Court Rules Voter Initiative Cannot Force Water District to Set Rates Below Level Mandated by State Statute - Water Districts Must Be Able to Pay for Costs to Provide Water

by Best Best & Krieger LLP

In Mission Springs Water District v. Verjil, a California appellate court invalidated voter initiatives that had proposed to reduce a water district’s recently adopted rate increases and limit the amount the district could raise future rates to the percentage increase, if any, in the Consumer Price Index. The court held that the local electorate does not have the power by initiative to set water rates so low that they are inadequate to pay the costs of the water district.

In a prior decision, Bighorn Desert View Water Agency v. Verjil, the California Supreme Court held that the California Constitution expressly authorizes the use of an initiative to reduce or repeal water rates. The court, however, also held that an initiative that seeks to “impose voter-approval requirements for future increases in fees and charges” was not authorized by the Constitution. The Supreme Court, however, declined to address whether the authorized initiative power is free of all limitations. In particular, the court did not determine “whether the electorate’s initiative power is subject to the statutory provision requiring that water service charges be set at a level that ‘will pay the open expenses of the agency, . . . provide for repairs and depreciation of works, pay the interest on bonded debt, and provide a sinking or other fund for the payment of the principal of such debt as it may become due.’”

The Mission Springs Water District (District) is a county water district established and operating pursuant to the County Water District Law. Under section 31007 of the California Water Code, the fees and charges collected by a county water district are required to be established so as to yield an amount sufficient to do each of the following:

(a) Pay the operating expenses of the district.

(b) Provide for repairs and depreciation of works owned or operated by the district.

(c) Pay the interest on any bonded debt.

(d) So far as possible, provide a fund for the payment of the principal of the bonded debt as it becomes due. It is intended by this section to require the district to pay the interest and principal of its bonded debt from the revenues of the district, except that this requirement is not intended to apply to a bonded debt for sewage disposal purposes.

The District presented extensive and detailed evidence at trial that the rate increases were absolutely necessary due to revenue declines and cost increases beyond the District’s control. If the initiatives passed, the District would be unable to meet its costs, pay its debts and stay in business, and the potential consequences for the local water supply would be disastrous.

In its Aug. 8 decision, the appellate court recognized a 1995 Court of Appeal decision in DeVita v. County of Napa, which reasoned that “the local electorate’s right to initiative . . . is generally co-extensive with the legislative power of the local governing body,” and that there is a “constitutionally based presumption that the local electorate could legislate by initiative on any subject on which the local governing body could also legislate.” Thus, the court concluded in Mission Springs Water District that if the state Legislature has restricted the legislative power of a local governing body, that restriction applies equally to the local electorate’s power of initiative and the voters may not exempt themselves by initiative from the requirements of Water Code section 31007. In sum, neither the District nor the electorate may set water rates so low that they are inadequate to pay the costs listed in Water Code section 31007.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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