No. S IN THE SUPREME COURT OF THE STATE OF CALIFORNIA

No. S127535 IN THE SUPREME COURT OF THE STATE OF CALIFORNIA BIGHORN-DESERT VIEW WATER AGENCY, Plaintiff, Cross-Defendant and Respondent, v. SHARON BERINGSON, as Interim Registrar of Voters for the County of San Bernardino, Defendant and Respondent; E. W. KELLEY, Real Party in Interest and Appellant. After a Decision by the Court of Appeal, Fourth Appellate District, Division Two - Case No. E033515 Superior Court of San Bernardino County Honorable Tara Reilly, Judge (Superior Court Case No. SCVSS 097005) APPLICATION TO FILE AMICUS CURIAE BRIEF AND BRIEF OF AMICI CURIAE ASSOCIATION OF CALIFORNIA WATER AGENCIES, LEAGUE OF CALIFORNIA CITIES, AND CALIFORNIA STATE ASSOCIATION OF COUNTIES Janet Morningstar, CA Bar No. 101134 Michael G. Colantuono, CA Bar No. 143551 Janet Morningstar, a law corporation Colantuono & Levin 1048 Irvine Avenue, #407 11406 Pleasant Valley Road Newport Beach, CA 92660-4602 Penn Valley, CA 95946-9001 (949) 274-0972 (949) 722-8322 FAX (530) 432-7359 (530) 432-7356 FAX Daniel S. Hentschke, CA Bar No. 76749 Jennifer B. Henning, CA Bar No. 193915 General Counsel Litigation Counsel San Diego County Water Authority California State Association of Counties 4677 Overland Avenue 110 K Street, Suite 101 San Diego, CA 92123 Sacramento, CA 95814 (858) 522-6791 (858) 522-6566 FAX (916) 327-7535 (916) 443-8867 Attorneys for Amici Curiae

APPLICATION FOR PERMISSION TO FILE AMICUS CURIAE BRIEF TO THE HONORABLE CHIEF JUSTICE: Pursuant to rule 29.1 (f) of the California Rules of Court, the Association of California Water Agencies, League of California Cities and California State Association of Counties respectfully request permission to file the amicus 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 they all depend on rates and other consumer charges to fund their water, sewer, solid waste, and other utility enterprise operations. The Court s opinion in this case has the potential to drastically affect the security of those rates and consumer charges. The applicants have a unity of interest and have participated in this case from the initial appeal from the order granting declaratory relief in favor of the Bighorn-Desert View Water Agency ( Bighorn ). The applicants submitted a brief as amici curiae in the Court of Appeal on the initial appeal of the trial court s decision in Bighorn-Desert View Water Agency v. Beringson (Superior Court No. SCVSS 097005, Hon. Tara Reilly) and also submitted a letter brief as amici curiae during the Court of Appeal s reconsideration as ordered by this Court in light of the Court s decision in Richmond v. Shasta Community Services District (2004) 32 Cal. 4 th 409. 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 argument and briefing regarding the statewide impact of a decision by this Court on the financing, operation and continued existence I

of local government utility enterprises and the reliance of local government agencies on prior precedent that rates and other consumer charges are not subject to the provisions of Proposition 218 (Cal. Const. Art. XIII C and XIII D). Applicants respectfully submit the following issues, addressed in the proposed brief combined with this application from the perspective of the impact of local governments throughout California, are important to the Court s determination of this matter: Should identical terms in various parts of Proposition 218 be interpreted consistently? Did the Court of Appeal properly apply the reasoning of Richmond v. Shasta CSD to the rates and charges imposed by the Bighorn-Desert View Water Agency? Do existing principles that place water and other utility rates and consumer charges beyond the reach of voter initiatives apply following adoption of Proposition 218? Therefore, and as further amplified 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. Date: February 16, 2005 Respectfully submitted, Daniel S. Hentschke Attorney on behalf of Applicants II

