IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIFTH APPELLATE DISTRICT

CASE NO. F059871

FOSTER POULTRY FARMS, INC., Plaintiff and Respondent,

vs.

CITY OF LIVINGSTON, ET AL., Defendants and Appellants.

On Appeal From a Judgment by the Superior Court, Merced County, Case No. CV000292, Hon. Brian L. McCabe

APPLICATION TO FILE AMICUS BRIEF AND AMICUS CURIAE BRIEF OF ASSOCIATION

OF CALIFORNIA WATER AGENCIES, CALIFORNIA STATE ASSOCIATION OF

COUNTIES, AND LEAGUE OF CALIFORNIA CITIES ON BEHALF OF DEFENDANTS &

APPELLANTS

Daniel S . Hentschke (CA 76749) dhentschke@ sdcwa.org 4677 Overland Ave. San Diego, CA 921 23 Telephone: (858) 522-679 1 Facsimile: (858) 522-6566

Colantuono & Levin PC Michael G. Colantuono (CA 143551) mcolantuono@ cllaw .us 300 S . Grand Avenue, Suite 2700 Los Angeles, California 90071-3 1 37 Telephone: (213) 542-5700 Facsimile: (213) 542-5710

Attorneys for Amicus Curiae Association of California Water Agencies, California State Association of Counties, and League of California Cities

1

APPLICATION FOR PERMISSION TO FILE AMICI CURIAE BRIEF

TO THE HONORABLE PRESIDING JUSTICE:

Pursuant to Rule 8.200(c) of the California Rules of Court, the

Association of California Water Agencies ("ACWA"), California State

Association of Counties ("CSAC"), and the League of California Cities

("League") respectfully request permission to file the joint amici curiae

brief that is combined with this application. Each applicant is an

organization that represents public agencies that have a substantial interest

in this case because each member public agency is a local government that

has the power to provide water, sewer, or other public utility service subject

to statutory and constitutional requirements for the setting of service fees

and charges at issue in this case, including the requirements of California

Constitution article XIII D, section 6. (See Cal. Const. art. XIII C, § 1 (b)

and XIII D, § 2(a) (defining the "local agencies" to which Prop. 2 1 8

applies).) Amici desire to address four rulings in this case that have

impacts beyond the parties to this litigation and affect the interests of local

government agencies throughout the State. These are:

• The trial court's determination that Health & Safety Code section

547 1 is the exclusive method by which the City of Livingston could

establish the water charge;

I

• The trial court' s determination that a new 45-day notice must be

mailed each time a legislative body continues a public hearing to

consider fees or charges subject to the requirements of California

Constitution article XIII D, section 6;

• The trial court' s determination that the City of Livingston was

precluded from adopting a water service fee in an amount less than

specified in the public notice;

• The trial court' s determination that the City of Livingston was

precluded from including costs to repay prior general fund

expenditures for water service when calculating the amount of the

new water service fee.

The applicants' attorneys have examined the briefs on file in this

case and are familiar with the issues involved and the scope of the

presentations. The applicants respectfully submit a need exists for

additional briefing regarding the statewide impact of a decision by this

Court on the correct interpretation of applicable statutes and the California

Constitution. In the proposed brief combined with this application,

applicants address the need for local agencies to have reasonable flexibility,

consistent with express statutory and Constitutional authorization, to

establish procedures for the conduct of meetings, adoption of water service

fees, and payment of the cost of their utility enterprise operations.

II

For the reasons stated in this application and further developed in

the Introduction and Interest of Amici portion of the proposed brief, the

applicants respectfully request leave to file the amicus curiae brief that is

combined with this application.

The amici curiae brief was authored by Michael G. Colantuono,

Colantuono & Levin, PC and Daniel S . Hentschke, General Counsel, San

Diego County Water Authority. No party, person, or entity made a

monetary contribution to fund the preparation of this brief.

Dated: Au,. :Z �2_tl/[? Respectfully submitted: Colantuono & Levin, P.C. Michael G. Colantuono

III

TABLE OF CONTENTS

TABLE OF AUTHORITIES .....•.................................................•...........•. ii

I. INTRODUCTION AND INTEREST OF AMICI ......................... 1

A. DESCRIPTION OF AMICI CURIAE ...................................... 3

B. AMICI HAVE A UNITY OF INTEREST BECAUSE THEIR PUBLIC AGENCY MEMBERS ARE ALL LOCAL GOVERNMENT AGENCIES SUBJECT TO ARTICLE XIII D AND ALL IMPOSE PROPERTY RELATED FEES AND CHARGES ........................................................................... 4

II. FACTS AND PROCEDURAL HISTORY ....................... � ....... � ..... 5

III. ARGUMENT ...................................................................................... 5

A. THE TRIAL COURT MISAPPREHENDED THE CITY'S RATE-MAKING POWER ......................................................... 5

B. THE TRAIL COURT MISAPPREHENDED THE REQUIREMENTS OF PROPOSITION 218 ......................... 16

IV. CONCLUSION .•....................................................•........................ 42

1

TABLE OF AUTHORITIES

Cases

Apartment Ass 'n of Los Angeles County, Inc. v. City of Los Angeles (2001) 24 Ca1.4th 830 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Beaumont Investors v. Beaumont-Cherry Valley Water District (1985) 165 Cal.App.3d 227 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1

Bel Mar Estates v. California Coastal Com. (1981) Cal.App.3d 936 . . . . . . . . 27

Bighorn-Desert View Water Agency v. Verjil (2006) 39 Ca1.4th 2052, 1 8, 19, 20

California Apartment Assn. v. City of Stockton (2000) 80 Cal.App.4th 699, 704 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Cavalier Acres, Inc, v. San Simeon Acres Community Services District, 151 Cal.App.3d 798 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2, 13

Chaffee v. San Francisco Public Library Com. (2005) 134 Cal.App.4th 109 ................................................................................................................. 25

City and County of San Francisco v. Farrell (1978) 32 Cal.3d 47, 52-53 . 15

County of Inyo v. Public Utilities Com. (1980) 26 Ca1.3d 154, 161 . . . . . . . . . . . 36

Cramer v. City of San Diego (1958) 1 64 Cal.App.2d 1 68 . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Crowe v. Boyle (1920) 1 84 Cal. 1 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Dahms v. Downtown Pomona Property Improvement District (2009) 174 . Cal.App.4th 708 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Durant v. City of Beverly Hills (1940) 39 Cal.App.2d 133 . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Glenbrook Develop. Co. v. City of Brea (1967) 253 Cal.App.2d 267 . . . . . . 7, 9

Gordon v. Lance (197 1 ) 403 U.S. 1 , 6, 9 1 S .Ct. 1 889, 1 892, 29 L.Ed.2d 273 ............... : ........................................................•........................................ 15

Greene v. Marin County Flood Control & Water Conservation Dist. (201 0) 49 Cal. 4th 277 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 1 8

Hansen v. City of San Buenaventura (1986) 4 2 Ca1.3d 1 172 . . . . . . . . 36, 37, 41

11

Homebuilders Ass 'n of Tulare I Kings Counties v. City of Lemoore City Council, et al., (20 10) 185 Cal. App. 4th 554, 2010 WL 2774439 . . . . . . . . 3 1

Howard Jarvis Taxpayers Assn. c. City of Fresno (2005) 127 Cal. App. 4th 914 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34, 37

Howard Jarvis Taxpayers Assn. v. City of Roseville (2002) 97 Cal. App. 4th 637 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,37

Irvin v. City of Manhattan Beach ( 1966) 65 Cal.2d 13 .......... ................ ...... 6

·Johnson v. Bradley (1992) 4 Cal.4th 389, 394 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Kennedy v. City of Ukiah ( 1977) 69 Cal.App.3d 545 . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 1 1

Longr�dge Estates v. City of Los Angeles ( 1 960) 1 83 Cal.App.2d 533 . . . . . . . . 7

Pajaro Valley Water Management Agency v. Amrhein (2007) 150 Cal.App.4th 1364 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 19, 28, 29

