Capistrano Taxpayers Ass'n v. City of San Juan Capistrano
235 Cal. App. 4th 1493
| Cal. Ct. App. | 2015Background
- City of San Juan Capistrano (City Water) adopted a four-tier residential water rate structure in 2011 allocating total system costs across usage "budgets" rather than computing marginal cost by usage level.
- Tier prices: Tier 1 (<=6 ccf) $2.47/ccf; Tier 2 (7–17 ccf) $3.29/ccf; Tier 3 (18–34 ccf) $4.94/ccf; Tier 4 (>34 ccf) $9.05/ccf.
- Capistrano Taxpayers Association (CTA) sued under Proposition 218 (Cal. Const., art. XIII D, § 6), arguing rates exceeded the proportional cost of service (subd. (b)(3)) and unlawfully charged customers for recycled water not "immediately available" (subd. (b)(4)).
- Trial court found City Water failed to show cost support for tier differentials and held recycled-water charges violated the "immediately available" rule.
- Court of Appeal: affirmed that City Water failed its burden to show tier rates matched cost-of-service (b)(3); reversed the trial court’s categorical holding that funding recycled water violates the "immediately available" rule (b)(4), but remanded for findings whether low-use customers were improperly made to fund recycling that their usage did not necessitate.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether fees to fund recycled-water capital projects violate art. XIII D, §6(b)(4) because recycled water is not "actually used by, or immediately available to" all parcels | Recycled-water charges impermissibly charge all ratepayers for a service not immediately available to residences | Recycled water is part of overall water service; capital investments that increase supply benefit all customers and are immediately available as water service | Reversed trial court: funding recycling does not per se violate (b)(4); recycled and potable water are part of same service, but remanded to determine if low-use customers were improperly allocated recycling costs they did not cause |
| Whether tiered/inclining block rates must reflect the actual marginal cost of service to each parcel under art. XIII D, §6(b)(3) | Tiered rates exceed proportional cost of service because City Water allocated costs by budgets rather than calculating incremental cost per usage tier | Tiered rates need not be tied exactly to marginal cost; conservation and Article X, §2 permit subsidies for low users and policy-driven tiers; cost calculations are complex and quasi-legislative | Affirmed trial court: agencies bear burden to demonstrate compliance; tiers must correspond to actual cost of providing service at each usage level, not mere budget allocations |
| Whether higher tiers can be justified as "penalty" or conservation rates outside Proposition 218 limits | N/A (Plaintiff opposes above-cost tiers) | Higher tiers are penalties/conservation measures and therefore not constrained by Proposition 218 taxing/fee limits | Rejected: treating excess usage as a penalty would eviscerate (b)(3); conservation goals do not permit rates exceeding cost of service without cost-based justification |
| Burden of proof and standard of review in Proposition 218 challenges | CTA: agency must demonstrate compliance | City Water: relied on agency discretion and industry manuals (M-1); urged deference | Court reiterates Silicon Valley: agency bears burden under (b)(5); independent review applies; complex calculations required but constitutionally mandated |
Key Cases Cited
- Bighorn-Desert View Water Agency v. Verjil, 39 Cal.4th 205 (California) (Proposition 218 applies to water rates; rates must reflect cost of service)
- Silicon Valley Taxpayers’ Assn., Inc. v. Santa Clara County Open Space Authority, 44 Cal.4th 431 (California) (agency bears burden to show compliance with Proposition 218; independent review required)
- City of Palmdale v. Palmdale Water Dist., 198 Cal.App.4th 926 (California) (tiered rates must reasonably reflect cost of service; rejecting gratuitous discrimination and unjustified tiering)
- Griffith v. Pajaro Valley Water Management Agency, 220 Cal.App.4th 586 (California) (fees funding supply augmentation can benefit all users; allocation methods scrutinized)
- Morgan v. Imperial Irrigation District, 223 Cal.App.4th 892 (California) (capital costs may be amortized over multiple years for rate-setting)
- California Farm Bureau Federation v. State Water Resources Control Bd., 51 Cal.4th 421 (California) (remand appropriate when record unclear on cost apportionment between regulatory fees and costs)
- Brydon v. East Bay Mun. Utility Dist., 24 Cal.App.4th 178 (California) (upheld inclining block rates pre-Proposition 218; not controlling post-Prop 218)
- Howard Jarvis Taxpayers' Assn. v. City of Fresno, 127 Cal.App.4th 914 (California) (recognizing complexity of required cost calculations but enforcing constitutional cost-of-service requirement)
- National Audubon Society v. Superior Court (Audubon–Mono Lake), 33 Cal.3d 419 (California) (historical context on water-use doctrines and conservation principles)