TABLE OF CONTENTS Page I. INTRODUCTION AND INTEREST OF AMICI.. 1 A. DESCRIPTION OF AMICI CURIAE.. 1 B. AMICI HAVE A UNITY OF INTEREST BECAUSE THE LEGISLATURE HAS DECLARED A STATEWIDE POLICY FOR RATES AND OTHER CONSUMER CHARGES OF PUBLIC AGENCY WATER AND OTHER UTILITY ENTERPRISES... 3 C. AMICI HAVE A UNITY OF INTEREST BECAUSE SUBJECTING RATES AND OTHER CONSUMER CHARGES TO REDUCTION OR REPEAL BY INITIATIVE WOULD CRIPPLE THE ABILITY OF LOCAL GOVERNMENT AGENCIES TO PROVIDE WATER AND OTHER UTILITY SERVICES.. 5 D. THE COURT OF APPEAL DECISION SHOULD BE AFFIRMED. 8 II. ISSUES PRESENTED FACTS AND PROCEDURAL HISTORY... 9 III. ARGUMENT.. 9 A. THE PROVISIONS OF ARTICLE XIII C 3 AND ARTICLE XIII D ARE IN PARI MATERIA AND THE INTERPRETATION OF THE IDENTICAL PHRASE IN EACH MUST BE CONSTRUED THE SAME.. 9 B. THE COURT OF APPEAL PROPERLY APPLIED THE ANALYSIS OF RICHMOND V. SHASTA COMMUNITY SERVICES DISTRICT IN DETERMINING THAT BIGHORN S WATER i

RATES WERE NOT SUBJECT TO PROPOSITION 218 14 C. NOTHING IN THE INITIATIVE PROVISION OF PROPOSITION 218 COMPELS THE CONCLUSION THAT IT WAS MEANT TO RESCIND ALL EXISTING PRINCIPLES OF LAW GOVERNING THE INITIATIVE POWER.. 18 1. Conflict with the California Constitution. 19 2. The Initiative Violates the Limits Imposed by the State Legislature on the Agency s Authority to Operate a Utility Service.. 20 3. Permitting an Initiative to Affect Rates and other Consumer Charges Violates the Principle that Initiatives may not Impair the Essential Functions of Government.. 22 D. THE COURT OF APPEAL PROPERLY APPLIED EXISTING LIMITATIONS ON THE INITIATIVE POWER TO THE INITIATIVE IN THIS CASE 24 IV. CONCLUSION 29 ii

TABLE OF AUTHORITIES Page Cases Apartment Ass n of Los Angeles County, Inc. v. City of Los Angeles, 24 Cal. 4th 830 (2001). 5,6,9,11, 13,15,16 Bagley v. City of Manhattan Beach (1979) 18 Cal. 3d 22. 22 County of Inyo v. Public Utilities Commission (1980) 26 Cal. 3d 154, 161. 12 DeVita vs. County of Napa (1995) 9 Cal. 4 th 763,776 22 Geiger v. Board of Supervisors of Butte County (1957) 48 Cal.2d 832, 839-40. 23,27 Inglewood v. County of Los Angeles (1929) 207 Cal. 697, 703-704.. 16 Knox v. City of Orland (1992) 4 Cal 4 th 132, 141 15, 16 Richmond v. Shasta Community Services District (2004) 32 Cal. 4 th 409...... 1,6,8,9, 14,15,16 Rossi v. Brown (1995) 9 Cal. 4 th 688 27 Simpson v. Hite (1950) 36 Cal.2d 125.. 23 Sinclair Paint Co. v. State Bd. of Equalization (1997) 15 Cal. 4th 866.. 15 Beaumont Investors v. Beaumont-Cherry Valley Water District (1985) 165 Cal. App. 3d 227.. 28, 29 Bighorn-Desert View Water Agency v. Beringson (2004) 4 th App. Dist. No. E033515, Slip Opinion.. 15, 27 iii