Paland v. Brooktrails Township Community Services Dist. Bd. of Directors (2009) 179 Cal. App. 4th 1 358 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Pinewood Investors v. City of Oxnard, 133 Cal.App.3d 1030 . . . . . . . . 1 1 , 1 2, 1 3

Richmond v. Shasta Community Services District (2004) 3 2 Cal. 4th 409 . . 2, 12,19,34

San Marcos Water Dist. v. San Marcos Unified Sch. Dist. ( 1986) 42 Cal.3d 154 ........................................................................................................... 34

Silicon Valley Taxpayers ' Ass 'n v. Santa Clara County Open Space Authority (2008) 44 Cal. 4th 43 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 39

Codes

Government Code § 34 101 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Government Code § 34 102 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Government Code § 36934 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Goveniment Code § 38900 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1

Government Code § 53750 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Government Code § 53755 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17, 26, 27

111

Government Code § 53756 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17, 21, 26

Government Code § 54300 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Government Code § 5430 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Government Code § 54304 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Government Code § 54344 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 13, 14, 15

Government Code § 54345 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 13, 14, 15

Government Code § 5451 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Government Code § 54514 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Government Code § 54515 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Government Code § 54516 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Government Code § 54984 ..... ..... · . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Government Code § 6 1000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2

Government Code § 61 060 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2

Government Code § 65095 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Health & Safety Code § 547 1 .............................................................. passim

Public Resources Code § 21000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Public Utility Code § 1 2809 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Public Utility Code § 1 6467 . . . . . . . . . . . . . . . . . . . . . . . . ; . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Water Code § 3 1007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . : . . . . . . . . . . . . . . . . . . . 38

Water Code § 43006 ................................................................................... 38

Water Code § 53750 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Water Code § 71616 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Constitutional Provisions

California Constitution Article XI ....................................................... passim

IV

California Constitution Article XIII C ...................................................... 1 , 4

California Constitution Article XIII D . . . ............. ................. ................ passim

v

I. INTRODUCTION AND INTEREST OF AMICI

· Proposition 218, adopted by the voters in November 1996, added

articles XIII C and XIII D to the California Constitution and, among other

things, fundamentally changed the law relating to imposition of property

related fees and charges. Important among the innovations of Proposition

218 was the requirement that a new class of "property related fees and

charges," defined by article XIII D, section 2(e), be subject to a noticed

hearing at which property owners subject to the fee might protest its

imposition. (Cal. Const. art. XIII D, § 6(a).) Local legislative bodies may

not impose a property related fee or charge if a majority of affected

property owners submit written protests, and fees for services other than

water, sewer and trash removal are also subject to an election among

property owners. (Cal. Const. art. XIII D, § 6(c).) Also, article XIII D,

section 6(b) establishes substantive limitations on property-related fees and

charges.

Although Proposition 218's fee provisions took effect with the 1997-

98 fiscal year (Cal. Const. art. XIII D, §(d)), most public utilities did not

view the measure as applicable to usage fees, charges, or rates for voluntary

consumption of utility services in reliance on the California Supreme

Court' s decision in Apartment Ass 'n of Los Angeles County, Inc. v. City of

Los Angeles (200 1) 24 Cal.4th 830 (fee on landlords to fund Housing Code

1

enforcement was not a property-related fee subject to Prop. 218 because

triggered by voluntary entry into rental housing business). In 2006, the

California Supreme Court clarified the impact of Proposition 218 on

ordinary utility rates in Bighorn-Desert View Water Agency v. Verjil

(2006) 39 Cal.4th 205 (water rates for domestic water service are property

related fees subject to Prop. 2 18) . Thus, local agencies have been

implementing Proposition 218 with respect to fees and charges for utility

services such as water for four years. The authors of this brief have been

actively involved as counsel to a party or amici in every major appellate

case involving Proposition 218 since its adoption and, to their knowledge,

the instant case is the first to litigate the questions addressed here.

Over the past several years, Proposition 218' s provisions have

required clarification by the courts in cases beyond those cited above. (E.g.,

Greene v. Marin County Flood Control & Water Conservation Dist. (201 0)

49 Cal. 4th 277 (election procedures for property related fees under Article

XIII D, section 6(c); Silicon Valley Taxpayers ' Ass 'n v. Santa Clara County

Open Space Authority (2008) 44 Cal. 4th 43 1 Uudicial review of assessment

determinations under Article XIII D, section 4); Richmond v. Shasta

Community Services District (2004) 32 Cal. 4th 409 (water connection fee

for new service is not a property related fee subject to Proposition 218);

Pajaro Valley Water Management Agency v. Amrhein (2007) 1 50

Cal.App.4th 1364 (groundwater extraction fee subject to Prop. 218 because

2

imposed on domestic water use). Amici agencies have individually or

collectively participated in these cases by submission of amicus curiae

briefs.

A. DESCRIPTION OF AMICI CURIAE

ACW A is a non-profit public benefit corporation organized and

existing under the laws of the state of California since 19 1 0. ACWA is

comprised of over 450 water agencies, including municipal water districts,

irrigation districts, county water. districts, California water districts and a

number of special purpose agencies. ACWA's Legal Affairs Committee,

comprised of attorneys from each of ACW A' s regional divisions

throughout the State, monitors litigation and has determined that this case

involves issues of significance to ACW A' s member agencies.

CSAC is a non-profit corporation. The membership consists of the

58 California counties. CSAC sponsors a Litigation Coordination Program,

which is administered by the County Counsels' Association of California

and is overseen by the Association' s Litigation Overview Committee,

comprised of county counsels from throughout the state. The Litigation

Overview Committee monitors litigation of concern to counties statewide

and has determined that this case is a matter affecting all counties.

The League is an association of essentially all of California' s 481

cities dedicated to protecting and restoring local control to provide for the

public health, safety, and welfare of their residents, and to enhance the

3

quality of life for all Californians. The League is advised by its Legal

Advocacy Committee, which is comprised of 24 city attorneys from all

regions of the State. The Committee monitors litigation of concern to

municipalities, and identifies cases that are of statewide or national

significance. The Committee has identified this case as being of such

significance.

B. AMICI HAVE A UNITY OF INTEREST BECAUSE THEIR PUBLIC AGENCY MEMBERS ARE ALL LOCAL GOVERNMENT AGENCIES SUBJECT TO ARTICLE .XIII D AND ALL IMPOSE PROPERTY RELATED FEES AND CHARGES

The outcome of this case will impact the Amici' s members because

each member is a local government having the power to provide water,

sewer, or other public utility service subject to the requirements of various

statutes governing the setting of service fees and charges, as well as to

article XIII D, section 6. (See Cal. Const. art. XIII C, § 1 (b) and XIII D,

§ 2(a) (defining the "local agencies" to which Prop. 218 applies).) The trial

court' s erroneous rulings, if upheld on appeal, will severely infringe the

legislative discretion of local government to establish budgets; manage

fiscal resources, and finance, operate and maintain utility services for the

benefit of their residents and other customers. The local agencies

represented by ACW A, CSAC, and the League have a significant interest in

cases, such as this one, which involve statutory and constitutional

4

limitations on the ability of local public agencies to establish budgets,

allocate fiscal resources, and levy property related fees.

II. FACTS AND PROCEDURAL HISTORY

Rather than restate the facts and procedural history in detail, Amici

adopt the description of facts as set forth in the Appellant' s opening brief.

III. ARGUMENT

A. THE TRIAL COURT MISAPPREHENDED THE CITY'S RATE-MAKING POWER

A general law city like Livingston has two kinds of authority to

impose rates for its utility services - the power directly conferred by

California Constitution article XI, section 91 and the power conferred by a

number of mutually non-exclusive statutes adopted by the Legislature. The

trial court erred by restricting the Livingston' s power to a single statute that

requires approval of two-thirds of city council members to collect utility

rates via the property tax roll even though Livingston does not to collect

rates in that manner.

1 Cities may also impose service fees under their general police power to legislate for the public health, safety and general welfare under California Constitution article XI, section 7. Because this argument is fully briefed by the City's brief, Amici do not repeat it here.

