A state appeals panel has upheld a lower court’s determination that a water district illegally charged residential customers significantly more than agricultural users for Colorado River water managed through a canal.
Riverside County Superior Court Judges Sunshine Sykes and Craig Riemer ruled the Coachella Valley Water District violated the state constitution and is therefore obligated to refund customers. The district challenged that ruling before the Fourth District California Appellate Court, which issued its decision Jan. 31.
Justice Michael Raphael wrote the opinion; Justices Manuel Ramirez and Art McKinster concurred.
Jon Coupal, president of the Howard Jarvis Taxpayers Association
Raphael opened the opinion with historical context on construction and financing for the Coachella Canal, which branches off the All-American Canal that carries the Colorado River west about 80 miles along the Mexican border to bring water northwest about 120 miles to Riverside County, ending at Lake Cahuilla.
In the early 20th Century, according to historical records, about 400 Coachella Valley wells served 4,000 cultivated acres, depleting groundwater levels. The CVWD contracted with the U.S. Bureau of Reclamation to build the canal. Excavation began in 1938 and water delivery started in 1949. Raphael also detailed the procedural history surrounding entitlement to Colorado River water and noted that, in the 1990s, California consistently used more water than its legal allotment before entering into 2003 agreements intended to more properly budget usage.
At present, the CVWD also buys Colorado River water from other agencies, some of which is not delivered through the canal. In Fiscal 2019 the cost for supplemental water exceeded $4 million. In Fiscal 2020, it was more than $5 million. Meanwhile, residential customers pay for canal water — which in part replenishes the groundwater that supplies potable water to homes — indirectly through CVWD fund transfers.
The litigation began in 2019 when Randall Roberts filed a class action against the district. The lawsuit noted agricultural customers paid $34.32 per acre-foot of water, while the rate for all other customers was $102.12. He alleged the district violated the state constitution by approving that rate without first going to voters.
When a judge dismissed the complaint because Roberts lacked standing, the Howard Jarvis Taxpayers Association entered as a lead plaintiff.
The Association filed an amended complaint alleging the CVWD ignored a 2015 consultant recommendation to charge one uniform canal water rate and instead asked its attorney to draft a memo justifying the two-tiered system, which effectively means farmers don’t pay any of the supplemental water costs.
Judge Sykes made the initial ruling against the district in November 2021. While the parties were disputing the necessity of an expert to determine available damages, Sykes left the bench and Judge Reimer issued an August 2022 order agreeing with the Association, but noting financial relief would be calculated starting March 7, 2018, one year before Roberts filed a government claim.
As the parties continued to haggle over money, Reimer in January 2023 determined damages through the end of Fiscal 2022 to reach about $17.5 million, although HJTA wasn’t itself entitled to the money. On appeal of Reimer’s March 2023 final order, the water district said the county judges erred in both findings of liability and the rulings on remedies.
After determining the Jarvis Association had standing, the panel then determined the district failed to justify is higher rate structure for residential customers based on an historical priority argument and also said financial relief is required when parties violate certain voter-enacted state laws.
Raphael said the key question on the rates for nonfarm customers is whether they meet the state constitution’s definition of taxes, because the district enacted the structure without conforming to legal procedures for taxation. The panel pointed to the 1978 enactment of Proposition 13, which addressed property taxes, and the 1996 enactment of Proposition 218, further limiting local governments’ taxation power.
According to the panel, the CVWD meets that law’s definition of “local government” and the 2010 passage of Proposition 26 clarified the term “tax” should be applied “broadly, to include ‘any levy, charge, or exaction of any kind imposed by a local government.’ ” Since the district didn’t enact the water rate by going to a majority of voters, it could only prevail by showing the rate structure is exempt from the legal “tax” definition.
In making that argument, the CVWD said the nonfarm rate doesn’t exceed the proportional cost of canal water for those customers because, absent those customers, the supplemental purchases wouldn’t be needed. The panel said the district can only make that argument on the premise that farmland owners paid supplemental taxes that built the canal and distribution system, while also implying farm customers don’t use any groundwater.
“The record does not substantiate the water district’s claims,” Raphael wrote.
He pointed to a lack of supporting data from the 1950s, as well as contradicting evidence from fiscal years 1988 through 2015. Records from those years showed nonfarm customers paid $30.5 million into a supplemental tax fund while agricultural customers paid $1.7 million. Further, 15% of money originally paid to the federal government came from hydroelectric power proceeds and also initial payments were spread out over four decades that coincided with a rapid population growth.
This evidence likewise undercut claims the higher charges had a reasonable purpose, the panel determined, adding that the CVWD’s argument it needed only a rational basis for its fee structure runs afoul of Proposition 218’s elevated standard. Raphael also said the district used inapplicable cases in attempting to argue its nonfarm rates constitute acceptable expenditures.
The only area in which the panel sided with the district regarded the association’s pursuit of injunctive relief. Judge Reimer ordered that any future charges must comply with Proposition 218. The panel said that was too broad, as the proposition had several other clauses not at issue in the current litigation and it would be improper to subject the district to potential contempt proceedings for behavior unrelated to the allegations at hand.
Representing the water district is the firm of Colantuono, Highsmith & Whatley.
The Howard Jarvis Taxpayers Association is represented by Costell & Adelson Law Corporation.
“That is exactly why refunds are necessary under Proposition 218,” HJTA president Jon Coupal said in a statement, “because Proposition 218 is a constitutional guarantee that property owners be charged no more than cost of service.”
Coupal added: “Preferential treatment in rate-setting should never be tolerated.”