Cases, cont d. Brydon v. East Bay Mun. Util. Dist. (1994) 24 Cal. App. 4 th 178, 179 7, 25 Carlton Santee Corp. v. Padre Dam Muni. Wat. Dist. (1981) 120 Cal. App. 3d 14. 28 City of Atascadero v. Daly (1982) 135 Cal.App.3d 466 22, 23 City of Burbank v. Burbank-Glendale-Pasadena Airport Authority (2003) 113 Cal. App. 4 th 465.. 24,25,27,28 Citizens for Jobs & the Economy v. County of Orange (2002) 94 Cal. App. 4th 1311, 1331 28 Dare v. Lakeport City Council (1970) 12 Cal.App.3d 864.. 23,27 Dawson v. Town of Los Altos Hills (1976) 16 Cal. App. 3d 676, 683.. 16 Durant v. City of Beverly Hills (1940) 39 Cal. App. 2d 133... 12 Howard Jarvis Taxpayers Assn. v. City of Los Angeles (2000) 85 Cal. App. 4 th 79, 82-83 5,6,13 Howard Jarvis Taxpayers Assn. v. City of Salinas (2002) 98 Cal.App.4th 1351. 17 Howard Jarvis Taxpayers Assn. v. City of San Diego (2004) 120 Cal. App. 4 th 374. 19 In re Marriage of Pinto (1972) 28 Cal. App. 3d 86, 89. 11 Isaac v. City of Los Angeles (1998) 66 Cal. App. 4 th 586, 597 13 Rincon del Diablo Muni. Wat. Dist. V. San Diego Co. Wat. Auth. (2004) 121 Cal. App. 4 th 813 28 Attorney General Opinions 80 Ops.Cal.Atty.Gen. 183 (1997).. 5 iv

Constitution Cal. Const. Art. III A 1(b) 20 Cal. Const. Art. X 2. 25 Cal. Const. Art. X 5. 25 Cal. Const. Art. X 6. 25 Cal. Const. Art. XIII C and XIII D Proposition 218.. passim Cal. Const. Art. XIII C 2(b) 19,21 Cal. Const. Art. XIII C 3.9,11,12, 18,24,27,30 Cal. Const. Art. XIII D 1 10 Cal. Const. Art. XIII D 2(e) and (h) 7,10, 12,13 Cal. Const. Art. XIII D 6... 16,19,26 Cal. Const. Art. XVI 18.. 20 Codes and Statutes Bighorn-Desert View Water Agency Law, West s Annotated California Codes, Water Code Appendix 112-1 et seq.. 3 Bighorn-Desert View Water Agency Law 25, West s Annotated California Codes, Water Code Appendix 112-25. 3,19,26 Bighorn-Desert View Water Agency Law 50, West s Annotated California Codes, Water Code Appendix 112-50 17 Stats. 2004, c. 884 (A.B. 2572, Kehoe). 7 West s Annotated Water Code Appendix 97-16, 98-77, 100-25, 101-25, 103-24, 104-27, 45-7, subd. (j), 109-1.).. 21 Gov t Code 25696 21 v

Codes and Statutes, cont d. Gov t Code 53069.5. 17 Gov t Code 54513 4,21 Gov t Code 54514.. 4 Gov t Code 54515... 4 Gov t Code 54516.... 4,21 Cortese-Knox-Hertzberg Local Government Reorganization Act of 2000, Government Code sections 56000 et seq 24 Health & Safety Code 5471.. 23 Public Utility Code 12809.. 4 Public Utility Code 16467.. 4 Public Utility Code 16475.. 17 Water Code 104, 105 25 Water Code 520-529 7 Water Code 31007. 4,21 Water Code 31031. 17 Water Code 43006.. 4 Water Code 60245... 21 Water Code 71616. 4,21 Water Code 71630, 71631 17 Secondary Authorities Thomson Financial Securities Data 6 vi

