Legal Alerts Dec 04, 2017

California Supreme Court Holds Groundwater Pumping Charges Are Not Property-Related Charges Subject to Proposition 218

Case May Impact Groundwater Pumping Charges Authorized Under SGMA

California Supreme Court Holds Groundwater Pumping Charges Are Not Property-Related Charges Subject to Proposition 218

The California Supreme Court concluded today that a local water agency’s groundwater pumping charges are not property-related charges subject to the substantive and procedural requirements of California Constitution article XIII D, section 6 (commonly referred to as Proposition 218). The Court, however, did not determine whether the charges were constitutional under California Constitution article XIII C, section 1(e) (commonly referred to as Proposition 26). The Court’s decision provides important guidance to local agencies on what types of fees and charges may be classified as property-related and subject to Proposition 218, and may impact groundwater pumping charges authorized under the Sustainable Groundwater Management Act of 2014.
In City of San Buenaventura v. United Water Conservation District, the City challenged groundwater pumping charges imposed on it by the United Water Conservation District. UWCD manages water acquisition and distribution from groundwater resources in central Ventura County. To fund its operations, UWCD imposes groundwater pumping charges to fund conservation activities such as replenishing groundwater stores and preventing degradation of the water supply. The charges are based on the volume of water that is pumped within its service area. As authorized by statute, the rates for the pumping charges must be “fixed and uniform” for two classes of use: agricultural purposes and all other purposes. The Water Code further requires that the charges for non-agricultural use be set at a rate that is no less than three times — and not more than five times — the fixed and uniform rate established for agricultural water use. UWCD always set it rates at the minimum 3:1 ratio.
The City of San Buenaventura pumps groundwater within the service area of UWCD and treats, delivers and sells the pumped water to properties within the City. The City was subject to the higher 3:1 pumping rates for non-agricultural groundwater extractors. The City asserted that the statutorily-mandated ratio for non-agricultural and agricultural uses constituted an illegal subsidy for agricultural users at the expense of all other users in violation of the California Constitutional and statutory and common law. Pointing to the Sustainable Groundwater Management Act of 2014, the City argued that the Legislature has already implicitly concluded that groundwater pumping charges are property-related charges under Proposition 218. In this instance, the charges violated the provisions of Proposition 218 because they “exceed the proportional cost of the service attributable to the parcel[s]” of land from which the City pumped its water. Alternatively, they argued the charges are taxes within the meaning of Proposition 26 because they do not bear a fair or reasonable relationship to the payors’ burdens on or benefits from the district’s conservation activities.
The California Supreme Court disagreed with the City’s first argument, holding that the charges are not property-related under Proposition 218. It explained that not all fees and charges associated with obtaining water are property-related within the meaning of Proposition 218. The Court noted that UWCD does not “deliver” water via “groundwater” to any particular parcel or set of parcels. Instead, it conserves and replenishes groundwater that flows through an interconnected series of underground basins, none of which corresponds with parcel boundaries. The basins are managed by the District for the benefit of the public that relies on the groundwater supplies, not just for the benefit of the owners of land on which wells are located. In particular, the Court highlighted that while some well operators extract water for use on their property, others, such as the City extract water for sale and distribution elsewhere. Thus, when UWCD fulfills its obligation to manage the acquisition of water from the groundwater basin, it is not providing a service to the City in its capacity as the owner of lands on which its wells are located, but in the City’s capacity as an extractor of groundwater from stores that are managed for the benefit of the public.
Under Proposition 26, local agency fees and charges are classified as taxes unless they qualify under one of seven exceptions. Two of these exceptions are charges imposed for a specific benefit conferred or privilege granted, or a government service or product provided directly to the payor that is not provided to those not charged. These fees and charges must not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege, or providing the service or product. The burden of demonstrating a fee or charge is not a tax is on the local agency imposing the fee or charge.
The Court of Appeal earlier concluded that the pumping charges are not a tax under Proposition 26 because, in the aggregate, they do not exceed the reasonable cost of regulating UWCD’s groundwater supply. The Supreme Court concluded, however, that the question of whether the groundwater pumping charges are taxes within the meaning of Proposition 26 should be remanded back to the Court of Appeal for a determination on whether the charges satisfied both the requirement that they be fixed in an amount that is “no more than necessary to cover the reasonable costs of the governmental activity” and 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.”
SGMA authorizes different types of fees and charges, including different types of groundwater extraction charges. Local agencies, including those operating under SGMA, will need to analyze their proposed fees and charges to determine what type of fee or charge it is and what substantive requirements and procedural rules, if any, apply.
If you have any questions about these cases or how they may impact your agency, please contact the attorney authors of this legal alert listed to the right in the firm’s Public Finance and Municipal practice groups, or your BB&K attorney.
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Disclaimer: BB&K Legal Alerts are not intended as legal advice. Additional facts or future developments may affect subjects contained herein. Seek the advice of an attorney before acting or relying upon any information in this communiqué.

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