Tiered Water Ruling — Water Agencies Shouldn’t Make a Profit Off Homeowners

Last week the California Court of Appeal issued an important ruling interpreting Proposition 218, the Howard Jarvis Taxpayers Association sponsored initiative approved by voters in 1996. Proposition 218 is entitled “The Taxpayers Right to Vote Act” for a very good reason. It reflects the policy that those who pay the bills for public expenditures – taxpayers – should have the final say over how much is taken out of their wallets and pocketbooks. It subjects virtually all local taxes and fees, especially those related to property, to voter or ratepayer control.

Proposition 218 was necessary because the Legislature and the courts had created loopholes in Proposition 13, the iconic California initiative that started the modern American tax revolt in 1978. While Proposition 13 was focused on property taxes, Proposition 218 was drafted to limit the explosion in other types of government exactions burdening homeowners including so-called “benefit assessments,” fees, charges and other sorts of property related levies.

What is important to note about Proposition 218, is that it did not ban property related fees but, rather, sought to return the imposition of fees like water, sewer and trash collection rates to the traditional concept of “cost of service.” Cost of service simply means what it says: The cost to a property owner for a service should not exceed government’s cost to provide that service.

In its ruling, the Court of Appeal concluded that “tiered” water rates, without being justified under “cost of service” principals, failed to comply with the constitutional mandates of Proposition 218. The lawsuit was brought by the Capistrano Taxpayers Association against the city of San Juan Capistrano for, among other transgressions, imposing water rates that were “tiered,” meaning those who used more water would be charged a higher amount per gallon.

The court ruling was immediately condemned by water agencies, state bureaucrats and even Governor Jerry Brown who decried the decision as putting a “straightjacket” on his policies to enforce water conservation. But the ruling did nothing of the sort. First, rather than saying all tiered water rates were automatically unconstitutional, the court merely stated that, whatever the methodology used to impose water rates, they must be based on cost of service.

The sin of San Juan Capistrano was its failure to justify its rate structure at all.

Second, local governments have an array of tools available to enforce conservation to deal with California’s current water shortage. Limiting landscape watering to once or twice a week; prohibitions against hosing down driveways or automobiles; rebates to homeowners and businesses to convert landscape to drought tolerate plants; water reclamation; desalination, such as the massive new project in San Diego County; and the list goes on and on.

So if water agencies have sufficient – and legal – tools available to them to incentivize conservation and deter waste, what is the basis for the shrill, over-the-top reaction to the Court of Appeal decision?  Simple. If these agencies are permitted to impose water rates divorced from “cost of service” principles, then they can generate taxpayer funds over their costs and make a “profit” from homeowners – something Proposition 218 was specifically drafted to prevent.

And in the case of Jerry Brown, he didn’t like the ruling because he is desperately searching for a revenue source for his ill-conceived “Twin Tunnels” project which, like his High Speed Rail debacle, simply isn’t ready for prime time.

There is an object lesson here. Droughts may be caused by Mother Nature, but water shortages are created by humans. California is now paying the price for not building new storage and conveyance infrastructure over the last several decades. Rather than complaining about “cost of service” requirements that are founded in common sense and rational policy, California should immediately correct the dereliction of prior political leaders and build what we need for a California in the 21st century.

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.

Harshest water conservation targets unveiled

As a closely-watched court ruling threw California’s tiered water pricing system into disarray, the Water Resources Control board made public its latest and harshest conservation targets for municipalities across the Golden State.

Detailing the plan, MarketWatch reported that “Angelenos must save another 16 percent for the year ahead, the water board said,” despite saving over 9 billion gallons, or 7 percent, over the previous year:

“By comparison, San Francisco lowered its water usage (22,351 gallons per resident) between June 2014 and February 2015 by more than 1.6 billion gallons, a saving of 8 percent from the same period a year earlier. As such it has just an 8 percent target water reduction for the 2015-2016 period, the state said.

“San Diego, which depends on water imported from outside of the city for 90 percent of its usage, must cut back on demand in the next year by 16 percent, the state water board said.”

Meanwhile, the 4th District Court of Appeal in Orange County sided with a challenge to the constitutionality of San Juan Capistrano’s tiered water pricing system. As the San Jose Mercury News reported, the court held that tiered rates “violated voter-approved Proposition 218, which prohibits government agencies from charging more for a service than it costs to provide it.”

A blow to Brown

For Gov. Jerry Brown, the ruling was an instant headache. He had recently issued an executive order, The Los Angeles Times noted, “directing water agencies to develop rate structures that use price signals to force conservation.”

In a prepared statement issued by the governor’s office in the wake of the ruling, Brown did not shy away from making his frustration plain. “The practical effect of the court’s decision is to put a straitjacket on local government at a time when maximum flexibility is needed,” he said, invoking a bottom-up view of political efficacy most often associated with Republicans. “My policy is and will continue to be: Employ every method possible to ensure water is conserved across California.”

Making waves

As CalWatchdog.com previously observed, the sweeping ramifications of the case put regulators and cities on edge. Providers could fall back on technicalities to make increased consumption more costly — charging more for water drawn from certain areas, for instance — the bureaucratic challenge involved in finding and implementing workarounds could be substantial. According to the Times, experts surmised that between two-thirds and four-fifths of water agencies in California charged tiered rates for usage.

Especially in Southern California, the ruling has thrown a monkeywrench into major plans for an overhaul of the tier system. “The Los Angeles Department of Water and Power currently uses a two-tier rate structure, but agency officials have said they are preparing to roll out a revised system that would employ four tiers and that would make high water use even more costly than it is now,” the Times reported.

Tim Quinn, executive director of the Association of California Water Agencies, told the Sacramento Bee that the ruling was currently under legal review by attorneys. But plaintiffs’ attorney Benjamin Benumof told the Bee that, on their view, government could effectively promote conservation by, for instance, increasing rebates for low-flow appliances and devices.

A turn to penalties

An approach utilized in Santa Cruz offered perhaps the quickest option for municipalities straining to meet new standards without tiered rate pricing. There, the Mercury News reported, the city’s recently reinstated mandatory rationing program hits high users with a flat $50 fee per “unit” of consumption in excess of 11 units:

“That fee, which sent some water guzzlers’ bills skyrocketing, will not be affected by Monday’s court ruling, however, said Rosemary Menard, Santa Cruz’s water director, because it is clearly labeled a “penalty” in the city ordinance, and is not used to pay for daily operations of the water system.” 

Originally published by CalWatchdog.com