5

1. The City's Constitutional Power to Impose Utility Rates

Article XI, section 9 of the California Constitution authorizes both

general law2 and charter cities3 to operate utilities and to charge fees for

doing so:

"(a) A municipal corporation4 may establish, purchase, and

operate public works to furnish its inhabitants with light,

water, power, heat, transportation, or means of

communication. It may· furnish those services outside its

boundaries, except within another municipal corporation

which furnishes the same service and does not consent.

(b) Persons or corporations may establish and operate works

for supplying those services upon conditions and under

regulations that the city may prescribe under its organic law."

(Emphasis added.)

2 A "general law city" is a city like Livingston that does not operate under a voter-approved charter, but instead derives its powers from the Constitution and the general laws adopted by the Legislature. (Gov't Code § 34102; Irvin v. City of Manhattan Beach ( 1966) 65 Cal.2d 13 .)

3 A charter city is a city operated under a voter-approved charter. It derives its authority directly from the California Constitution as limited by the provisions of the city charter and such state legislation as may properly apply to a charter city as pertaining to matters of state wide concern, rather than municipal affairs. (Gov't Code § 341 0 1 ; Johnson v. Bradley ( 1992) 4 Cal.4th 389, 394.)

4 The term "municipal corporation" includes general law and charter cities as well as special districts because "in its ordinary sense the term applies to all corporations exercising governmental functions on the local level." (California Apartment Assn. v. City of Stockton (2000) 80 Cal.App.4th 699, 704.)

6

The power to "establish" and "operate" utilities includes the power

to establish rates and charges. (Long ridge Estates v. City of Los Angeles

(1960) 183 Cal.App.2d 533 (sewer rates); Durant v. City of Beverly Hills

(1940) 39 Cal.App.2d 133 (water rates).) A city' s power under article XI,

section 9 is self-executing and does not require enabling state legislation.

(Glenbrook Development Co. v. City of Brea ( 1967) 253 Cal.App.2d 267.)

This power can be exercised by ordinance or resolution unless an applicable

statute requires action by ordinance. 5 As discussed below, because

Livingston bills customers for water service via mailed bills, and does not

rely on the property tax rolls to make property owners responsible for these

rates, Health & Safety Code sections 547 1 et seq. do not require action by

ordinance in this context.

The Livingston Municipal Code reflects this understanding and

states that the City Council may establish water and sewer rates by

resolution. Section 9-5-27 provides as to water rates:

"9-5-27 CHARGES FOR WATER SERVICE

(A) Water Fees.

The City Council shall by Resolution or

Ordinance set the amount of charges, fees, and

5 In the absence of statutory or charter provisions to the contrary, a legislative act may be taken by resolution or ordinance. (Crowe v. Boyle (1920) 184 Cal. 1 17 .

7

assessments that include, but are not limited to

the following:

1 . Base rate or fixed component service

charges.

2. Usage charge or variable component

charges per 1 ,000 gallons used.

3 . Service charges other than the base rate.

4. Late fees.

5. Return check fees.

6. Development water impact fees.

7 . Water connection fees.

8. Reconnection fees during regular business

hours after water shut off.

9. Fire hydrant water use fees from

construction or roving meters.

10. Fee for water used by contractors in new

construction.

1 1 . Meter tampering fee.

1 2. Missed appointment fee after second

missed appointment.

13 . Penalty fee for unauthorized water

connections and use of City water by the

use of 'cheater pipes, ' 'straight lines, '

'hoses' or other means.·

14. Other fees as determined by the City

Council." (Emphasis added.)

8

Accordingly, the trial court' s conclusion that the City was bound by

the requirement of Health & Safety Code section 5471 to approve water

rates with a two-thirds maj ority of its City Council was error.

2. The Revenue Bond Law of 1941 and Health & Safety CQde § 5471

Although state legislation is not required to authorize a city to

exercise its constitutional authority to provide utility service or to charge

fees for that service, 6 the powers to issue debt backed by those fees and to

collect those fees via the property tax roll are established by statute. The

statutes local governments most commonly rely on to issue utility revenue

bonds or to collect utility fees via the tax roll (as sewer providers which are

not also water providers typically do 7) are the Revenue Bond Law of 1941 ,

Government Code section 54300 et seq., and Health & Safety Code

section 547 1 et seq.8

6 Glenbrook Development Co. v. City of Brea, supra, 253 Cal.App.2d 267 (constitutional power to operate public utilities is self-executing).

7 A water utility can enforce its rates by turning off water service for non­payment. Sewer service cannot be turned off so easily and most sewer agencies rely on their power to turn off the water supply - if they have it -to enforce their rates. Those that do not supply water as well as sewer typically place sewer fees on the property tax roll to ensure payment and to protect customers who pay their bills from being compelled via higher rates to subsidize those who do not.

8 In addition, many special districts have specific statutory authority in the enabling legislation pursuant to which the district is organized.

9

Government Code section 54344 authorizes local agencies to

"prescribe, revise, and collect charges for the services, facilities, or water

furnished by the [utility or other] enterprise." Government Code section

54345 authorizes Livingston and other local agencies to collect such

charges via a utility bill. The courts have read these sections to authorize

action by resolution. (Kennedy v. City of Ukiah ( 1977) 69 Cal.App.3d 545.)

As to collection of rates via the property tax roll - i.e., making

property owners guarantors of utility bills due from those who occupy their

properties - Health & Safety Code section 547 1 (a) provides:

"(a) In addition to the powers granted in the principal act,

any entity shall have power, by an ordinance approved by a

two-thirds vote of the members of the legislative body

thereof, to prescribe, revise and collect, fees, tolls, rates,

rentals, or other charges for services and facilities furnished

by it, either within or without its territorial limits, m

connection with its water, sanitation, storm drainage, or

sewerage system." (Emphasis added.)

This statute is, by its very terms, supplemental to other authority

granted to a local government - like the Constitutional power of cities and

counties to provide utility service and to set rates for that service and power

granted by other statutes. Health & Safety Code section 547 1 is also the

source of the trial court' s erroneous conclusion that a two-thirds vote of the

10

Livingston city council is needed to adopt an ordinance to impose water

rates. The courts have, over the years, ruled variously on the question

whether compliance with this statute is optional or mandatory with respect

to various utility fees. In 1977, Kennedy v. City of Ukiah, 69 Cal.App.3d

545 concluded that a general law city could adopt sewer and water charges

by resolution under the Revenue Bond Law of 1 941 and was not bound by

Health & Safety Code sections 5471 et seq. to act by ordinance adopted by

a two-thirds vote because the Health & Safety Code provided additional

authority for city utility rates that supplemented other authority and did not

control over the Revenue Bond Law of 1941 . In 1 982, Pinewood Investors

v. City of Oxnard, 133 Cal.App.3d 1030, held that a general law city had

·authority to impose sewer connection fees, but only by complying with the

ordinance requirement of Health & Safety Code section 54 7 1 , finding it to

be the more specific and therefore controlling provision as compared to

Government Code section 38900 (authorizing a city to operate sewers) and

the more general police power authority of California Constitution article

XI, section 7.9

In 1984, the Court of Appeal reached a similar conclusion in

Cavalier Acres, Inc, v. San Simeon Acres Community Services District, 151

9 The police power discussed in Pinewood is the power to legislate for the public health, safety and general welfare. Pinewood does not cite article XI, section 9, a more specific source of Livingston's power to provide public utility services and to charge fees for those services.

1 1

Cal.App.3d 798, which concluded that a Community Services District

(CSD) 10 was required to adopt sewer and water connection charges by

ordinance because the Health & Safety Code and the Community Services

District Law were more specific to connection charges imposed by CSDs

than the Government Code provision regarding connection charges and

were therefore controlling. In 2004, the California Supreme Court rejected

this result in Richmond v. Shasta Community Services District, 32 Cal. 4th

409, concluding that the Government Code section specific to connection

charges was the more specific and controlling.

