Legal Alerts Jun 06, 2019

Failure to Participate in Prop. 218 Hearing Does Not Bar Fee Challenge

Calif. Supreme Court Holds Such Hearings Do Not Adequately Address Challenges to Method for Calculating Fee

Failure to Participate in Prop. 218 Hearing Does Not Bar Fee Challenge

A ratepayer may challenge the method of allocating property-related fees without first participating in the public hearing for, and filing a written protest against, the adoption of such new or increased fees, the California Supreme Court confirmed. While protest proceedings provide an opportunity to be heard, the Court found that — given the implausibility of a successful majority protest and the particular substantive challenge at issue in this case — the protest proceedings provided an inadequate administrative remedy that need not be exhausted prior to bringing suit. The Court narrowly framed the issue, however, and did not opine on whether protest proceedings could ever be an administrative remedy that must first be exhausted.
 
In Plantier v. Ramona Municipal Water District, commercial property owners challenged the District’s method of allocating wastewater fees as violating the substantive provisions of article XIII D, section 6 of the California Constitution. The District’s wastewater fees are calculated based on equivalent dwelling units, or EDUs. The District assigned the number of EDUs to properties based on the estimated capacity needs and flow and strength of the wastewater discharged by different customer classes. The District successfully argued at the trial court that plaintiffs failed to exhaust their administrative remedies because they did not file written protests or appear at the public hearing to object to the proposed fees. The Court of Appeal reversed and allowed the action to proceed.
 
Article XIII D, section 6, added as a part of Proposition 218 in 1996, requires public agencies to comply with certain substantive and procedural requirements prior to adopting new or increasing existing property-related fees or charges. Substantively, public agencies may not collect revenues that exceed the cost of providing the property-related service, and must ensure fees are imposed proportionately on each parcel. Procedurally, public agencies must conduct a public hearing on proposed fees or charges no less than 45 days after mailing the notice to the record owners of parcels on which the fees or charges may be imposed. At the public hearing, the public agency must consider all protests against the proposed fees or charges. If it receives written protests to the proposed fees or charges from a majority of the property owners, the fees or charges may not be adopted or increased.
 
The Supreme Court narrowly framed the question and confirmed the appellate court’s decision that a payor challenging the method of fee allocation need not have participated in the public hearing prior to filing suit. The Court reasoned that the protest proceeding is an “inadequate” administrative remedy. First, the District was not required to take action unless protests were filed by a majority of separate parcel owners. The District provides sewer service to about 6,900 parcel owners, requiring well over 3,000 written protests to constitute a majority protest. Given that the District received fewer than 15 written protests in recent years, a majority protest was highly unlikely.
 
Second, under the specific facts of this case, the public hearing would not allow the District to resolve the plaintiffs’ dispute. The plaintiffs challenged the methodology for allocating the wastewater service fees. The District only proposed to increase the rates, and was not considering a change to the methodology for allocating EDUs. The District’s notice “inform[ed] fee payors of a proposed rate increase,” and “would not permit the agency to tinker with the method for calculating the fee, because a fee increase on certain fee payors resulting from a methodological change would be beyond the scope of the notice.” The District thus lacked authority to adjust the methodology at the public hearing, and could not effectively address the plaintiffs’ complaint.
 
The Supreme Court chose not to address the broader question of whether a Proposition 218 hearing could ever be considered an administrative remedy that must be exhausted before challenging the substantive propriety of a fee in court.
 
If you have any questions about this opinion or how it may impact your agency, please contact the author of this Legal Alert listed to the right in the firm’s Special Districts practice group, or your BB&K attorney.
 
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