Capistrano Taxpayers v. City of San Juan Capistrano
Annotate this CaseIn February 2011, the City of San Juan Capistrano ("City Water") adopted a new water rate structure recommended by a consulting firm. City Water followed a pattern generally recommended by a manual used by public water agencies throughout the western United States known as the "M-1" manual. It identified components of its costs, such as the cost of billing and the cost of water treatment. Then it identified classes of customers, differentiating, for example, between "regular lot" residential customers and "large lot" residential customers, and between construction customers and agricultural customers. Then, in regard to each class, City Water calculated four possible budgets of water usage, based on historical data of usage patterns: low, reasonable, excessive and very excessive. The four budgets were then used as the basis for four distinct "tiers" of pricing. In August 2012, the Capistrano Taxpayers Association (CTA) filed this action, challenging City Water’s new rates as violative of Proposition 218, specifically article XIII D, section 6, subdivision (b)(3)’s limit on fees to the "cost of service attributable to the parcel." After a review of the administrative record and hearing, the trial court found the rates weren’t compliant with article XIII D, noting it "could not find any specific financial cost data in the A/R to support the substantial rate increases" in the progressively more expensive tiers. In particular the trial judge found a lack of support for the inequality between the tiers. The statement of decision also concluded that the imposition of charges for recycling within the rate structure violated the "immediately available" provision in article XIII D, section 6, subdivision (b)(4), because recycled water was not used by residential parcels. City Water appealed the declaratory judgment, challenging both determinations. The Court of Appeal concluded the trial court erred in holding that Proposition 218 did not allow public water agencies to pass on to their customers the capital costs of improvements to provide additional increments of water, such as building a recycling plant. Its findings were that future water provided by the improvement is not immediately available to customers. But, as applied to water delivery, the phrase "a service" cannot be read to differentiate between recycled water and traditional, potable water. Water service is already "immediately available" to all customers, and continued water service is assured by such capital improvements as water recycling plants. That satisfies the constitutional and statutory requirements. The trial court did not err in ruling that Proposition 218 required public water agencies to calculate the actual costs of providing water at various levels of usage. While tiered rates that go up progressively in relation to usage are perfectly consonant with article XIII D, section 6, subdivision (b)(3), the tiers must still correspond to the actual cost of providing service at a given level of usage. Here, City Water did not try to calculate the cost of actually providing water at its various tier levels. It merely allocated all its costs among the price tier levels, based not on costs, but on pre-determined usage budgets. Accordingly, the trial court correctly determined the agency had failed to carry the burden imposed on it by another part of Proposition 218 (art. XIII D, sec. 6, subd. (b)(5)) of showing it had complied with the requirement water fees not exceed the cost of service attributable to a parcel. That part of the judgment was affirmed.
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