Proposition 26 Does Not Apply Retroactively to Existing Local Assessments, Fees, or Charges

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Proposition 26 expanded the definition of the term “tax” for purposes of article XIII C of the California Constitution in order to halt evasions of Proposition 218.  A Court of Appeal recently addressed whether Proposition 26 applied retroactively to require a two-thirds majority for a local initiative that was passed on the same day as Proposition 26.  The Court of Appeal held that Proposition 26 does not apply retroactively to existing local assessments, fees, or charges.  (Brooktrails Township Community Services District v. Board of Supervisors of Mendocino County (159 Cal.Rptr.3d 424, Cal.App. 1 Dist., June 26, 2013).

Facts

Brooktrails Township Community Services District (“District”) told David Paland (“Paland”) that he would have to pay for sewer and water connections even if he had disconnected the services.  The change in District’s policy was the result of the Department of Health Services’ moratorium on new connections pending an increase in water storage capacity.  Paland sued the District’s Board of Directors (“Board”) for declaratory and injunctive relief. 

Paland asserted that in 2007, District began charging him monthly base rates even after he requested that District turn off his water service, and that such charges were “standby charges” that were subject to the voting requirements of article XIII D, section 4, of the California Constitution.  Proposition 218 added articles XIII C and XIII D to the California Constitution and one of its most prominent features was that two-thirds voter approval is required for “special” taxes and assessments.

The Court of Appeal found in favor of District holding that “a minimum charge imposed on parcels with connections to a water district’s utility systems for the basic cost of providing water or sewer service, regardless of actual use, is a charge for an immediately available property-related water or sewer service . . .  and does not require ballot approval by affected owners.”  In response, Paland drafted and sponsored Measure D, “An Initiative To Prevent the Brooktrails Township Community Services District from Imposing Mandatory Water and Sewer Base Rates after Service has been Discontinued.”  The initiative provided that District shall not collect charges for water or sewer service for more than two days after service has been discontinued.  Also, it provided that District shall not require a parcel owner to relinquish a water or sewer connection as a condition of the owner discontinuing service and shall not impose a fee for more than a reasonable cost of turning the service back on when the property owner requests resumption of service. 

An impartial analysis prepared by the Mendocino County Counsel advised voters that the measure needed a simple majority vote of qualified voters to be approved.  Measure D passed by a vote of 737 to 637 at the November 2, 2010, election.  On the same day, California voters adopted Proposition 26, which among other things, expanded the definition of what constitutes a tax under article XIII C.  One of the “purposes of Proposition 26 was to halt evasions of Proposition 218.”  District brought a lawsuit against the Board of Supervisors and the County Clerk of Mendocino County asserting that Measure D is facially unconstitutional and should not be enforced because it failed to achieve a two-thirds vote as required by Proposition 26. 

Paland intervened as a defendant in the District’s lawsuit.  The trial court accepted District’s assertion that Measure D would allow property owners that have existing connections to “go inactive,” which would raise the base rates for property owners who kept their connections and this would in effect raise the amount paid by these property owners.  The trial court held that the increase in the amount paid by property owners who remained connected amounted to a tax under the new definition of a tax under Proposition 26.

Decision

The Court of Appeal reversed the decision of the trial court.  Proposition 26 took effect the day after it was approved by the voters.  Because District sought to use Proposition 26 to overturn election results that occurred the day before it became effective, it was trying to give Proposition 26 retroactive effect.  The Court of Appeal held that Proposition 26 could not be applied retroactively to existing local assessment, fees, or charges.

The Court noted that Proposition 26 does “have something akin to a retroactivity provision, but only for state measures that affect ad valorem taxes.”  The Court found that the framers of Proposition 26 did not make any provision “that it would impose new requirements for the validity of existing local government assessments, fees, or charges.”  The Court found nothing that evidenced intent by the Legislature for Proposition 26 to have retroactive application.

The Court of Appeal previously held that District’s water and sewer service operations were not being conducted in a manner that violated Proposition 218.  However, the Court here concluded that Proposition 218 was not an impediment for Paland to seek change in the District’s fee structure relating to sewer and water services.  Proposition 218 provided that “the initiative power shall not be prohibited or otherwise limited in matter of reducing or repealing any tax, assessment, fee, or charge.”  It further provided, “The power of initiative to affect local taxes, assessments, fees and charges shall be applicable to all local governments.”  The Court concluded that using the power referred to in Proposition 218 “is precisely what Paland—and the majority of the District’s voters—did in passing Measure D.” 

The trial court held “that while Proposition 26 took effect the day after the election, the application of Elections Code section 9320 made Measure D effective ‘at a later date.’”  District argued that “because Proposition 26 took effect before Measure D, there was a true issue of retroactivity.”  The Court of Appeal rejected this argument.  A retroactive statue “operates on matters that occurred or on the rights, obligations, or conditions that existed, before the time of its enactment, giving them an effect different from that which they [previously] had.”  Here, the Court concluded that the ‘“rights, obligations, [and] conditions that existed’ prior to enactment of Proposition 26 was the legal landscape analyzed in [the first Paland case] and assumed by the Mendocino County Counsel to be legally accurate.”  The Court concluded that because “Proposition 26 would entirely reorder that landscape,” the issue of “the retroactivity of Proposition is truly presented.”       

When Proposition 26 was removed from consideration, District's water and sewer operations were not subject to Proposition 218’s supermajority requirement.  Therefore, a simple majority was all that was required for Measure D to pass and take effect.  Accordingly, the Court of Appeal reversed the decision of the trial court.