The Pinewood and Cavalier Acres cases, which involved connection

charges rather than basic service rates, are no longer good authority for two

reasons. First, the California Supreme Court rejected this rule in the

Richmond case as to connection charges, finding Government Code

provisions specific to connection charges to be controlling. Second, in

1988 - after both Pinewood and Cavalier Acres were decided- the

Legislature amended Health & Safety Code section 5471 to add the

introductory phrase, "[i]n addition to the powers granted in the principal

10 A CSD is a limited-purpose local government created pursuant to the Community Services District Law. (Gov't Code §§ 61000 et. seq) . Such entities derive their powers solely from statute, unlike cities and counties which derive power directly from such provisions of the California Constitution as the utility service authority conferred by article XI, section 9, in issue here. (See Gov 't Code § 61 060 (listing powers of a CSD).)

12

act," evidencing plain intent to make Health & Safety Code provisions

supplemental, rather than exclusive, authority for utility rates. 1 1 Moreover,

Pinewood and Cavalier Acres were wrongly decided, as neither considered

the power of a general law city under California Constitution article XI,

section 9, but instead the police power alone. Still further, as those cases

involved connection charges on new development, a subject closely

regulated by the Legislature, and not basic charges for utility service to

existing structures, a subject held to be a matter of local concern; 12 those

cases are distinguishable in any event.

• Additional authorities support the conclusion that Livingston

and other cities, counties and special districts may adopt

water and sewer rates by majority-vote resolution rather than

two-thirds-approved ordinance. Nothing in either

Government Code section 54344 or 54345 suggests that the

authority those statutes confer to adopt rates by resolution is

intended to be limited to agencies that have issued bonds

under the Revenue Bond Law of 194 1 . Indeed, Government

Code section 54304 states that the Revenue Bond Law of

1 1 Indeed, Amicus ACWA requested this legislation for this very purpose. (3 Clerk's Transcript 652-654.)

12Cramer v. City of San Diego (1958) 1 64 Cal.App.2d 1 68 (utility finance is a municipal affair rather than a matter of statewide concern, thus state legislation could not preempt the acts of a charter city).

1 3

1941 - including sections 54344 and 54345 - shall be

"liberally construed to promote its objects ." Its objects are

those stated in section 54301 : "the issuance of bonds and the

acquisition, construction, or improvement of any enterprise."

(Emphasis added.) The liberal construction rule required the

trial court to read this as stating multiple purposes - the

issuance of bonds may be distinguished from the other

activities to improve a utility enterprise and the City need not

issue bonds to have the power to impose rates under this

statute. The trial court's failure to read the Revenue Bond

Law of 1941 broadly was error and defeated the legislative

purpose to provide flexible statutory authority to supplement

the constitutional rate-making power of Livingston and other

local governments.

The two-thirds Council approval requirement of Health & Safety

Code section 547 1 is anti-democratic in that it empowers a minority of a

local legislative body to obstruct basic business of the agency. As the

California Supreme Court put it in construing Proposition 13 ' s requirement

of two-thirds-voter approval of special taxes :

In reaching this conclusion, we held that, while the

requirement for a two-thirds vote as a condition for adoption

of a tax is not unconstitutional (see Gordon v. Lance ( 197 1 )

1 4

403 U.S. 1 , 6, 9 1 S.Ct. 1 889, 1 892, 29 L.Ed.2d 273), the

language of section 4 must be strictly construed and

ambiguities therein resolved so as to limit the measures to

which the two-thirds requirement applies. In this

connection, we reasoned that the two-thirds vote requirement

in section 4 is inherently undemocratic; the requirement was

imposed by a simple majority of the voters throughout the

state upon a local entity to prohibit a majority (but less than

two-thirds) of the voters of that entity from taxing themselves

for programs or services which would benefit largely local

residents; and the sales tax in issue in that case unlike the levy

in Gordon, did not result in "committing . . . the credit of . . .

generations yet unborn."

(City and County of San Francisco v. Farrell ( 1978) 32 Cal.3d 47, 52-53

(emphasis added).)

Thus in a representative democracy a super-majority voting

requirement of voters or legislators, state or local, requires justification.

The apparent purpose of the super-majority requirement of Health & Safety

Code section 547 1 is to protect property owners from lightly being made

guarantors of utility bills by collection of utility fees on property tax bills.

Accordingly, a general law city' s authority to impose water and

sewer rates by resolution under its own ordinances pursuant to its

constitutional power under article XI, section 9 and Government Code

sections 54344 and 54345, allows it to act by resolution passed by three

affirmative votes of its five-member city council. The requirement of

15

Health & Safety Code section 5471 that it act by ordinance adopted by a

two-thirds vote of the city council is not applicable unless the city chooses

to act under that statute to use the property tax roll to make property owners

guarantors of utility bills.

B. THE TRAIL COURT MISAPPREHENDED THE REQUIREMENTS OF PROPOSITION 218

Proposition 218, adopted in 1996 to regulate the imposition of taxes,

assessments and certain property related fees, imposes procedural

requirements on water and sewer fees imposed by local governments. (Cal.

Const. art. XIII D, § 6.) Specifically, that section provides, in relevant part:

Sec. 6. Property Related Fees and Charges.

(a) Procedures for New or Increased Fees and Charges. An

agency shall follow the procedures pursuant to this section in

imposing or increasing any fee or charge as defined pursuant

to this article, including, but not limited to, the following:

( 1 ) The parcels upon which a fee or charge is proposed for

imposition shall be identified. The amount of the fee or

charge proposed to be imposed upon each parcel shall be

calculated. The agency shall provide written notice by mail of

the proposed fee or charge to the record owner of each

identified parcel upon which the fee or charge is proposed for

imposition, the amount of the fee or charge proposed to be

imposed upon each, the basis upon which the amount of the

16

proposed fee or charge was calculated, the reason for the fee

or charge, together with the date, time, and location of a

public hearing on the proposed fee or charge.

(2) The agency shall conduct a public hearing upon the

proposed fee or charge not less than 45 days after mailing the

notice of the proposed fee or charge to the record owners of

each identified parcel upon which the fee or charge is

proposed for imposition. At the public hearing, the agency

shall consider all protests against the proposed fee or charge.

If written protests against the proposed fee or charge are

presented by a majority of owners of the identified parcels,

the agency shall not impose the fee or charge.

The Legislature has provided some small guidance regarding these

requirements in the Proposition 218 Omnibus Implementation Act of 1997.

(Gov' t Code §§ 53750 (i) (defining "notice by mail"), 53750(m) (defining

"water"), 53755 (a) (notice may be provided by insert in utility bill), 53756

(fee schedule may include inflation-adjustment mechanism and means to

pass-through increases in cost of water delivered by a local agency' s

wholesaler).) However, it has not provided much amplification on the

Constitution's text.

Similarly, with one exception, judicial decisions construing article

XIII D, section 6 have generally focused on whether particular fees are or

are not "property related fees" subject to its terms. (E.g. Bighorn-Desert

17

View Water Agency v. Verjil, supra, 39 Cal.4th 205 (rates for domestic

water service are property related fees subject to Prop. 21 8). The exception

is the recent decision of Greene v. Marin County Flood Control & Water

Conservation District (2010) 49 Cal.4th 277, which construes the election

requirement, from which water, sewer, and trash fees are expressly exempt.

Accordingly, in construing the procedural requirements of article

XIII D, section 6(a), this Court must rely on the text of the provision, its

purpose, and background principles of law governing noticed hearings

before local governments in our State.

The trial court reached four remarkable conclusions regarding the

City's asserted procedural errors, each of them wrong. It also reached

erroneous conclusions regarding substantive requirements. Each of these is

discussed below.

1. No Law Requires a Prop. 218 Notice to be Limited to a Single Proposal

Like many products of the initiative process, the fee provisions of

article XIII D, section 6 are not especially well drawn. On their face, they

seem best applied to flat fees imposed at a single point in time ("The

amount of the fee or charge proposed to be imposed upon each parcel shall

be calculated.'' Cal. Const. art. XIII D, § 6(a)( l ).) However, our Supreme

Court held in Bighorn that a metered rate for ongoing water service is

subject to Prop. 218 and the Court of Appeal has concluded that giving

f8

notice of "the amount of the fee or charge proposed to be imposed" may be

done by giving notice of a rate from which a customer can estimate future

bills . As the Court explained in Pajaro Valley Water Management

Authority v. Amrhein (2007) 150 Cal.App.4th 1364 regarding its initial

decision in that case, which was revised on remand following the Supreme

Court's Bighorn decision:

We assumed [in our initial, pre-Bighorn decision] that the

drafters of Article 1 3D used the term "amount," in deliberate

contradistinction to "rate," to mean the actual sum to be

charged to the owner of a given property. Unlike a rate, a

consumption-driven charge cannot be determined until the

amount consumed is known, i.e., after the fact. The holding in

Bighorn appears incompatible with this view, compelling the

conclusion that the notice requirements of Article 13D are

satisfied if the agency apprises the owner of the proposed

rate to be charged. Otherwise, the [Bighorn] court's

distinction between connection fees and ongoing service

charges appears difficult, if not impossible, to defend.

