California Supreme Court Confirms Certain Groundwater Pumping Charges are Outside Scope of Prop 218

December 4, 2017

On December 4, the California Supreme Court ruled that groundwater pumping charges levied to fund a basin-wide conservation and management program were not property-related fees subject to Proposition 218.  The decision, City of San Buenaventura v. United Water Conservation District (Cal. Supreme Court Case No. S226036), will reverberate through water management and public agency circles for years to come.

Monday’s decision arose out of a long-running dispute over pumping charges levied by United Water Conservation District as to well pumpers within its territory, including the City of San Buenaventura. The City argued that the District’s volumetric pumping charges, which were substantially higher for non-agricultural users and which were directed toward funding the District’s groundwater conservation and replenishment programs, were inconsistent with Proposition 218.  In the City’s view, the fees were property-related charges that failed to comply with the procedural and substantive requirements of California Constitution, Article XIII D. The City further argued that even if these fees were not property-related charges subject to Article XIII D, the District had not demonstrated that such fees, in this case, bore a reasonable relationship to the benefits received by the payors (a requirement of Article XIII C).

The Supreme Court granted review of the case in 2015.  In its long-awaited decision, a unanimous Court concluded that the District’s groundwater charges were not property-related fees under Proposition 218.  As to the question of whether the relationship between charges and benefits was appropriately allocated among the payors, the case was remanded to the lower court for further discussion and analysis. 

Pumping Charges Funding Groundwater Management Programs Are Not Property-Based Fees

The Supreme Court reasoned that the critical question before it was whether a charge for the District’s conservation and management services qualifies as a “charge for a property related service” pursuant to Proposition 218.  Article XIII D of the California Constitution, adopted as part of Proposition 218, provides that  no fee or charge may be assessed “as an incident of property ownership” except those property-related fees that satisfy the substantive and procedural requirements of Article XIII D. Reviewing past decisions on this question, the Supreme Court distilled the current state of the law as follows:  A fee is charged for a “property-related service,” and is thus subject to Article XIII D, if it is imposed on a property owner, in his or her capacity as a property owner, to pay for the costs of providing a service to a parcel or property.

While acknowledging that water is “indispensable to most uses of real property,” the Court cautioned that not all fees associated with obtaining water are property-related fees within the meaning of Article XIII D.  Here, the challenged fees were associated with groundwater production from particular parcels, based on usage classifications, but funded a basin-wide program of groundwater replenishment and management.  The Court noted in particular that the District conserves and replenishes groundwater in a series of interconnected series of underground basins, none of which corresponds with parcel boundaries, for the benefit of all of the public that relies on groundwater supplies.

In light of that, the Court reasoned, the District performed its service not “in its capacity as the owner of the lands” on which its wells are located, but “in its capacity as an extractor of groundwater from stores that are managed for the benefit of the public.” (emphasis added).  Given that relationship, the pumping charges were not an incident of property ownership under Proposition 218 and were therefore outside the scope of Article XIII D. 

Groundwater Charges Levied Must Bear a Reasonable Relationship To Benefits Received by Payors

Certain charges are exempt from the definition of a tax under Article XIII C—these include property-related fees adopted in compliance with Article XIII D and certain payments for government-provided privileges or benefits.  In the case of the latter, the charges must be “no more than necessary to cover the reasonable costs of the governmental activity,” and are subject to the requirement that “the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor’s burdens on, or benefits received from, the governmental activity.” (Cal. Const., art. XIII C, § 1, subd. (e).)

While not disputing the reasonableness of the District’s aggregate costs for funding its groundwater management programs, the City argued that nonagricultural users like the City bore a disproportionate share of the fiscal burden of supporting the District’s activities, in violation of Article XIII C.  As to this question, the case was remanded back to the lower court for a determination of whether the manner in which the District had allocated costs bore a fair or reasonable relationship to the payor’s burdens on, or benefits received from, the governmental activity. (See Cal. Const., art. XIII C, § 1, subd. (e).)

Sifting Through the Questions, Identifying Solutions, and Planning for the Future

Agencies statewide have anticipated the City of San Buenaventura decision as an answer to long-held uncertainties regarding water agency fee levies.  Unfortunately, Monday’s decision leaves many of these questions unanswered.

The Court offered no opinion as to whether it would consider groundwater pumping charges imposed by local agencies to fund the costs of groundwater management under SGMA to be analogous to the fees endorsed as non-property related levies here.  (See Water Code § 10730.2).  As to that pressing concern, the Court merely offered in a footnote that it was “unclear…whether the Legislature intended to express any judgment on the interpretive question before us, as opposed to, for example, signaling its agreement…that groundwater charges are exempt from Article XIII D’s voter approval requirement as charges for water service.” We expect those questions to be the source of future litigation as agencies work across the state to implement and fund groundwater sustainability plans under SGMA.

Likewise, the Court also expressly refrained from offering an opinion as to whether the District’s practice of charging a uniform fee across an area because of the infeasibility of allocating costs on a parcel-by-parcel basis complies with Proposition 218’s proportionality requirements.  The Court was cautious in stipulating that fees need not be directly tied to the particular cost as to any one individual user, nor did it rule out the possibility that a government agency might have a reasonable basis for charging higher fees to some payors than to others. Of particular note, the Court did not address whether Water Code section 75594’s proscribed three-to-one ratio for non-agricultural usage fees versus agricultural usage fees was unconstitutional on its face (though a concurring opinion suggested that this was the result).  These questions, too, will be the source of continued debate.  

Our public agency attorneys are watching this issue closely and will offer thoughts and guidance in future alerts as the law on this issue continues to evolve.