On June 14, 2019, in Howard Jarvis Taxpayers Association v. Amador Water Agency the Third District Court of Appeal held that a resolution by a water agency to increase its service fee rates was not subject to referendum. A resolution increasing service fee rates is not subject to referendum because it falls within the general referendum exception regarding property-related fees set forth in Article II, section 9(a) of the California Constitution.
Background
In 2015, Amador Water Agency (“Agency”) proposed Resolution 2015-19 (“Resolution”) to establish new water usage fees. In relevant part, the Resolution replaced the Agency’s tiered rates with a uniform rate per unit of water, and provided for temporary surcharges in times of shortage. The Agency determined that these changes were necessary to cover its operations and maintenance costs for providing water service. Before adopting the Resolution, the Agency provided property owners with written notice of the proposed fee changes, held a public hearing, and considered protests, in compliance with the procedures required by California Constitution article XIII D, section 6 (otherwise known as Proposition 218).
In response, citizens sought to oppose the Resolution through a referendum petition, relying on Water Code Appendix section 95-7.3, granting voters “the initiative and referendum powers…in relation to the enactment or rejection of agency ordinances[.]”
Initiative and referendum petitions require certification by the clerk of the local agency whose legislative act is the subject of the initiative or referendum. Here, the Agency’s Clerk declined to certify the petition for referendum, stating that the fee increase was necessary to cover Agency expenses, that the proper avenue to repeal a fee increase was through an initiative rather than a referendum, and that the petition was “confusing.” The Agency also argued that Proposition 218’s procedures, which provide for a public hearing and protest right regarding a proposed fee, eliminate the right to a referendum on the same issue.
Several parties, including the Howard Jarvis Taxpayers’ Association (“Howard Jarvis”), filed a petition for a peremptory writ of mandate to challenge the new fee structure on two grounds: (1) that the Authority’s Clerk exceeded her ministerial duties by declaring the petition confusing and (2) that referendum is an appropriate avenue to challenge the fee. The trial court denied the writ petition following a hearing, finding that the Resolution may only be challenged through an initiative. Howard Jarvis then appealed the denial.
Resolution Setting Fees Not Subject to Referendum
The Court of Appeal held that the Resolution was not subject to a referendum, though on different grounds than those raised by the Agency. Specifically, the court determined that the fees implemented by the Resolution constituted “tax levies,” which are exempt from the general referendum right in the California Constitution.
In 1911, the Legislature adopted article II, section 9 of the California Constitution granting voters the ability to approve or reject statutes by referendum. This power, however, does not apply to “urgency statutes, statutes calling elections, and statutes providing for tax levies or appropriations for usual current expenses of the State.” The enactment of Article II, section 11 of the Constitution extended this exception to local taxes levied by legislative enactment.
After establishing that local tax levies are generally exempt from referendum, the court proceeded to characterize the fee changes at issue. It noted that while recent constitutional law had drawn sharp distinctions between taxes and other exactions, the general referendum provision of the Constitution should be governed by the broader interpretation and understanding of “tax levies” from the time of its passage. The court concluded that in 1911, voters understood taxes to encompass assessments, fees, or charges, including water surcharges. Accordingly, it found the fee changes adopted by the Agency were taxes for the purposes of Article II, section 9.
The Court reconciled this holding with precedent classifying water delivery charges as “fees” rather than “taxes.” Specifically, it cited Bighorn-Desert View Water Agency v. Verjil (2006) 39 Cal.4th 205, in which the California Supreme Court designated water delivery charges as fees rather than taxes. In its discussion, the Bighorn court noted that terms such as “fee” and “charge” may vary in meaning depending on the constitutional provision in which they are contained. In consideration of Bighorn’s analysis, the court in the instant case determined that the designation of a tax “must be decided by the nature of the imposition, and not by the mere name by which it is called.”
Although Howard Jarvis based its writ petition on Water Code Appendix section 95-7.3, the court stressed that the California Constitution prevailed because a state statute may not confer greater rights to voters than the Constitution. Accordingly, the court found the Constitution exempted fee increases from the referendum power and therefore the Water Code did not grant the Authority with the power to confer such a right to the voters.
The court also held that the Agency’s Clerk exceeded her ministerial duty in finding the referendum petition insufficient. In the absence of clear evidence that the petition was faulty or incomplete, the Clerk should have deemed it adequate and allowed it to proceed to the ballot. This issue, however, was inapposite, as the court nonetheless affirmed dismissal of the petition.
Key Takeaways
This holding allows public agencies greater latitude to implement fee rate resolutions without risking repeal through referendum. However, it is important to note that the court’s holding does not eliminate the ability to repeal or modify rate-setting resolutions through initiative. The key distinction between referenda and initiatives, as discussed by the court, is in the impact on the resolution during the process of putting the question to the voters. A referendum petition suspends the ordinance or other legislative enactment it seeks to repeal pending the agency’s adoption or a decision by the voters in an election. An initiative, as a proposed new legislative enactment, does not suspend any ordinance or other legislative act it may seek to modify or repeal. In practical terms, this means that voters may still petition to repeal a fee rate resolution via the initiative process, but that an agency’s implementation of the challenged fee rate resolution during the petition period will not be suspended.
Jeffrey Mitchell
jmitchell@kmtg.com | 916.321.4591
Andreas Booher
abooher@kmtg.com | 916.321.4372