I. INTRODUCTION AND INTEREST OF AMICI This case presents the question whether the price paid for utility service by customers of a government owned utility enterprise in the form of rates or other consumer charges is subject to the Right to Vote on Taxes Act ( Proposition 218, Cal. Const. Articles XIII C and XIII D). The question is presented in the context of a local initiative measure intended to slash the rates and other consumer charges a water district collects in return for water service, and also preclude future increases in those rates and charges without a popular vote (the Kelley Initiative ). Relying on established precedent, the trial court and Court of Appeal each found the district s ability to set water rates and other consumer charges is not subject to limitation by local initiative. Amici, the Association of California Water Agencies, the League of California Cities and the California State Association of Counties, urge the court to affirm. Amici curiae have participated in this case from the initial appeal from the order granting declaratory relief in favor of the Bighorn-Desert View Water Agency ( Bighorn ). Amici submitted a brief as amici curiae in the Court of Appeal on the initial appeal of the trial court s decision in Bighorn-Desert View Water Agency v. Beringson (Superior Court No. SCVSS 097005, Hon. Tara Reilly). Amici also submitted a letter brief as amici curiae during the Court of Appeal s reconsideration as ordered by this Court in light of the Court s decision in Richmond v. Shasta Community Services District (2004) 32 Cal. 4 th 409 (Richmond). A. DESCRIPTION OF AMICI CURIAE The Association of California Water Agencies ("ACWA") is a nonprofit public benefit corporation organized and existing under the laws of the state of California since 1910. ACWA is comprised of over 440 1

water agencies, including municipal water districts, irrigation districts, county water districts, California water districts and a number of special purpose agencies, all of which are collectively responsible for the sale and delivery of 90% of all water delivered for agricultural, municipal, industrial and domestic use in California. ACWA member agencies provide water, sewer and related services to at least 21,330,000 people throughout California. The League of California Cities ( League ) is an association of 474 California cities united in promoting the general welfare of cities and their citizens. The League is advised by its Legal Advocacy Committee, comprised of 24 city attorneys representing all 16 geographical divisions of the League from all parts of the state. The committee monitors appellate litigation affecting municipalities and identifies those cases, such as this one, that are of statewide significance to all cities. The California State Association of Counties ( CSAC ) is a nonprofit corporation having a membership consisting of California s 58 counties. CSAC sponsors a Litigation Coordination Program that 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 affects all counties. The ultimate outcome of this case will impact the members of ACWA, the League and CSAC because they all depend on rates and other consumer charges to fund their water, sewer, solid waste, and other utility enterprise operations. Without the assurance that the rates and consumer 2

charges will not be reduced or repealed by initiative, local governments would be unable to provide utility services to customers who desire them. B. AMICI HAVE A UNITY OF INTEREST BECAUSE THE LEGISLATURE HAS DECLARED A STATEWIDE POLICY FOR RATES AND OTHER CONSUMER CHARGES OF PUBLIC AGENCY WATER AND OTHER UTILITY ENTERPRISES. The special act pursuant to which Bighorn was created and is governed (Bighorn-Desert View Water Agency Law, West s Annotated California Codes, Water Code Appendix 112-1 et seq. hereinafter referred to as the Bighorn-Desert View Act ) delegates and limits the power to establish rates and other consumer charges in a manner reflective of a statewide policy established by the Legislature in numerous general and special statutes. By Section 25 of the Bighorn-Desert View Act, the Legislature has delegated to Bighorn s board of directors the power to fix such rate or rates for water... as will result in revenues which will pay the operating expenses of the agency... provide repairs and depreciation of works... provide a reasonable surplus... pay the interest on any bonded debt, and provide a... fund for the payment of the principal of such debt. ACWA s membership includes at least 76 public agencies whose enabling legislation contains rate-setting authority similar to that in the Bighorn- Desert View Act. The statutory provisions under which these agencies exist expressly invest them with responsibility for setting water rates, in many cases enumerating the specific items of costs and expenses of operating and maintaining a water system that the water rates and consumer charges must be sufficient to cover. Although Bighorn is a special act agency, the Legislature s policy also applies to government agencies operating under general law. For 3

