Bighorn-Desert View Water Agency v. Verjil, (July 24, 2006, S127535) __ Cal.4th __
On July 24, the California Supreme Court unanimously held that the initiative power reserved to the voters by Article XIII C of the California Constitution permits use of an initiative to reduce or repeal water delivery charges, and suggested that this initiative power extends to all local government levies that are ordinarily understood to be fees or charges. However, the Court also held that XIII C does not permit such initiatives to require voter approval of future increases in those charges, and invalidated the particular initiative proposal on this basis. The Court’s decision acknowledged concerns that recognition of the right of local voters to repeal or reduce governmental fees by initiative may result in fiscally irresponsible actions by voters, but invoked the presumption that governing boards and their voters will act reasonably and in good faith to reach financially and legally sound compromises on fee-setting actions.
Articles XIII C and XIII D were added to the California Constitution by Proposition 218 in 1996, setting out guidelines for voter participation regarding local taxes, assessments, fees, or charges. Article XIII C states that “the initiative power shall not be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge.” Article XIII D states that property-related fees and charges may not be imposed or increased without prior voter approval, except for sewer, water, and refuse service charges.
Voters in San Bernardino County qualified an initiative to 1) reduce the Big Horn-Desert View Water Agency’s water delivery rates and other fees, and 2) require that any future increase in those rates or creation of new fees be submitted for voter approval before enactment. The Water Agency refused to submit the initiative to the voters or to adopt the initiative, and filed a complaint for declaratory relief. The Agency contended that the initiative would interfere with the Agency’s statutory duty to set water rates at a sufficient level to pay the operating expenses of the agency. The defendant answered that the initiative was protected by Article XIII C, and the parties agreed that the case could be resolved as a question of law.
Both the San Bernardino County Superior Court and the Court of Appeal for the Fourth Appellate District agreed with the Water Agency that the initiative was invalid. The lower courts rejected the claim that Article XIII C permitted the use of the initiative power to limit fees or charges, believing that Article XIII C applied only to “general and special taxes,” not “fees and charges.”
The Supreme Court remanded the case to the Court of Appeal for reconsideration in light of Richmond v. Shasta Community Services Dist. (2004), 32 Cal.4th 409. In Richmond, the Supreme Court had addressed the scope of Article XIII D’s requirement of voter approval for new “fees and charges” and whether it applied to certain fees or charges for new water connections. The Court held in Richmond that Article XIII D only required voter approval of “fees or charges” as explicitly defined, i.e., fees or charges “imposed as an incident of property ownership, including a user fee or charge for a service.” The Court held that while some types water service charges may be “property-related fees or charges” within the meaning of Article XIII D, the water connection charges at issue there were not. Such connection charges were not imposed as “an incident of property ownership,” but rather as a result of the voluntary decision to request a water connection.
On remand, the appellate court reaffirmed its initial ruling that Article XIII C did not apply other than in cases of general or special taxes, and thus did not authorize use of the initiative power to limit fees or charges, notwithstanding the decision in Richmond. The California Supreme Court again reversed the appellate court. The Supreme Court explained that the lower court had erred by assuming that Article XIII C only applies to general and special taxes. The Court pointed out that, to the contrary, Article XIII C expressly states that the initiative power cannot be limited where it proposes to reduce or repeal “any local tax, assessment, fee or charge….” The Court held that language had to be interpreted to include “all levies that are ordinarily understood to be fees or charges.”
In reaching this conclusion, the Court drew a distinction between the broad language in Article XIII C and the more limited language in Article XIII D (fees or charges “imposed as an incident of property ownership”). The broader language in Article XIII C included fees and charges that under Article XIII D and the Court’s Richmond decision would not be considered “fees” because they were not property-related. The Court thus concluded that while only property-related fees require voter approval under Article XIII D, Article XIII C’s grant of the initiative power extends to a much broader array of fees and charges, including water delivery charges.
Nevertheless, the Court ultimately held that this particular initiative was invalid, even though within the scope of Article XIII C. The Court held that nothing in that Article would authorize an initiative to require the Agency’s Board to submit future proposals for rate increases for prior voter approval. Since no other authority was suggested, the Court held that the “exclusive delegation rule” would appear to apply to bar initiative measures that infringe on the delegated power of the governing board to set rates. The Court observed that even Article XIII D expressly exempts sewer, water, and refuse collection fees from its requirement of voter approval for taxes, assessments, and property-related fees or charges. This invalid aspect of the initiative doomed the entire initiative as written.
The Court acknowledged the Agency’s concerns regarding the possibilities of irresponsible use of the initiative power in setting water rates too low to maintain fiscal obligations, and recognized that allowing voters to repeal or reduce charges for water service by initiative had the “potential for conflict” with the governing board’s judgments. The Court observed that the initiative power, though constitutionally available to reduce local government fees and charges under Proposition 218, is not unfettered, although the Court declined to decide the effect, if any, of a statutory provision requiring that water rates be set at a sufficient level to pay the operating expenses and bonded indebtedness of the agency.
For more information please contact Dave Lanferman and Misti Schmidt. Dave Lanferman is a member of the Real Estate, Land Use and Environmental Practice Group in the firm’s San Francisco office. Misti Schmidt is an associate in the Real Estate, Land Use and Environmental Practice Group in the firm’s San Francisco Office.