N. Cal. Water Ass'n v. State Water Res. Control Bd.
20 Cal. App. 5th 1204
| Cal. Ct. App. 5th | 2018Background
- In 2003–04 the Legislature enacted Water Code §§1525, 1540, 1550–1560 and created a Water Rights Fund; §1525 required annual fees on holders of water permits/licenses; §1540/1560 allowed allocation of fees the United States refused to pay to contractors. The Board adopted emergency regulations (Cal. Code Regs., tit. 23, §§1066, 1073) implementing the fee schedule.
- The Board set fees to recover roughly $4.4 million from the Water Rights Fund (part of a ~$9 million Division budget), using face-value acre‑feet ($0.03/af or $100 minimum) and reduced face values for hydropower permits; it estimated a 40% noncollection rate and therefore grossed up collections.
- The Board assessed about $2.45 million (USBR CVP portion) against Central Valley Project (CVP) contractors via regulation 1073 after the USBR asserted sovereign immunity.
- Plaintiffs (farm/water associations and individual payors) sued, arguing the fee as applied was an unconstitutional tax under Prop 13 because non‑fee‑paying riparian/pre‑1914 (RPP) right holders benefited and the costs were improperly allocated; they also argued the pass‑through to CVP contractors violated the Supremacy Clause and that the rules were arbitrary as applied to Imperial Irrigation District (IID).
- The California Supreme Court held the statutes constitutional on their face but remanded for findings about (a) whether fees were reasonably apportioned to the Division’s regulatory costs and (b) the contractors’ beneficial interests. On remand the trial court invalidated the regulations; this appeal followed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the FY2003–04 annual water‑right charge was a tax (Proposition 13) or a regulatory fee | Fees operated as a tax because permit/license holders bore costs for regulatory activities benefiting non‑paying RPP holders | The fee was a regulatory fee: only ~10% of Division resources went to RPP matters and general fund plus other non‑fee appropriations covered those costs | Reversed trial court: fee was a valid regulatory fee — Board showed fee revenue was proportionate to costs allocable to permit/license holders and other funds covered RPP‑related costs |
| Whether fees were improperly allocated because RPP right holders benefit without paying | Permit/license holders are forced to shoulder costs attributable to RPP rights (who impose burdens/receive benefits) | Division evidence (including internal estimates) showed ~10% of time spent on RPP issues; general fund & other appropriation covered that share | Rejected plaintiff: Board met burden of production; the collective proportionality test satisfied; allocation did not convert fee into tax |
| Whether allocating USBR CVP fee to contractors violates the Supremacy Clause (must tax only beneficial/possessory interest) | Pass‑through exceeded contractors’ beneficial interest because contractors often receive less than contract face amounts and have no guaranteed deliveries | CVP is a water‑supply project; after USBR satisfies legal/environmental obligations contractors receive all available project water, so their beneficial interest in CVP permits/licenses is reasonably valued at 100% | Reversed trial court: regulation 1073’s allocation to CVP contractors was reasonable and did not violate the Supremacy Clause |
| Whether the fee regulations were arbitrary as applied to a single payor (IID) | IID was charged multiple times on separate permits covering the same Colorado River diversion (unfair compared to DWR) | A lack of perfect uniformity does not render a regulatory fee unconstitutional; proportionality is collective, not individual | Rejected plaintiff: single‑payer disparity insufficient to invalidate regulations |
Key Cases Cited
- California Farm Bureau Federation v. State Water Resources Control Bd., 51 Cal.4th 421 (Cal. 2011) (supreme court affirmed statutes’ facial validity, remanded to determine proportionality and contractors’ beneficial interests)
- Sinclair Paint Co. v. State Bd. of Equalization, 15 Cal.4th 866 (Cal. 1997) (regulatory fees valid if reasonably related to cost of regulatory activity)
- United States v. County of Fresno, 429 U.S. 452 (U.S. 1977) (federal immunity from state taxation unless property is taxed only to the extent of a private party’s beneficial/possessory interest)
- United States v. Gerlach Live Stock Co., 339 U.S. 725 (U.S. 1950) (historical characterization of the CVP as a federal reengineering/water‑supply enterprise)
- Tehama‑Colusa Canal Auth. v. United States DOI, 721 F.3d 1086 (9th Cir. 2013) (describing categories of CVP contracts and priority distinctions)
- San Luis & Delta‑Mendota Water Authority v. United States, 672 F.3d 676 (9th Cir. 2012) (overview of USBR control of CVP and regulatory constraints on deliveries)
- United States v. State Water Resources Control Bd., 182 Cal.App.3d 82 (Cal. Ct. App. 1986) (Board‑imposed permit conditions and CVP obligations, including salinity control)