Court of Appeals Finds that Proposition 218 Applies to Groundwater Charges but Suggests that Regulatory Considerations May Limit Application of Proposition 218

On May 21, 2007, the Sixth Appellate District Court of Appeal issued an opinion on rehearing in Pajaro Valley Water Management Agency v. Amrhein (2007) __ Cal.App.4th __, holding that the Pajaro Valley Water Management Agency's (“Pajaro's”) groundwater augmentation fee is subject to the requirements of Proposition 218 because it is imposed “as an incident of property ownership.” (Cal. Const., Art. XIII D, §§ 2.) In a potentially important discussion of the purpose of Proposition 218, though, the Court suggested that fees designed to manage natural resources (e.g., a groundwater aquifer) may, under the right circumstances, be exempt from Proposition 218.

Background

Pajaro was formed in 1984 to manage groundwater resources in the overdrafted Pajaro basin. To halt seawater intrusion, Pajaro is implementing a plan to purchase water and water rights, and to construct and deliver imported water to coastal areas in lieu of groundwater pumping. The plan is funded partly through a groundwater augmentation fee, with a per-acre charge on groundwater pumping and deliveries of imported water. The fee covers domestic and irrigation uses, and for unmetered systems is based on estimated pumping. In 2003, Pajaro raised the fee without following Proposition 218, which imposes substantive limits on property-related fees and, except for fees for water, sewer, and refuse collection, makes them subject to landowner approval. (Cal. Const., Art. XIII D, § 6.) A lawsuit was filed challenging the fee increase.

The Decision

In Richmond v. Shasta Community Serv. Dist. (2004) 32 Cal.4th 409, the California Supreme Court held that water service connection fees are not an incident of property ownership because they reflect a voluntary decision to start receiving water service. Based on this rationale, many practitioners have believed that fees based on the quantity of water consumed are not subject to Proposition 218 because the amount consumed, and hence the fee charged, results from the property owner's voluntary consumption decisions. In Bighorn-Desert View Water Agency v. Verjil (2006) 39 Cal.4th 205 (Bighorn), however, the Court held: “Once a property owner or resident has paid the connection charges and has become a customer of a public water agency, all charges for water delivery incurred thereafter are charges for a property-related service.” The water in that case was for domestic use.

Based on Bighorn, the Pajaro court felt compelled to hold that the groundwater augmentation fee was imposed as an incident of property ownership. However, the court expressed strong reservations about finding that all water fees other than connection charges are necessarily related to property ownership. In particular, the court cited fees that are set artificially high not to raise revenue but to influence behavior, such as tiered structures that discourage waste and encourage conservation by charging higher rates for anyone who exceeds a maximum monthly quantity. These higher charges apply only to certain users, and thus arguably are not imposed on property ownership as such. The court also questioned whether a fee be properly charged on certain voluntary business uses of the water, such as irrigation, and thereby avoid being imposed as an incident of property ownership. A domestic use, by contrast, would apply to all property owners because domestic uses are cannot be considered voluntary in the same way. These distinctions did not apply to Pajaro's groundwater augmentation fee because the fee was imposed against domestic users and, for unmetered users, was based on estimated rates of consumption.

The Pajaro decision means that groundwater charges for domestic water supplies probably are subject to Proposition 218's requirement prior to an increase in rates. Pajaro also means, though, that groundwater fees imposed in order to manage an aquifer (e.g., as part of an adjudication or as part of a water conservation program) may not be subject to the requirements of Proposition 218. Finally, Pajaro suggests that any type of fee imposed to manage water resources (as opposed to simply for the purpose of generating revenue) may be outside the scope of Proposition 218.

For more information, please contact Downey Brand's lawyers who specialize in Proposition 218 matters: David Aladjem, Jennifer Harder or Joe Schofield at (916) 444-1000.

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Contact us if you have questions or want more information. Please note that the information contained in this article is not intended to provide legal advice. You should consult with an attorney and not rely on any information contained herein regarding your specific situation.