On August 3, the California Supreme Court issued a noteworthy decision for special districts that collect property-related fees and charges, such as water rates and utilities fees. The unanimous opinion in Wilde v. City of Dunsmuir held that water rate charges and utility fees are not subject to challenge by referendum because they fall within an exemption for “tax levies” and thus are not subject to referendum. The case involved a water rate plan resolution that was adopted for an extensive water upgrade project, and whether the resolution is subject to a referendum by voters, or if it can only be changed through the initiative process.
CSDA informed our members about this important case in June 2019, and is proud to have joined a coalition of local government associations to file an amicus brief to the Supreme Court in support of the City of Dunsmuir.
The distinction between a referendum and an initiative is important: a referendum is a challenge by voters to an enactment already made by the legislative body, whereas an initiative is a legislative proposal placed on the ballot to be decided by voters. Most importantly, an initiative operates prospectively and is less disruptive to municipal finances than a referendum, which automatically suspends the resolution the moment signatures are certified until and unless the voters reject the referendum when it is later taken up at the ballot.
California voters adopted Proposition 218 to add article XIII C to the California Constitution by which they expressly reserved their right to challenge local taxes, assessments, fees, and charges through defined protest proceedings and, subsequently, via initiative. At issue in this case was whether the electorate can use the referendum power (Cal. Const., art. II, § 9) to challenge a city's resolution increasing water fees or is such a challenge expressly limited to the power of initiative (Cal. Const., arts. XIII C & XIII D, § 6).
In 2018, the Third District Court of Appeal held that voters’ adoption of Proposition 218 did not repeal the right to challenge local resolutions and ordinances by referendum, and that a public agency’s adoption of a water rate plan is a legislative decision subject to referendum. The Court of Appeal decision reversed precedent that exempted local taxes, fees, and other property-related revenue measures from referendum (but not an initiative, as permitted by Article XIII C, section 3 of the California Constitution). If not overturned, the court’s decision would have permitted referenda against property-related fees and potentially served to destabilize the finances of districts that provide water, sewer, and solid waste services, among others.
Fortunately, following the Supreme Court decision in Wilde, a resolution adopting a water rate plan or utility fee in accordance with the requirements of Proposition 218 cannot be challenged by referendum, although it is still subject to initiative.
For a detailed analysis of the Wilde decision and its implications, read “The Worth of Water?” by Michael Colantuono from municipal law firm Colantuono, Highsmith & Whatley. Mr. Colantuono was an author of the amicus brief filed on behalf of CSDA and the local government coalition.
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