e-Bulletin: State Board's Regulations Regarding Fees For Water Rights Permits Ruled Unconstitutional

The Court of Appeal for the Third Appellate District recently ruled that the regulations adopted by the State Water Resources Control Board (“State Board”), which established fees for water rights permits, are unconstitutional. The court upheld, however, the State Board’s general authority to develop fees for water rights permits. The case has been remanded to the Superior Court with directions that the State Board adopt a new fee schedule consistent with the appellate court’s ruling. The court also ordered the State Board to determine the amount of fees which had been unlawfully collected and to refund those fees once the new fee structure is in place.

The controversy in this case stemmed from several Water Code provisions, which were designed to reduce the State’s costs of processing water rights applications by passing those costs on to the applicants in the form of fees. Pursuant to these provisions, the State Board adopted a schedule of fees, including an annual fee on license and permit holders and a one-time fee for water rights applications and related petitions. (Water Code, § 1525.) The annual fee was calculated to be either $100 or $0.03 per acre-foot of the total diversion authorized by the permit or license. (Cal. Code Regs., tit. 23, § 1066.) Federal contractors that received water from the Bureau of Reclamation were charged a similar fee except that the fee was based on a prorated portion of the total amount of annual fees associated with all the Bureau permits and licenses. (Cal. Code Regs., tit. 23, § 1073.)

The California Farm Bureau Federation, Northern California Water Association and Central Valley Project Water Association (collectively, “Plaintiffs”), challenged the constitutionality of both the statutes and regulations establishing fees. Although the court rejected each of Plaintiffs’ challenges to the constitutionality of Water Code section 1525 and other related statutes, the court found that the regulations implementing those fees were not valid. First, the court noted that in regulatory fee cases, the government has the burden of showing that the fees are fair and proportional to the cost of the regulatory activity. Here, the State Board’s fees were suspect because water rights fees were only charged to those applying for or operating under water rights permits or licenses. The majority of water rights, however, are riparian or pre-1914 appropriations, and are beyond the regulatory scope of the State Board. Thus, the State Board had to show that its fee scheme fairly and proportionally charged those who were subject to the State Board’s regulation. As to fees charged to federal contractors, the State Board did not show that the fee charged to the Bureau’s allocation and split among the contractors was proportionate to the regulatory burden on the State Board.

To avoid disrupting the State Board’s activities, the court has allowed the fees to remain in place until new and valid regulations are adopted, but has given the State Board a 180-day deadline to do so. In addition, the court ordered the State Board to refund any fees unlawfully collected under the invalid regulatory mechanism.

In conclusion, water rights application fees have not gone away, but soon will be revised to ensure that they are fairly and proportionately charged to those that benefit from the State Board’s regulatory activities. Due to the 180-day deadline imposed on the State Board by the appellate court, it is anticipated that the final water rights application fee schedule will be available by mid-summer 2007.

For more details on this case or its implications on your organization or project, contact an attorney with BB&K's Environmental Law & Natural Resources Practice Group.

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