( 150 Cal. App. 4th at 1 395 n. 1 5 (emphasis added) .)13

13 Richmond v. Shasta Community Services District, supra, 32 Ca1.4th 409 held the connection fees imposed on developers of housing units seeking new water service were not property related fees subject to Proposition 2 1 8 in part because local governments could not predict in advance of a request

1 9

Thus, the requirement that a notice of a proposed water increase

include "the amount of the fee or charged proposed to be imposed upon

each [parcel and] the basis on which the amount of the proposed fee or

charged was calculated" can be satisfied by including in the notice the

proposed rate table to be applied to future water consumption, as

Livingston did here. Thus, Proposition 21 8's reference to "the amount" of

a proposed fee or charge cannot mean a single amount a property owner

must pay, but can include a rate table from which future bills can be

calculated.

Moreover, our Supreme Court has explained the purpose of the

notice and hearing requirement of article XIII D, section 6(a) as follows:

The notice and hearing requirements of subdivision (a) of

section 6 of California Constitution article XIII D will

facilitate communications between a public water

agency's board and its customers, and the substantive

restrictions on property-related charges in subdivision (b) of

the same section should allay customers' concerns that the

agency's water delivery charges are excessive.

Bighorn, supra, 47 Cal.4th at 220 (emphasis added).

Where, then, does one find a rule that a local agency giving notice of

a hearing under article XIII D, section 6(a) may give notice of only one

for a connection to which parcels the connection fee would apply. Bighorn found the property related fee provisions of Proposition 218 to apply to water rates notwithstanding the imperfect fit of such rates in the language of article XIII, § 6(a), which seems to apply only to flat fees.

20

proposed rate structure? Provided that customers actually have notice of

the highest rate they might be asked to bear, they have the information they

need to participate in the hearing, to express their views to their elected

representatives and, if they choose, to protest those rates to prevent their

imposition. 14 Requiring a notice to contain but a single rate structure either

artificially required Livingston staff to restrict its council's legislative

discretion in choosing the best means tci allocate the benefits and burdens of

water. service among its customers or to send out three separate notices for

three rate proposals - raising postage costs that must ultimately be

recovered from water rates and engendering confusion, but not

meaningfully advancing the goal of article XIII D, section 6(a) to facilitate

dialog between government and the governed.

Indeed, the Legislature has authorized local governments acting

under Proposition 2 1 8 to propose not just a single rate, or a single rate

table, but a "schedule or fees or charges for a property-related service for a

period not to exceed five years" that "may include a schedule of

adjustments, including a clearly defined formula for adjusting for inflation"

and provision "for automatic adjustments that pass through the adopted

increases or decrease in the wholesale charges for water establishing by . . .

[an]other agency." (Gov' t Code § 53756.) There simply is no requirement

14 Cal. Canst. art. XIII D, § 6(a)(2) says, "If written protests against the proposed fee or charge are presented by a majority of owners of the identified parcels, the agency shall not impose the fee or charge."

21

that a notice of hearing under article XIII D, section 6(a)( 1) be limited to a

single rate proposal.

Given the goals of Proposition 2 1 8 to minimize water rates and to

promote dialog between rate-payers and rate-makers, a balance must be

structure between notice and hearing requirements sufficient to allow

meaningful public participation, but sufficiently administrable and flexible

to avoid needless expense and delay.

In short, the trial court' s conclusion that Livingston erred by

informing its water customers of three alternative water rate proposals

rather than one is without legal support and this Court should reverse.

2. Prop. 218 Does Not Forbid an Agency to Impose Lower Rates Than Those Identified in a Notice

The trial court faulted the Livingston city council for imposing a rate

lower than that stated in the hearing notice. It thus concluded the council

was required to either abandon a rate increase it found necessary or to

ignore public objections to water rates by imposing every single penny of

the rate of which it gave notice. Such rigidity is nowhere required by the

text of Proposition 218 and is destructive of the purposes of Proposition

2 1 8 for it frustrates rather than furthers dialog between customers and rate-

making legislators. Local agencies work no injury to the goals of

Proposition 218 when they refrain from imposing the whole rate of which

they have given notice in response to objections from those they serve -

22

this is the essence of government action in response to public comment.

The rigid rule articulated below would have instead required the Livingston

city council to ignore public comment and impose the whole rate of which

it had given notice or to start the 45-day hearing process anew and to

conduct further hearings to impose a lower rate. What purpose of

Proposition 218 is served by such rigidity? What harm is caused by

government forbearance in light of objections from those government

serves?

Fortunately, case law developed in related settings makes clear that a

local agency satisfies a notice requirement by giving the recipient sufficient

information to decide whether or not the proposed rates are so high as to

justify his or her time and effort in attending the hearing. (Dahms v.

Downtown Pomona Property Improvement District (2009) 174 Cal.App.4th

708, 723 (assessment approved in balloting under Cal. Const. art. XIII D,

§ 4 could be imposed at lower level than special benefit determined in

accordance with that section would justify).) Livingston's brief details this

law, so amici will not belabor the point. It is enough to note that the

purposes of Proposition 218 to protect rate-payers from excessive rates and

to encourage dialog between rate-payers and rate-makers are hardly served

by the rule the trial court imposed here. Again, this Court should reverse

that error.

23

3. Nothing in Proposition 218 Requires a Local Agency to Complete a Hearing in One Sitting

Given the substantial public interest in Livingston's proposed water

rate increase, including ample input on behalf of the Respondent here, and

the city council' s efforts to overcome the minority veto of dissident council

members allowed by the erroneous initial impression that a two-thirds vote

of the city council was required, Livingston was unable to complete its rate-

making process in a single evening. Instead, the new rate proposal was

discussed at each of Livingston's twice-monthly city council meetings from

April 21 , 2009 to July 7, 2009- a period of 1 1 weeks. The trial court found

this error, concluding Livingston was obligated to provide a 45-day mailed

notice of each of its regularly scheduled city council meetings in order to

continue discussion of the matter. (Feb. 25, 201 0 Findings and Order at p.

9: "Such notices were required for each and every hearing held by the

Respondent.") The result of this rule would be that a local legislative body

must complete its hearing and adopt its rates on the date on which the

hearing commenced. Otherwise, 45 days' notice is required of any

continuance and a necessary increase in a local agency' s rates might be

delayed indefinitely.

This is not a realistic rule for a responsive local democracy with

ample citizen participation. California's courts have considered in other

contexts the practical need to continue hearings from day to day to allow all

24

who would be heard to speak. (E.g., Chaffee v. San Francisco Public

Library Com. (2005) 1 34 Cal.App.4th 1 09 (public comment right at open

meeting of local government under the Ralph M. Brown Act need not

extend to second day of two-day hearing when all who sought to be heard

on the first date were heard and second day may be restricted to

commission deliberations).) Thus, lengthy hearings are not uncommon in

California's local governments, as the record here amply demonstrates.

The constitutional text requires only that "[t]he agency shall conduct

a public hearing upon the proposed fee or charge not less than 45 days

after mailing the notice" and that "[a ]t the public hearing, the agency shall

consider all protests against the proposed fee or charge." (Cal. Const. art.

XIII D, § 6(a)(2).) The text makes plain that allowing input more than 45

days after notice is given is not problematic - the mandate is that at least

45 days notice be given. Moreover, the agency is obliged to consider all

protests against the fee or charge and no mention is made of a requirement

that the hearing be completed in one day.

