On October 1, the Third District Court of Appeal issued its opinion in Paradise Irrigation District, et al. v. Commission on State Mandates, et al., holding that local agencies have sufficient authority to raise fees and charges to pay for state mandated programs and regulations, notwithstanding Proposition 218’s majority protest process. The court’s decision effectively permits the state to implement costly programs and regulations without providing reimbursement to local governments, while local governments are required to pass the cost of implementation to their fee and rate-payers.
At the oral argument on August 27, the appeals court justices focused on whether Proposition 218 strips local agencies of the “authority” to impose fees on their residents. Justice M. Kathleen Butz homed in on how the Commission on State Mandates (Commission) and state’s position could result in different districts throughout the state raising rates, while others don’t, based on their ability to withstand a Prop 218 protest. Ultimately, the court’s opinion focused on the distinction between general and special taxes that require voter approval before they can go into effect, and fees subject to majority protest procedures that go into effect unless a sufficient protest is mounted. The court held that “as a constitutionally sound power-sharing arrangement, the protest procedure implemented by Proposition 218 is not properly construed as a deprivation of fee authority as the Water Districts urge.”
The court did not rule on the issue of eligibility of enterprise-only special districts for state mandate reimbursement. However, the Court of Appeal rejected the trial court’s “try and fail” test, which suggested that the districts’ could potentially be entitled to reimbursement upon showing that the districts’ customers defeated the proposed increase with a majority protest. Instead, the Court of Appeal stated that it must “presume voters will give appropriate consideration and deference to proposals of fees by the boards of the Water Districts.”
CSDA has been involved in this case on behalf of its members for over two years. Most recently, on August 23, the Sacramento Bee published an op-ed by CSDA CEO Neil McCormick calling out the Commission for blocking mandate reimbursements to special districts that charge a fee for service. The op-ed presented the local government perspective and explained how the Commission’s actions force Californians to choose between sacrificing the quality of their local services and paying ever-higher local utility rates to fund new state programs they haven’t asked for.
The case was initiated in 2016, when the Sacramento Superior Court held that some special districts are not eligible to claim reimbursement from the Commission because they do not collect or expend “proceeds of taxes” subject to the tax and spend limitations of Articles XIII A and B of the California Constitution. The court supported the Commission’s determination that reimbursement for a state mandate is required only if a local agency is compelled to rely on “proceeds of taxes” to meet the mandate. Furthermore, the Superior Court held that the period for filing a test claim by a special district does not begin to run until a district has “tried and failed” to recover the costs through fees or charges subject to the majority protest requirement, stating, “the mere threat of a majority protest provision is not a legal barrier to an agency’s fee authority.”
In 2017, the Association of California Water Agencies (ACWA) and California Association of Sanitation Agencies (CASA) joined CSDA to file an amicus brief with the Court of Appeal. The brief argued that the California Constitution protects against the state shifting costs of its preferred programs to local governments. It further maintains that excluding districts who receive enterprise revenues from reimbursement would create an inequitable system, and that local governments do not have the “authority” to increase fees because voters have the authority to deprive a local agency of its ability to level a new or increased fee in response to a state mandated program. A separate amicus brief in support of local governments was also filed by the California State Association of Counties (CSAC) and League of California Cities.
Plaintiffs in the case must now weigh whether to file a petition for review by the Supreme Court of California. Should that happen, CSDA will be prepared to file a letter in support of the petition, as well as a brief on the merits to the Supreme Court.
If you have any questions about this case, contact Legislative Analyst – Attorney Mustafa Hessabi at mustafah@csda.net.
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