Protecting Public Services for All Ratepayers: Proposition 218 Process After Plantier

• Publication year: 2020
• Author: Kaitlin S. Harr

Protecting Public Services for All Ratepayers: Proposition 218 Process After Plantier

Kaitlin S. Harr

Kaitlin Harr is an attorney in the Natural Resources practice group of Kronick, Moskovitz, Tiedemann & Girard. She assists public and private sector clients in the areas of natural resources and water law, including regulatory compliance, water rights, water quality, administrative, and land-use matters. She received her J.D. from the University of the Pacific, McGeorge School of Law and her Bachelors of Science in Agricultural Science from California Polytechnic State University, San Luis Obispo.*

I. INTRODUCTION

Local water agencies are charged with meeting ever-increasing costs to comply with environmental and health regulations and to operate, repair, and replace critical public water service infrastructure needed to deliver safe and reliable water service. As local water agencies decide how to raise adequate revenue to fulfill those needs within the confines of Proposition 218, the public water service sector has seen a rise in ratepayer lawsuits alleging that agency water service rates violate Proposition 218. Proposition 218's public notice-and-hearing process already provides the opportunity for ratepayers to exhaust remedies before a local agency's governing board decides to increase water service rates. The recent California Supreme Court decision in Plantier v. Ramona Municipal Water District left unanswered the question whether a plaintiff who wishes to challenge water rates under Proposition 218 must exhaust remedies by commenting on the rates during the agency's Proposition 218 hearing. This article examines that question and concludes that requiring such participation is consistent with both Proposition 218 and the important purposes underlying the principles of exhaustion. This article concludes that generally, Proposition 218 protest proceedings provide ample opportunity for participation, but that to enhance such participation, local public water service agencies should consider adopting new procedures that will increase opportunities to obtain and respond to ratepayer input on ratemaking proposals.

II. PROPOSITION 218: PROPERTY OWNERSHIP & PUBLIC SERVICES

Proposition 218, or the "Right to Vote on Taxes Act," was approved by California voters in 1996. This initiative added Articles XIII C and XIII D to the California Constitution and imposed procedural and substantive requirements that govern how local agencies levy fees and charges to pay their costs to provide property-related services, like potable water service. The definition of "fee or charge" in this context is limited to those imposed by an agency upon a parcel or upon a person "as an incident of property ownership," including a user fee or charge for a property-related service.¹ Courts have determined that "[d]omestic water delivery through a pipeline is a property-related water service within the meaning of Proposition 218."²

Proposition 218 imposes substantive limits and prescribes a public process for increasing any property-related service fee or charge. Proposition 218's key substantive limit requires a local agency to demonstrate that any new or increased property-related fee or charge reasonably represents the cost of providing service.³ That includes the cost of running the agency.⁴ More specifically, Proposition 218 provides: (1) revenues derived from fees may not exceed the cost of providing property-related service; (2) the revenue may not be used for purposes other than the one for which the fee was imposed; (3) the fee amount shall not exceed the proportional cost of providing the service attributable to a parcel; (4) the fee may not be imposed for a service unless the service is available to the property owner; and (5) the fee may not be imposed to pay for services that are available to the general public in substantially the same manner as it is to the property owner.⁵

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Proposition 218's procedural requirements mandate that an agency must mail written notice to property owners at least 45 days in advance of a public hearing for the ratemaking agency to consider any protests to the new or increased rates it has proposed for adoption.⁶ The written notice must: Identify the parcels upon for which a fee or charge is proposed; calculate the amount of the fee proposed for each parcel; provide the reason for the fee, and include the date, time, and location of the public hearing. The hearing includes an opportunity for property owners to object to the proposed fee or charge (called a "protest"), and the agency must consider all protests received. If written protests against the proposed fee or charge are presented by a majority of property owners (called a "majority protest"), Proposition 218 prohibits the agency from imposing the fee or charge. If less than a majority protest, the agency must decide whether to adopt the rates as proposed, to reduce the rates, or to start over with a new ratemaking proposal.

Case law applying Proposition 218 focuses primarily on how its procedures and substantive limitations affect the property owners who claim they are being charged too much for the public service they receive. Although that is a natural starting point, courts also should consider how application of Proposition 218 affects other property owners and the agency's ability to provide safe and reliable water service for all. To that end, courts should more carefully consider how Proposition 218's public participation and judicial review procedures affect an agency's ability to generate the reliable revenue stream needed to operate, maintain, replace, expand, and upgrade the infrastructure needed to provide potable water service that is reliable and safe.

The availability of such services directly impacts a customer's ability to use their property. Moreover, the availability and reliability of these services impact the potential uses and value of property. With respect to public water suppliers, for example, the ability to generate revenue to replace aging infrastructure affects the reliability of water supply. If revenue is too uncertain and inadequate to pay for timely carrying out repairs and replacement of water system facilities, the availability and reliability of the service area's water supply is threatened. Unscheduled emergency repairs typically are more expensive than planned ones and may unexpectedly disrupt water service, whereas planned repairs and replacements supported by reliable revenue sources avoid or reduce such disruptions for the benefit of all property owners.

All ratepayers have important interests in ratemaking proceedings that provide ratepayers with adequate notice of a proposed new or adjusted fee or charge. Likewise, all ratepayers have important interests in being provided with adequate notice of who opposes such increases and why; notice of such opposition is essential if the agency's governing body is to make an informed ratemaking decision. Recognition of such interests by requiring exhaustion is entirely consistent with Proposition 218, as one of the core purposes of Proposition 218 is to enhance communication between ratepayers and agencies.⁷ Submittal of a written protest during Proposition 218's notice period and hearing participation would amply accomplish that goal. Moreover, as described below, requiring such participation in the context of Proposition 218 is also consistent with the important purposes underlying the exhaustion doctrine.

III. SEPARATION OF POWERS & EXHAUSTION OF REMEDIES

One of the most fundamental rules governing the relationship between agencies and courts is the "exhaustion of remedies" principle, which requires individuals to raise concerns about proposed agency action to the agencies themselves, in the first instance, rather than to courts. Individuals that disagree with agency actions must pursue available agency procedures for addressing those concerns before they may sue the agency in court.⁸ The exhaustion requirement serves several important purposes: (1) permitting the agency to resolve factual issues, apply its expertise, and exercise statutorily delegated remedies; (2) bolstering administrative autonomy; (3) promoting judicial economy; and (4) mitigating damages.⁹ Satisfaction of these purposes is so important that the exhaustion requirement is not a matter of judicial discretion, but is a jurisdictional rule that binds all courts.¹⁰

One key purpose of exhaustion is to protect the fundamental role of agencies as expert fact-finders. A local water agency hires its staff members for their expertise in water resources management. Local agency staff possess...