Once a local agency completes the notice and hearing requirements

of article XIII D, section 6(a), it need not impose a rate increase at all - it is

merely authorized to do so if there is no majority protest. Nothing in the

text of Proposition 218 sheds any light on how much time may elapse

between determining that no majority protest has occurred under article

XIII D, section 6(a)(2) and actually imposing the rate. At least five days

25

will be required for a general law city that acts by ordinance, for ordinances

require two readings not less than five days apart. (Gov' t Code § 36934.)

Indeed, the Legislature has found that a period of five years may be allowed

to elapse between a Proposition 218 proceeding authorizing a rate structure

and any legislative acts necessary to actually impose the rates that are

contemplated by the approved rate structure.

Government Code section 53756 states:

An agency providing water, sewer, or refuse collection

service may adopt a schedule of fees or charges authorizing

automatic adjustments that pass through increases in

wholesale charges for water or adjustments for inflation, if it

complies with all of the following:

(a) It adopts the schedule of fees or charges for a property­

related service for a period not to exceed five years

pursuant to Section 53755.051

(b) The schedule of fees or charges may include a schedule of

adjustments, including a clearly defined formula for adjusting

for inflation. Any inflation adjustment to a fee or charge for a

property-related service shall not exceed the cost of providing

that service.

15 Government Code § 53755 implements the notice and hearing requirement of article XIII D, section 6(a).

26

(c) The schedule of fees or charges for an agency that

purchases wholesale water from a public agency may provide

for automatic adjustments that pass through the adopted

increases or decreases in the wholesale charges for water

established by the other agency.

(d) Notice of any adjustment pursuant to the schedule shall be

given pursuant to subdivision (a) of Section 53755, not less

than 30 days before the effective date of the adjustment.

(Emphasis added.)

Thus, the Legislature has determined that a property-owner protest

proceeding under Prop. 218 may involve a rate proposal that includes "a

schedule of adjustments for a period not to exceed five years" and the local

government may, if no majority protest arises, impose those rates over that

five-year period, provided only that each increase is preceded by 30 days'

notice- not a hearing on the increase, but of the increase itself.

The rationale for continuances without further mailed notice is that

recipients of hearing notices who wish to be heard attend the hearing and

are present when the date of a continuance is announced or. can readily

learn of the date to which the hearing was continued by inquiry. (E.g.,

Gov' t Code § 65095 (public hearing on land use application under Planning

and Zoning Law "may be continued from time to time"); Bel Mar Estates v.

California Coastal Com. ( 198 1 ) Cal.App.3d 936 (upholding Coastal

27

Commission approval of permit despite continuance of hearing before

action).) Only when a matter is continued to an unspecified date is a new

notice required to inform affected persons of the new hearing date, time and

place.

Thus, the trial court' s conclusion that the Livingston city council

could not continue its hearing on the proposed water rates, and could not

delay imposing rates after it determined the absence of a majority protest, is 4

too rigid to reflect the realities of participatory democracy at the local level,

and frustrates the very dialog between rate-payer and rate-maker our

Supreme Court found to be the purpose of article XIII D section 6(a).

Again, this Court should reverse this error.

4. The Trial Court Erred by Imposing an Elaborate Post-Hoc Content Requirement on the City's Notice

California Constitution article XIII D, section 6(a)(l) requires a

notice of a property-owner protest hearing on a water rate to state only:

"the amount of the fee or charge proposed to be imposed on

each [parcel] , the basis upon which the amount of the

proposed fee or charge was calculated, the reason for the fee

or charge, together with the date, time, and location of a

public hearing . . . . "

As the Pajaro court explained, application of this language to a water fee

comprised of a base periodic charge (like a monthly or bi-monthly

28

minimum account charge or a base fixed charge) and a rate based on the

volume of water consumed is non-obvious and that Court concluded the

notice requirement is satisfied if a water provider gives notice of a rate table

from which a customer can estimate future water bills. (Pajaro Valley

Water Management Authority v. Amrhein, supra, 150 Cal.App.41h at 1 399 n.

15.)

We are given but the bare text, "the reason for the fee or charge," as

to the required content of a notice beyond the amount of the fee and the

time, date and place of hearing. Given the purposes of Proposition 2 1 8 to

encourage dialog between rate-payers and rate-makers, a notice must

provide enough information to allow customers to decide whether or not to

participate in a hearing. It is enough for the average water customer -

much less the sophisticated corporate respondent and large water consumer

at bar - to know that the fee is imposed for water service to determine

whether to participate in the hearing. Had Proposition 2 1 8 intended to

impose information disclosure standards like those required by the

California Environmental Quality Act (Pub. Res. §§ 21000 et seq.)

(CEQA), surely the constitutional text would provide more guidance than

the bare phrase "the reason for the fee." If there be but one reason for a fee,

it must be the provision of the service for which the fee is imposed. If the

voters who approved Proposition 218 intended a detailed statement of the

reasons for a fee "increase" - as opposed to a reason for a fee itself - they

29

could easily have provided language suggestive of that intent. That they

did not is sufficient proof that this was not their intent.

Moreover, the standard the trial court applied here provides no

guidance to a local government as to what information must be disclosed to

constitute "the reason for the fee" and lends itself to unlimited second­

guessing of a sort that would draw courts into political disputes about the

inherently discretionary process of line-drawing that characterizes rate­

making. The trial court found that Livingston "failed to provide the basis

upon which the [rate] scenarios were calculated" and "failed to provide the

basis upon which the water rate actually adopted was calculated." (Feb. 25,

2010 Findings and Order at pp. 7-8.) Similarly the Respondent complains

Livingston should have disclosed that it intended to repay loans to its water

utility. (Respondent' s Brief at 3 1 .) What limit is there to the creativity of

counsel for large, corporate water consumers in post hoc second-guessing

fee notices if the bare phrase "the reason for the fee" can be found to

require a mere hearing notice to contain such information? Amici submit

that there is no limit at all.

It seems the trial court and Respondents confused Livingston' s

burden to produce an adequate record on which to defend its fees if

challenged in court with the minimal content required of a hearing notice

which, of course, must be directed to laypersons and mailed to every

affected customer before the city council may even consider a fee.

30

Livingston, of course, bears the burden to provide a sufficient evidentiary

record to defend any challenge to its fees, as this Court recently ruled in a

related context. (Homebuilders Ass 'n of Tulare I Kings Counties v. City of

Lemoore City Council, et al. , (201 0) 1 85 Cal. App. 4th 554, 20 10 WL

2774439 (as amended by order denying rehearing filed July 8, 20 10)

(petition for review and request for depublication pending); see also

Beaumont Investors v. Beaumont-Cherry Valley Water District ( 1985) 1 65

Cal.App.3d 227.) Thus, there is no need to overburd�n the phrase "the

reason for the fee" to ensure a local government provides an adequate

record to explain its rate-making to would-be challengers and to. courts.

Again, the trial court erroneously imposed hearing notice

requirement is not supported by the letter or spirit of Proposition 2 1 8 and

this Court should therefore reverse.

5. Substantive Requirements

For years Livingston treated its General Fund16 in the nature of a rate

stabilization reserve, using General Fund monies to subsidize the cost of its

16 Public agencies use so-called "fund accounting" to account for the restrictions on the use of various sorts of revenues. General purpose governments such as cities and counties often have a "general fund" for the general operation of the agency that includes unrestricted revenues. It may also have restricted fund accounts for revenue and expenditures on behalf of a particular activity such as a utility. Self-funded activities like water utilities are frequently referred to as "enterprises" that have separate "enterprise funds." Special districts, which are limited purpose governments, may also establish general and enterprise funds depending on the types of services they provide. Thus, in this case, we can distinguish

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water service enterprise. There is no question that the costs of water

service paid using General Fund dollars could have been paid from water

rates for it was the very purpose of those rates to fund water service. Now

that Livingston wants to stop the subsidy and replenish its General Fund,

Respondent alleges that action violates substantive limitations on property-

related fees established by Proposition 218. But Livingston is merely

paying back a loan it has made to itself, or viewed another way, having

used the General Fund in the nature of a reserve in support of the water

utility Livingston now seeks to replenish that reserve. Amici write because

the nature, amount, and use of various funds within a general purpose

government such as a city or county, or within a special purpose

government such as a special district, is a matter of significant legislative

discretion vested in the governing body of each local government agency.

