On Monday, December 4, 2017, the California Supreme Court issued its decision in City of San Buenaventura v. United Water Conservation District. The case partially resolved a long-running dispute regarding the validity of fees the United Water Conservation District charges all groundwater pumpers in its jurisdiction. While this case has been followed most closely in the community of water-rate nerds (myself included), there are broader impacts on government revenue and constitutional interpretation in general.
The Court found that groundwater fees are not charged as an incident of property ownership and, as a result, are not governed by Article XIII D, of the California Constitution (commonly called “Proposition 218”). Rather, they are charged on account of an activity, pumping groundwater, which can be but is not necessarily tied to property ownership. As a result, the District’s fees are governed by Proposition 26, Article XIII C, section 1(e) of the California Constitution, which defines the scope of “taxes” governed by California’s constitutional limitations. The definition includes all local government levies and charges of any kind except seven, enumerated exceptions. Relevantly, two of the exceptions exclude charges for government privileges, benefits, products, and services. (See Cal. Const., art. XIII C, § 1, subd. (e)(1) & (2).) To qualify, however, a charge must be imposed only on those who receive the privilege, benefit, product, or service, and may not generate revenue that exceeds the aggregate costs the government incurs for providing it. (Ibid.) This derives from the plain constitutional text, and there was no dispute that the District’s charges complied.
There was a dispute, however, about Article XIII C’s ambiguous and much-debated “unnumbered paragraph,” which follows the list of enumerated exceptions. (See Cal. Const., art. XIII C, § 1, subd. (e).) Under that paragraph, local governments bear the burden to prove that a charge is not a tax and that “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.” (Ibid.) The placement of this text has led many to question how it applies to the enumerated exceptions that precede it.
Some have claimed that it is incorporated into each of the exceptions, a reading with superficial appeal. In context, however, it makes little sense. For example, one of the exceptions is for penalties imposed for violations of law. Clearly, local governments cannot be expected to prove that traffic tickets bears a reasonable relationship to the costs of traffic enforcement. As a result, some have suggested that the unnumbered paragraph is only meant to assign a burden of proof, incorporating substantive standards from existing case law.
At least as it relates to the privilege/benefit/product/service exceptions, the Court ruled otherwise. It found that a local government must prove that any such charge must both be no more than necessary to the cover the government’s aggregate, related costs and that the allocation of costs amongst payors bear a “fair and reasonable relationship” to their benefits and burdens. Exactly where that line is drawn will no doubt be the subject of future litigation.
For a more in-depth discussion of the case, check out the Daily Journal’s Appellate Podcast from December 8.