Northern California Record

Friday, December 6, 2019

Compliance expert: Local agencies still face groundwater extraction fees guidelines

By Karen Kidd | Dec 15, 2017

Law money 07

SAN FRANCISCO (Northern California Record) — A recent U.S. Supreme Court decision to remand much of the question about whether groundwater extraction fees violate California's constitution has local agencies still wondering but there are existing guidelines to consider, a compliance legal expert said during a recent interview.

"Under Proposition 26, local agency fees and charges are defined to be taxes unless they qualify under one of seven exceptions," said Kelly J. Salt, a partner in Best, Best & Krieger's San Diego office and a legal authority on Prop 218 and 26 compliance, during a Northern California email interview. "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 payer that is not provided to those not charged."

Those fees and charges are not to exceed local government's reasonable costs for providing the service or product, Salt said. "A local agency may not require some fee payers to pay more so that others may pay less – i.e., cross-subsidies among rate payers are prohibited," she said. "The burden of demonstrating a fee or charge is not a tax is on the local agency imposing the fee or charge."

That burden has not yet been fully defined by the courts and a recent California Supreme Court decision only partially filled in that definition. In a unanimous ruling handed down Dec. 4, the California Supreme Court remanded City of San Buenaventura v. United Water Conservation District back to the Second District Court of Appeal with instructions to consider whether the water districts rates "bore a reasonable relationship to the benefits of its conservation activities," as required by the state's Constitution.

"The California Supreme Court concluded 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," Salt said. "Courts have previously determined that water, sewer, solid waste, and storm water service fees and charges are property-related fees and charges under Proposition 218."

It is that conflict at the appellate level that the state supreme court had been expected to resolve, following opposing opinions handed down in the Second and Sixth Districts over how to apply Proposition 218 and Proposition 26.

Proposition 218, passed in 1996, amended the state constitution to require voter approval of new or increased taxes, assessments and certain user fees. Proposition 26, passed in 2010, requires a super-majority vote on new taxes and fees.

In March 2015, the Sixth District ruled that groundwater extraction fees imposed by a state water district did not violate Proposition 218. In the same month, the Second District came to the opposite conclusion, ruling that a water conservation district's groundwater pumping fees are not property-related and, therefore, Proposition 218 does not apply.

The debate was entered two years earlier when Monterey County case reached the Sixth District. "The issue of whether a pumping or extraction charge is subject to Proposition 218 is settled.  It is not a property-related charge and therefore is not required under Proposition 218," Salt said. "The Pajaro Valley Groundwater Basin in Monterey County is in an ongoing state of overdraft and subject to saltwater intrusion."

The state, she added, could still impose stricter groundwater fee requirements under the Sustainable Groundwater Management Act of 2014.

As part of an effort to protect the groundwater basin, the Pajaro Valley Water Management Agency levied a charge that was challenged in Griffith v. Pajaro Valley Water Management Agency, Salt said. "The plaintiffs in that case asserted the charge was not a water service charge and therefore had to be subject to the voter approval requirement for a property-related fee described above," Salt added. "The court of appeal disagreed and held that the groundwater augmentation charge is a fee for water service."

The high court decision did settle the question of whether pumping or extraction charge is subject to Proposition 218, Salt said. "It is not a property-related charge and therefore is not required to comply with the substantive and procedural requirements of Proposition 218," she said. "The case, however, is not settled on the question of whether the charge is a tax under the definition in Proposition 26."

Editor's note: This article was updated to clarify statements made by Salt with regards to Proposition 218 requirements and the possibility for greater fee requirements.

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