While Proposition 2 1 8 was intended to impose certain limitations on

between Livingston' s general fund and its water utility enterprise fund. Transfers between funds are appropriate for a variety or reasons, such as payments from a utility fund to the General Fund for services provided with General Fund resources, such as the services of the City Attorney, use of City Hall, insurance protection, and the like. Loans between funds may occur as well. These practices are governed by generally accepting accounting principals (GAAP), generally accepted audit standards (GAAS) and regulations like OMB Circular A-87 published by the federal Office of Management and Budget to govern the accounting practices of local governments which receive federal funds. Wikipedia' s overview of these public-sector accounting principles appears at http:/ /en. wikipedia.org/wiki/Fund_accounting.

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generation and use of local government revenues, it does not require a

wholesale revision to local government accounting practices.

This is not a case of a city generating excess revenues from its water

utility in order to pay for police, firefighters, libraries, parks, or other

general city services. Neither Respondent, nor Livingston, nor Amici assert

that water utility fees may be used for purposes unrelated to the cost of

providing water service. California Constitution article XIII D,

section 6(b)(2) is expressly to the contrary. Instead, Amici contend that the

cost of water service includes the costs for budgeted amounts that are

intended to pay a debt arising from water service or to establish or replenish

reasonable reserves set aside for service-related capital projects and

contingencies, such as cash flow needs of the utility, capital needs,

unanticipated repairs and the like.

Contrary to Respondent' s assertions, nothing in Proposition 218

prohibits use of fee revenues to repay debt or create reasonable reserves

necessary to allow efficient utility service. Like ordinary homeowners and

prudent business owners, public agencies must include within their budgets

the payment of all their bills, and may include a "surplus" for savings set

aside in accounts as reserves against uncertainties - the proverbial "rainy

day fund." Charges for administrative overhead charged by cities and

districts to a utility enterprise fund, like a water fund, must be justified

based on costs of service actually provided to the water utility by

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departments funded by other city resources or as repayment of sums

actually paid to the utility enterprise fund, not on theories such as "in-lieu

franchise fees" (rejected in Howard Jarvis Taxpayers Assn. v. City of

Roseville (2002) 97 Cal. App. 4th 637) or "fees in-lieu of taxes" (rejected in

Howard Jarvis Taxpayers Assn. c. City of Fresno (2005) 1 27 Cal. App. 4th

9 14). In this case, the amount of the revenue generated by the fee does not

exceed the amount of prior payments Livingston made in support of the

water utility. 17

Local agencies frequently fund utility operations from a variety of

revenue sources, including capacity charges, 1 8 connection charges, 19

17 Respondent uses the term "surplus" as if were an evil thing. (Respondent' s Brief at 33.) But, in fact there is no "surplus." No one disputes that the cost of providing water services in prior years was only partly covered by revenues generated by rates and that contributions from Livingston' s General Fund were necessary to make up the insufficiency of rates. Under the new rates challenged here, there is also no surplus ­Livingston is merely repaying loans from its General Fund.

18 A capacity charge or fee is a charge used to accumulate capital to provide capital facilities necessary to provide ongoing utility service. (San Marcos Water Dist. v. San Marcos Unified Sch. Dist. ( 1986) 42 Cal.3d 1 54 (characterizing capacity charges for purposes of local governmental immunity from property taxes).)

19 A connection charge is a one-time fee imposed on the developer of a new building for the establishment of new service to that building. Such charges are not subject to Proposition 218 . (Richmond v. Shasta Community Services District (2004) 32 Cal.4th 409.)

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standby charges, 20 investment earnings, tax revenues if the agency has tax

authority (or benefits from property taxes because it had tax authority prior

to the adoption of Proposition 13 in 1978), as well as rate revenue. The

portion of an agency' s required revenue to provide safe, adequate and

lawful service (it' s co-called "revenue requirement") that must be satisfied

by rates is determined by taking total costs of the enterprise operation

(operating and maintenance expenses, debt service, capital needs to be

funded on a pay-as-you-go basis, changes in reserves, etc.), deducting the

revenue expected to be generated by other sources such as investment

income, taxes, standby charges, and capacity charges, then spreading the

rest of the revenue over the amount of service or volume of commodity

expected to be sold for the relevant rate period. In order to ensure sufficient

revenues and smooth rate ramps (either up or down),21 obtain access to the

bond market (which demand reserves), meet bond covenants (i.e.,

20 A standby charge is a charge imposed on property to recover the cost of facilities necessary to make service available to that property on demand. (Gov't Code §§ 54984 et seq. (Uniform Standby Charge Procedures Act), under Proposition 2 1 8 a standby charge is treated as an assessment. Cal. Const. art. XIII D, § 6 (b) )

21 Rate-makers often use rate-smoothing devices, like loans to a utility fund in one year, to be paid back in another, or flows into and out of a rate­smoothing reserve, to protect customers from "rate shock" that would arise if rates changed suddenly and significantly when the agency' s costs do - a major water tank, for example, might need to be replaced in one year, but it would not be good rate-making practice to spike user rates in that year sufficient to cover the cost of that capital facility with a long service life.

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contractual promises to lenders to impose rates sufficient to ensure

repayment of debt), and guard against unforeseen circumstances and risks,

public agencies must establish reserve accounts, while simultaneously

ensuring that all their bills can be paid when due.

As detailed above, the power to set water rates arises from a public

agency's "proprietary and quasi-public capacity." (County of Inyo v. Public

Utilities Com. ( 1980) 26 Cal.3d 154, 16 1 .) Public agencies that run their

water system as prudent business owners have historically recovered all

costs incurred in providing water to their customers, including the costs of

building, maintaining, operating, administering, and improving that

system.22 Appellant relies on Hansen v. City of San Buenaventura (1986)

42 Cal. 3d 1 172, 1 18 1 , for the unsurprising principle that the revenue

requirement of a public water service - i.e., the permissible costs of service

and the permissible uses of rate revenue - includes repayment of debt.

(Appellant' s Brief at p. 54.)23 Post-Proposition 218 cases acknowledge

22 The Legislature has defined "water" for the purposes of Proposition 218 as "any system of public improvements intended to provide for the production, storage, supply, treatment, or distribution of water." (Wat. Code § 53750 (m).)

23 The relevant portion of the California Supreme Court' s opinion in Hansen states, "Revenue requirements are allocated to various classes [of customers] based on each group's proportionate use of the system, including use of physical plant facilities and consumption of water, among other elements. A preliminary step in determining revenue requirements is the establishment of appropriate classes among which costs will be allocated. The next step is to calculate the costs which properly should be

36

that public agencies may recover all costs of providing a property-related

service through fees or charges subject to Proposition 218 . (Howard Jarvis

Taxpayers Assn. v. City of Fresno (2005) 127 Cal. App. 4th 9 14, 922

("Cities are still entitled to recover all of their costs for utility services

through user fees."); Howard Jarvis Taxpayers Ass'n v. City of Roseville

(2002) 97 Cal. App. 4th 637, 647-648.) Respondent relies upon Roseville

apparently to suggest that Proposition 218 trumped Hansen in its entirety.

(Respondent' s Brief at 33.) The courts in Roseville and Fresno, merely

held that Proposition 218 precluded agencies from relying on Hansen to

support the diversion of enterprise revenue to purposes unrelated to

enterprise activities. But, otherwise, the law is consistent both before and

after Proposition 218 ; a public agency may recover all of its costs of

enterprise operation from user fees, and those costs include repayment of

debt and establishment of reserves.

In addition, political pressure on local officials often results in the

use of general revenues to keep rates and consumer artificially charges low

- i.e. , to subsidize rates with either grants or loans from other funds

assessed each group. For this analysis, two alternative methods exist: the cash basis and the utility basis. Very generally, the cash method sets revenue requirements based on actual operating and maintenance expenses plus allowable charges for system replacement, debt principal repayment, and other capital costs. The utility method also considers actual operating and maintenance expenses, but instead of looking to cash expenses such as system replacement and debt principal repayment, the method focuses on depreciation attributable to outside use and on rate of return on investment." (Hansen v. San Buenaventura, 42 Cal. 3d at 1 1 8 1 .)