example, the Revenue Bond Law of 1941, 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, 54516), at the lowest cost consistent with sound economy, prudent management and security of bond holders (Gov t Code 54514), 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 54515.) Other laws expressing the same legislative policy include, for example: Water Code 31007 (county water districts); Water Code 43006 (water storage districts); Water Code 71616 (municipal water districts); Public Utility Code 12809 (municipal utility districts); and Public Utility Code 16467 (public utility districts). There is an important reason for these legislative mandates that water rates and consumer charges be sufficient. The Legislature is well aware of the political pressure local officials face as evidenced by the initiative in issue here to keep rates and consumer charges low. Therefore, to avoid inefficient and non-beneficial use of a limited resource and avoid the harm to the public health and safety that results from underfunded water systems, the Legislature has deemed it necessary to make insufficient rates illegal. 4

C. AMICI HAVE A UNITY OF INTEREST BECAUSE SUBJECTING RATES AND OTHER CONSUMER CHARGES TO REDUCTION OR REPEAL BY INITIATIVE WOULD CRIPPLE THE ABILITY OF LOCAL GOVERNMENT AGENCIES TO PROVIDE WATER AND OTHER UTILITY SERVICES. Shortly after the adoption of Proposition 218 in November 1996, the Attorney General concluded that a tiered water rate (designed to encourage conservation by raising rates with incremental consumption even though utility costs per unit often fall with volume due to economies of scale) was not subject to Proposition 218. The Attorney General stated in relation to the ballot arguments regarding Proposition 218, While the proponents indicate that taxes imposed on... water... bills would come under the requirements of Proposition 218, such language suggests that the water charges themselves would not be subject to the proposition s requirements. 80 Ops.Cal.Atty.Gen. 183, 186 (1997). 1 In 2000, judicial precedent confirmed that water rates and other consumer charges were not subject to Proposition 218. (Howard Jarvis Taxpayers Assn. v. City of Los Angeles (2000) 85 Cal. App. 4 th 79, 82-83 (Review denied, February 14, 2001) (HJTA v. LA).) In Apartment Ass n of 1 While Attorney General s opinion are not precedent binding on the courts, they provide valuable guidance to public agencies throughout our state, especially on questions as to which little other judicial or legislative guidance is available. This Attorney General s opinion has been unquestioned since 1997 and is consistent with later judicial precedent. It has been relied upon by public agencies (and their customers and creditors) for almost 8 years. These reliance interests are worthy of respect. Further if this Court were to conclude that rates and other consumer charges are subject to Proposition 218, public agencies that acted in reliance on these authorities would face substantial risks of litigation and refund claims amounting to millions if not billions of dollars. 5

Los Angeles County, Inc. v. City of Los Angeles, 24 Cal. 4th 830 (2001) (Apartment Association) and again in Richmond, this Court reconfirmed that fees and charges subject to Proposition 218 are those imposed as an incident of property ownership and not in exchange for provision of some service or commodity provided at the request of a consumer of government services or utilities. According to Thomson Financial Securities Data 2, since the November 1996 adoption of Proposition 218, approximately $28 billion in public agency debt has been issued to finance water and sewer facilities in California. This number does not include long term contracts for water supply and other non-capital operation costs that cannot be financed with debt. Notwithstanding the ability of public agencies to generate revenue through taxes, assessments and other involuntary charges, the public policy of this state, demonstrated through repeated declarations of the Legislature, is for public agency utility enterprises to raise sufficient revenues for the provision of service through rates and other consumer charges, and for those rates and other consumer charges to be sufficient to pay for the cost of service, maintain the utility s capacity to provide universal service consistent with public health, environmental and other legal requirements, 2 Thomson Financial is a worldwide provider of financial information. Thomson Financial's Municipal New Issue database includes negotiated, competitively bid and privately placed U.S. municipal new issues categorized by over 140 data elements derived from official statements, news sources, trade publications, proprietary surveys and information from investment banks and other market participants. This datum is drawn from a search with the following parameters: Location of issuer: CA, Main Use of Proceeds: Water and Sewer Facilities, Security: Revenues, Sale Date: 11/01/1996 to 1/28/2005. For more information regarding Thomson Financial Securities Data see, http://www.tfsd.com/about/overview/. 6

