Water & Drought

California cities fret over tiered water rates after court decision

A ruling Monday said penalties for high water use, instead of one based on provider costs, violate Proposition 218 limits on government.
A ruling Monday said penalties for high water use, instead of one based on provider costs, violate Proposition 218 limits on government. Sacramento Bee file

Roseville, the sun-splashed suburb of about 125,000 residents, has been among the statewide leaders in saving water. Relying on a tiered pricing plan that charges heavier water users more, the city in recent months has outclassed the region in residential water conservation.

Now, leaders there are taking stock after a state appellate court ruled Monday that San Juan Capistrano’s four-tiered system is unconstitutional. In a unanimous decision, the three-justice 4th District Court of Appeal ruled that the Orange County city’s method violated Proposition 218, a 1996 ballot measure establishing that municipalities cannot impose fees for services that exceed the actual cost.

“We will be evaluating our own rate-setting structure to ensure that we are in compliance,” Roseville spokesman Maurice Chaney said Tuesday. “Without equivocation, we feel our system is adequate and complies with Proposition 218. But it’s an opportunity to look at it given the recent court ruling.”

Other water providers, however, are far less certain.

Chris McKenzie, executive director of the League of California Cities, said the opinion demonstrates how the ballot initiative could prevent government from responding to a crisis such as the current drought, now in its fourth year and showing no signs of abating.

The measure was sold to voters as a way “to protect the people from their government,” he said. “It is now being used to prevent government from protecting the people’s water resources.”

When it passed, the Right to Vote on Taxes Act generated far less public attention than its tax-limiting predecessor Proposition 13. While it has been cited over the years in dozens of cases brought against cities, California’s drought conditions are generating more attention for the nearly two-decade-old initiative. With about two-thirds of water providers relying on tiered-rate structures, McKenzie said he’s worried the case could spawn additional lawsuits.

“Here we now have a court, as happens from time to time, very clearly saying, ‘Yeah, you can have tiered rates, but only for the purpose of allocating higher costs to the higher consumer, not for the purpose of conservation,’” he said. “That’s a really dramatic pronouncement.”

The decision came after Gov. Jerry Brown this month ordered the State Water Resources Control Board to direct urban water suppliers to develop rate structures that maximize conservation. In response, the state board is requiring districts to significantly curtail their use, in some cases by as much as 36 percent. Brown has said the ruling puts a “straitjacket” on local government’s conservation efforts.

Michael Lauffer, chief counsel at the state water board, said rate structures designed for conservation send the right message to consumers by rewarding good behavior and providing a strong disincentive for them to waste water. Although water districts have other ways to cut back on their use, he said the tiered systems are “the most effective single tool to promote conservation.”

“It may make it more difficult for some agencies to meet their targets,” Lauffer said.

A study by researchers at the University of California, Riverside, School of Public Policy found that that between July 2011 and April 2014, household usage was 10 to 15 percent lower under a tiered structure than it would have been under uniform rates. Kenneth A. Baerenklau, one of the authors, said the largest reductions came from households that were less efficient users before the pricing changes.

In the Sacramento region, at least 11 agencies, including Sacramento Suburban, Placer County and Elk Grove, have some form of tiered pricing.

Lauffer said the most frustrating thing about the court decision is it didn’t provide clear goal posts for local agencies. “They are going to need to be much more careful about how they show their work,” he warned.

The state appellate court opinion, written by Justice William Bedsworth, cities a prior case involving the Antelope Valley city of Palmdale, which successfully invoked Proposition 218 to challenge the rates it was paying to the Palmdale Water District. The measure has been at the center of several pre-drought lawsuits, including cases where cities illegally diverted utility money to cover general fund expenses.

Jon Coupal, president of the Howard Jarvis Taxpayers Association, said the original purpose of Proposition 218 was to close loopholes in Proposition 13. It does not apply to electrical providers, which Coupal said the authors considered “a bridge too far.” They are regulated by the Public Utilities Commission.

Since 1996, Coupal said, water and other agencies have continued to “gouge” customers and pass off the charges “as the cost of doing business.”

“This has been an endemic problem for a long time,” he said.

Coupal said districts still have several water-saving tools at their disposal, including outdoor irrigation schedules and incentives for residents to convert their lawns to less thirsty landscaping.

“The problem is they want to take the easy way out, and that means simply raising revenue,” he said. “The water districts are crying crocodile tears knowing that they have alternatives, but they just want to be able to charge more than what it costs them to secure the water.”

The Jarvis association submitted briefs in the case supporting the Capistrano Taxpayers Association. Benjamin Benumof and Michael Hensley, attorneys for the residents bringing the lawsuit in Orange County, said the decision in no way means that districts can’t employ tiered systems that are not arbitrary.

“To me, a lot of this is hysteria. I understand the governor wants all kinds of tools and wants to give municipalities discretion,” Hensley said.

“This case in no way keeps them from doing it as long as they are cost-compliant. There are ways to steer through this. And, in fact, we would like to see government step up and say ‘go to your lawyers and get compliant.’ There’s no need to litigate.”

Tom Gray, general manager of the Fair Oaks Water District, one of the region’s heaviest water users, has so far avoided moving to a tiered-rate system.

Gary, frustrated with the way the state is imposing its water reduction order, said charging heavier users more to boost conservation “is counterintuitive to the whole purpose of Prop. 218.” The Fair Oaks district fundamentally thinks it has conservation pricing in place without turning to tiers.

“We believe that a unit of water costs the same no matter what, and under (our) system the people who use the most pay the most and people who use the least pay the least,” Gray said. “Conservation is already built in; just not punitively.”

Roseville established its tiered water-rate structure in 2001, as the region converted to charges based on metered usage. Chaney, in a statement, said the city developed its rate system to meet Proposition 218 and, since then, has been deliberate and thoughtful in each new rate setting, “ensuring that our water rates don’t exceed the cost to provide service.”

“We follow the letter and spirit of Proposition 218 as its meanings and interpretations continue to evolve over time,” he said.

Call Christopher Cadelago, Bee Capitol Bureau, (916) 326-5538. Follow him on Twitter @ccadelago.

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