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available to the local government, as was the case in Livingston. Therefore,

to avoid inefficient and non-beneficial use of California's limited water

resources and to avoid the harm to the public health and safety that results

from under-funded water systems, the Legislature has deemed it necessary

to mandate that local governments set rates that are sufficient to meet

revenue requirements. Although this if most often done in the context of

statutes governing special districts (E.g., Water Code § 3 1 007 (county

water districts); Water Code § 43006 (water storage districts); Water Code

§ 7 1616 (municipal water districts); Public Utility Code § 1 2809 (municipal

utility districts); and Public Utility Code § 1 6467 (public utility districts).),

the Legislature's policy also applies to cities and counties operating under

general laws. For example, the Revenue Bond Law of 1 94 1 , applicable to

the water, sewer, solid waste and other enterprises of many local agencies,

including cities and counties, expresses the Legislature's policy that public

agency enterprises be operated efficiently, economically and in good repair

and working order, (Gov't Code § § 54513 , 545 1 6), at the lowest cost

consistent with sound economy, prudent management and security of bond

holders (Gov't Code § 545 14), and that the rates and consumer charges be

set at levels sufficient to pay debt service, meet bond covenants, and pay

current maintenance and operation expenses and other obligations. (Gov't

Code § 545 1 5.)

38

Proposition 218 changed the law. It established an entirely new

category of property related fees subject to its provisions. (Cal. Const., art.

XIII D, §2(e) (defining a property related "fee or charge.") It established

new procedural and substantive requirements for imposition of assessments

and property related fees. (Silicon Valley Taxpayers ' Assn. , Inc. v. Santa

Clara County Open Space Authority (2008) 44 Cal. 4th 43 1 , 438, 443.) It

established new substantive requirements for the property related fees

within its scope (Cal. Const., art. XIII D, § 6 (b).), and shifted traditional

presumptions that had favored the validity of local agency fees. (Cal.

Const., art. XIII D, § 6 (b) (5).)

Article XIII D, § 6 (b) establishes five substantive limitations on

property related fees subject to its provisions including fees for ongoing

water service to an existing account as in issue here. These limits are:

1 . Fee revenues cannot exceed the funds required to provide the

service (cost of service limitation);

2. Fee revenues cannot be used for any purposes other than that

for which the fee is imposed· (use limitation);

3 . The amount of the fee imposed on a parcel or person as an

incident of property ownership cannot exceed the

proportional cost of service attributable to the parcel

(proportionality limitation);

39

4. Fees may be imposed only for service actually used by, or

immediately available to, the owner of the property (service

limitation);

5 . Fees may not be imposed for general governmental services

where the service is available to the public at large in

substantially the same manner as it is to property owners

(general purpose limitation).

(Cal. Const. art. XIII D, § 6(b)(l ) - (5).)

Respondents argue that Livingston' s collection of revenue to repay

prior General Fund subsidies to the water utility violates the cost of service

and use limitations of article XIII D, section 6(b)(l ) & (2). (Respondent' s

Brief at 32 - 34.) Respondent' s argument that the repayment violates the

use/immediate availability ("service") restriction is simply off point

because there is no question that the challenged fees are charged in

connection with the actual provision of water. (See Paland v. Brooktrails

Township Community Services Dist. Bd. of Directors (2009) 179 Cal. App.

4th 1358, ·1 370.)

Respondents are also wrong on their cost-of-service claim because

the repayment of debt and the establishment and replenishment of

reasonable reserves are costs of service and are used for water utility

purposes. Respondent erroneously argues that Appellant is using the water

service enterprise to generate a "profit" to pay for general governmental

40

services. (Respondent' s Brief at p. 33.) Respondent even goes so far as to

cite to a portion of the Supreme Court's opinion in Hansen that it not cited

in Appellant's brief. (Id.)24

Respondent' s argument elevates form over substance. There is no

question that Livingston could have set aside a portion of the General Fund

in a separate reserve account to support the water utility; it could use

money from that account to pay ongoing enterprise expenses; it could also

replenish that account with water rate revenues . However, instead of

establishing that account, Livingston simply made payments from the

General Fund for the benefit of the water utility, paying water service costs.

It is those amounts that it now seeks to repay. 25 Its doing so does not

convert these payments into something other than costs of water utility

service properly chargeable to rates for service.

24 Respondent says the City relies on the discussion in Hansen appearing at 42 Cal. 3d 1 1 83 , which relates to the pre-Prop. 2 1 8 ability to earn a profit on the operation of a water utility, and which has been relied upon by some for the proposition that general shifts of revenue from a city's utility to its general fund is appropriate. As discussed earlier, neither City nor Amici rely on Hansen for that principle but only for its cost-accounting discussion.

25 It is noteworthy that the Hansen court did recognize that Ventura has made a number of transfers from its general fund to the water fund at either little or no interest, with the implication repayment of general fund was an appropriate use of water service fees. (Hansen v. City of San Buenaventura, 42 Cal. 3d at 1 1 84.)

4 1

IV. CONCLUSION

The trial court erred in concluding that Health & Safety Code section

54 71 applies to the rate setting action at issue in this case. It also erred in

its conclusions regarding the application of Proposition 2 1 8.

Proposition 2 1 8 changed much about the rates local governments

impose to fund essential water, sewer and solid waste services to their

residents and property owners. It did not, however, impose the rigkl and

impractical rules the trial court found in this case. Reversal is required in

order to allow Livingston and its ratepayers - only a minority of which

protested the fees that Respondent would prefer to avoid - to efficiently and

practically fund and operate a water utility for the benefit of all who live or

work in Livingston.

For these reasons, Amici respectfully request that this Court reverse

the trial court's ruling.

Dated: Auy-. J... � :ZJ?f 0 Respectfully submitted: Colantuono & Levin, P.C. Michael G. Colantuono

42

CERTIFICATION OF BRIEF LENGTH [Cal. Rules of Court, rules 8.204(c), 8.520(c)]

The text of this brief is generated in 1 3-point Times New Roman print type and consists of 10,528 words as counted by the Microsoft Word 2007 word-processing program used to generate this brief.

Dated: August.lf", 201 0

43

PROOF OF SERVICE

Foster Poultry Farms, Inc. v City of Livingston, et al. Court of Appeal, Fifth Appellate District, Case No. F059871

I, the undersigned, say: I am a citizen of the United States and a resident of

the County of San Diego, State of California. I am over the age of 1 8 years and

not a party to the within action. My business address is: 4677 Overland

· Avenue, San Diego, CA 921 23

On the date of execution of the foregoing document, I placed a true and

correct copy of the:

APPLICATION TO FILE AMICUS CURIAE BRIEF AND AMICUS CURIAE BRIEF OF ASSOCIATION OF CALIFORNIA WATER

AGENCIES, CALIFORNIA STATE ASSOCIATION OF COUNTIES, AND LEAGUE OF CALIFORNIA CITIES ON BEHALF OF

DEFENDANTS & APPELLANTS

in the U.S. Mail addressed as indicated to the following:

Attorneys for Plaintiff/Respondent Joanne Lichtman Michael Resch Kelly Kraven HOWREY LLP 550 S. Hope Street, Suite 1 100 Los Angeles, CA 90071 ( 1 copy)

Jeffrey S . Kaufman · BERLINER COHEN

2844 Park A venue Merced, CA 95348 (1 copy)

Attorneys for Defendants/ Appellants Jonathan Hobbs KRONICK, MOSKOVITZ, TIEDEMANN & GIRARD Attorneys at Law 400 Capitol Mall, 27th Floor Sacramento, CA 958 14-4416 ( 1 copy)

1

Superior Court Honorable Brian L. McCabe Merced County Superior Court 627 21st Street Merced, CA 95340 ( 1 copy)

Supreme Court Supreme Court of California 350 McAllister Street San Francisco, CA 94102-4797 (4 copies)

I declare under penalty of perjury that the foregoing is true and correct.

Executed this �fihday of August, 2010, at San Diego, California.

2