor’s burden on, or benefits received from, the governmental activity.” Thus, the Court remanded this issue back to the Court of Appeal to determine whether the charges satisfy the second requirement.
Importance and Implications of this Decision
The resolution of this case may have significant impacts on how groundwater pumping charges are implemented and structured in the future, particularly on the manner in which public water service providers will implement and structure groundwater pumping charges authorized pursuant to SGMA.
For further information, please contact Christine Carson or Alondra Espinosa from Aleshire & Wynder, LLP’s Water Practice Group at (949) 223-1170.
Disclaimer: Aleshire & Wynder, LLP legal alerts are not intended as legal advice. Additional facts or future developments may affect subjects contained herein. Please seek legal advice before acting or relying upon any information in this communication.