by Thomas F. Stone

Attorney at Law

Since its adoption in 1996, Proposition 218 has been the subject of hundreds of lawsuits asking the courts to apply and interpret the language approved by the voters.

This article explores some recent cases of particular interest to special districts.

Fees and Charges

In Richmond v. Shasta Community Services Dist.(2004) 32 Cal.4th 409, the California Supreme Court held that the connection fee imposed by a community services district was not a special assessment subject to restrictions under Prop. 218, which added Articles XIIIC and D to the California Constitution.

After adoption of Prop. 218, Shasta CSD adopted an amendment to its water ordinance that included a required payment for all applicants for a water service connection.

The payment included (1) a capacity charge based on estimated cost of future system improvements and the estimated number of future connections ($762,300 divided by 240 estimated connections); (2) the actual cost of a water meter; and (3) if the applicant chose to have the District install the connection, the actual cost of the materials, labor and overhead.

Richmond argued that the fee was an "assessment" and that the District had failed to follow the procedures for the "assessment" prior to adoption.

Article XIIID defines an "assessment" as any levy or charge on real property for a special benefit conferred on the real property. It defines "special benefit" as "a particular and distinct benefit over and above general benefits conferred on real property located in the district or to the public at large." In addition, it establishes detailed procedures for adoption of an assessment.

In holding that the connection fee was not an assessment, the Court pointed out that it is impossible to subject a capacity charge to "assessment" procedures.

For example, the district is required to identify each parcel subject to assessment and notify the owner prior to adoption. But the property to be charged a capacity fee is not determined at the time of adoption, nor can future subdivision be anticipated. The property is identified only when a connection is requested.

Since an assessment is defined under Prop 218 as a "levy or charge upon real property" the Court reasons further that the capacity charge cannot be an assessment. It is not levied on real property but on individuals who request a service connection. Under this Ordinance, the CSD could not lien the property or charge the owner. Only the applicant was liable for payment. The charge was not on real property, but on an extension of water service through a new connection.

The Court said, "...we remain persuaded that a capacity charge contingent on some voluntary action by the property owner is not an assessment within the meaning of article XIIID."

In Pajaro Valley Water Management Agency v. Amrhen (H027817 Ct. App. 6th Dist. July 26, 2006) the Court of Appeals validated a groundwater augmentation fee.

The groundwater basin underlying the Agency territory was in chronic overdraft and subject to salt water intrusion. To remedy the overdraft, the water agency adopted an "augmentation fee" to pay the cost of purchasing, capturing, storing and distributing supplemental water.

The fee was assessed against all extractors of water, based on actual use, if metered, or estimated use if not.

Opponents argued that the fee was either a tax, an assessment or a charge incidental to property ownership.

The Court held that the fee was not a tax, but a charge for the service of securing the water supply for future use by the extractors of water who paid the charge.

Following the reasoning in Richmond, the Court characterized the charge as an "activities-related charge," holding it was not an assessment. An assessment must be against land, and this charge was on extraction of groundwater.

Finally, the challengers argued that Article XIIID regulates, a charge imposed "upon a...person as an incident of property ownership...."

The Court pointed out again that the charge was not imposed on owners because of ownership but on persons extracting groundwater, who might be owners, tenants or others.

The Court concluded that, "The charge is thus incidental not to the ownership of real property, but to the carrying out of specified activities that perforce occur, if at all, on real property." The charge was based on consumption and incurred through voluntary action, not ownership of property.

Special Assessments.

Silicon Valley Taxpayers Association v. Santa Clara Open Space Authority, now pending before the California Supreme Court, challenges traditional definitions of "special benefit."

Under Proposition 218, a special assessment is a levy or charge on real property for a special benefit conferred on the real property. The special benefit may be from a public improvement or service. [Cal. Const. Art. XIIID §2(b); §53750(b) Govt. Code]

Article XIII defines "special benefit" as "...a particular and distinct benefit over and above general benefits conferred on real property located in the district or to the public at large." General enhancement of property value does not constitute "special benefit". [Cal. Const. Art. XIIID §2(i)]

In Silicon Valley an open space district levied a special assessment on all real property in Santa Clara County (except property in an existing open space district) to pay for purchase and development of open space to be designated in the future.

The Court of Appeals held that acquisition and maintenance of open space conferred a special benefit on the assessed properties and the assessment was properly levied in proportion to the special benefits conferred under the formula for division of general and special benefits adopted by the Authority.

In deciding the case, the Court relied on several pre-Proposition 218 cases that broadly defined "special benefit" and held that Proposition 218 did not alter the definition of "special benefit" used in those cases.

But Proposition 218 did change the standard used to review lower court decisions. The Court held that the new standard required the assessing agency to show, from evidence in the record of the adoption proceedings submitted to the Court, that the assessed properties will receive a special benefit over and above the benefits conferred on the public at large and that the amount of the assessment is proportional to the benefit.

Subsequently, the California Supreme Court granted review. The case has been briefed but not argued in the Supreme Court. It is unpredictable when the case will be decided. Existing assessments are not affected now, but may be when the decision comes down.

Fees, Charges and Initiative-approved Rate Reductions.

Article XIIIC §3 of the California Consti-tution provides that, "...the initiative power shall not be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge."

In Bighorn-Desert View Water Agency v. Verjil (2006) 39 Cal.4th 205, a local resident qualified an initiative measure that (1) cut the Agency water rate in half; (2) reduced the MWA pipeline charge by 20%; and (3) required voter approval before imposing or increasing any rate, fee or charge.

The California Supreme Court held that Article XIIIC §3 grants local voters the initiative to reduce water rates, but not to require voter approval of future increases.

It also held that a fee for ongoing water service (but not a connection fee like Richmond) was a "property-related fee or charge" as defined by Article XIIID §2.

Under this ruling, water service and other similar charges, such as sewer service charges are subject to the procedural requirements of Article XIIID §6.

Required procedures include identifi-cation of the property to be charged, calculation of the amount of fee or charge, mailed notice to each property owner, and public hearing.

Fees and charges subject to Article XIIID, other than for sewer, water and refuse collection, must pass a vote of either a majority of affected property owners by mail ballot, or by 2/3 of the electors in the affected area.

Consequently, all districts would be wise to review their fees and charges adopted after July 1, 1997, to determine which are subject to Article XIID. The district may need to cure failure to follow the procedures and voting requirements if they apply.