Proposition 218 was enacted in 1996 and requires local governments to obtain approval by ballot measure to increase or implement new tax assessments and fees on property owners. In 2006, the California Supreme Court clarified this included water charges, explaining, “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, whether the charge is calculated on the basis of consumption or is imposed as a fixed monthly fee.” (Bighorn-Desert View Water Agency v. Verjil (2006) 39 Cal. 4th 205, 217 [emphasis added].)
The drought, and accompanying conservation efforts by public water agencies through tiered water rates and imposition of penalties for “excessive” usage, have brought the issue of the legality of these rate structures to the forefront.
In April 2015, the Fourth District Court of Appeal, affirming a 2013 trial court judgment, found the tiered rate structure used by the City of San Juan Capistrano starting in February 2010 had violated Proposition 218. (See Capistrano Taxpayers Association, Inc. v. City of San Juan Capistrano (2015) 235 Cal.App.4th 1493.)
The Court explained that, under Proposition 218, “water rates must reflect the cost of the service attributable to a given parcel.” (CTA, 235 Cal.App.4th at 1497.) Tiered rates are only consistent with Proposition 218 if the tiers “correspond to the actual cost of providing service at a given level of usage.” (Id.) The court explained that a public water agency “merely allocat[ing] all its costs among the price tier levels, based not on costs, but on predetermined usage budgets” does not meet the agency’s burden under Proposition 218 to show the “water fees [did] not exceed the cost of service attributable to a parcel at least without a vote of the electorate.” (Id. at 1497-98.)
Other public agencies have been sued as well. In November 2016, Hillsborough was sued on claims its tiered rates violated Proposition 218. Earlier in March, Los Angeles County Superior Court held Glendale’s tiered rates in violation of Proposition 218.
Proposition 218 provides citizens with the absolute right to vote on what fees are charged to users of public services, and how costs are allocated among those payers. Cities and counties that wish to charge water rates and fees that are not attributable to the cost of providing services, must obtain the people’s permission through a vote.