and conserve scarce resources, such as water. 3 Indeed, the Legislature has recently amended the Water Code to forbid the practice of some utilities in water-rich portions of our State from providing water without meters, recognizing that a fiscal incentive to conserve is essential to water conservation and implementation of California s policy to prevent waste and maximize beneficial use of its limited water resources. (Stats. 2004, c. 884 (A.B. 2572, Kehoe).) 4 The ability of a public water supplier to set and collect water rates and other consumer charges in amounts sufficient to cover not only its current operating costs, but also cost of maintenance, repair, replacement, and upgrading its capital facilities is critical to providing water service. Subjecting water rates and other consumer charges to the initiative process would severely impair the ability of water agencies to finance capital repairs and replacement, enter into long term contracts for water supplies and otherwise operate and maintain public water systems. The mere possibility that consumption-based water rates and other consumer charges could be reduced by initiative would have a chilling effect on the ability of water agencies to secure financing for major expenditures as, at any moment, the revenues intended to repay the financing might be reduced or eliminated, whether or not an initiative is actually proposed; fiscal 3 Conservation of resources through rates has been judicially validated. (Brydon v. East Bay Mun. Util. Dist. (1994) 24 Cal. App. 4 th 178.) The Legislature has also declared that metered water rates are an important and effective conservation tool and has compelled all urban water suppliers to use metered water rates. (Water Code 520-529.) 4 Indeed, fixed monthly charges wholly unrelated to consumption of water, often collected via the property tax roll, rather than volumetric water charges, may have been the target of the awkward language of Article XIII D, Section 2(e) and (h) which this Court parsed in Apartment Association, supra, and which is discussed in Section III. A., below. 7

uncertainty alone will be sufficient to make utilities less credit worthy and to raise the cost of credit for those able to obtain it. That impact could render some public water agencies unable to continue to operate. Private water suppliers are not subject to similar constraints. Thus, such a construction would create enormous incentives to privatize water systems as some financially strapped localities have done in recent years with the result being that ratepayers have less protection from rate increases than would otherwise be the case. This is hardly the outcome expected by the voters who adopted Proposition 218. D. THE COURT OF APPEAL DECISION SHOULD BE AFFIRMED. The trial court held that Bighorn s water rates and consumer charges were not fees and charges within the meaning of Proposition 218 and were therefore not subject to the initiative provision of Proposition 218. The trial court also found that the Kelley Initiative violated long-standing legal principles that preclude application of the initiative because it would interfere with a power the Legislature exclusively delegated to Bighorn s board of directors and with Bighorn s ability to perform an essential governmental function. The Court of Appeal for the Fourth Appellate District (Division 2) has twice considered the issue, and twice held that the water rates and consumer charges collected by Bighorn for water service provided to customers, are not imposed as an incident of property ownership and are therefore not within the scope of Proposition 218. When the Court of Appeal vacated its first decision and reconsidered the cause in light of this Court s decision in Richmond, it applied the analysis set forth in that decision and again found that the water rates and charges were not fees and charges subject to Proposition 218. It also 8

reconfirmed that, even assuming the scope of the initiative provision of Article XIII C is broader than the scope of the regulation of fees and charges under Article XIII D, the initiative against Bighorn s rates and consumer charges was unconstitutional on a number of other grounds. II. ISSUES PRESENTED FACTS AND PROCEDURAL HISTORY In deciding this matter, the Court should consider not only the present case as it affects the parties, but the impact on local government utilities and their customers statewide. Amici submit that the following issues are fundamental to the Court s consideration of this case: a. Should identical terms in various parts of Proposition 218 be interpreted consistently? b. Did the Court of Appeal properly apply the reasoning of Richmond to the rates and charges imposed by Bighorn? c. Do existing principles that place water and other utility rates and consumer charges beyond the reach of voter initiatives apply following adoption of Proposition 218? Rather than restate the facts and procedural history in detail, Amici adopt the Facts and Procedural History set forth by Bighorn in its Respondent s Brief at pp. 3 10. III. ARGUMENT A. THE PROVISIONS OF ARTICLE XIII C 3 AND ARTICLE XIII D ARE IN PARI MATERIA AND THE INTERPRETATION OF THE IDENTICAL PHRASE IN EACH MUST BE CONSTRUED THE SAME. In Apartment Association, supra, this Court explained the context in which Proposition 218 must be construed: 9

As explained in Howard Jarvis, supra, 73 Cal. App. 4th 679, Proposition 218 is Proposition 13's progeny. Accordingly, it must be construed in that context. (Citation omitted.) Specifically, because Proposition 218 was designed to close government-devised loopholes in Proposition 13, the intent and purpose of the latter informs our interpretation of the former. Proposition 13 was directed at taxes imposed on property owners, in particular homeowners. The text of Proposition 218, the ballot arguments (both in favor and against), the Legislative Analyst's analysis, and the annotations of the Howard Jarvis Taxpayers Association, which drafted Proposition 218, all focus on exactions, whether they are called taxes, fees, or charges, that are directly associated with property ownership..... The ballot arguments identify what was perhaps the drafter's main concern: tax increases disguised via euphemistic relabeling as fees, charges, or assessments. But in fairness to plaintiffs, it cannot be denied that the text of article XIII D does not limit its scope to taxes and taxpayers. We turn to the definitive language: restrictions on any levy imposed upon a parcel or upon a person as an incident of property ownership. (Art. XIII D, 2, subd. (e).) (24 Cal. 4th at 838-839.) Articles XIII C and XIII D were enacted as a part of the same constitutional amendment, as one measure (Proposition 218) voted on by the voters, dealing with the same issues, effective at the same time. Section 1 of Proposition 218 informed the voters that the act shall be known and may be cited as the Right to Vote on Taxes Act. As components of the 10

Right to Vote on Taxes Act, the provisions of Articles XIII C and XIII D are in pari materia. When statutes are in pari materia, the interpretation of similar phrases or sentences in one controls the interpretation of virtually the same phrases or sentences in the other. (In re Marriage of Pinto (1972) 28 Cal. App. 3d 86, 89.) Articles XIII C and XIII D are linked via both the words used and the express terms of the measure. The terms fees and charges are used in Article XIII C only in 3. In both sentences where that section uses the words, they appear as part of a list that includes taxes and assessments. Similar use of the terms as part of a list that includes taxes and assessments appears several times in Article XIII D. For example, Article XIII D, 1, states: the provisions of this article, apply to all assessments, fees and charges, whether imposed pursuant to state statute or local government charter authority. Nothing in this article or Article XIII C shall be construed to: (a) Provide any new authority to any agency to impose a tax, assessment, fee or charge. Also, Article XIII D, 3 limits the power of local agencies to impose a tax, assessment, fee, or charge on property or persons as an incident of property ownership, except ad valorem property taxes, special taxes, assessments and fees and charges for property related services. Section 2 of Proposition 218 itself, contains the following finding and declaration: local governments have subjected taxpayers to excessive tax, assessment, fee and charge increases that... frustrate the purposes of voter approval of tax increases. Despite repeated use of the words fee or charge (or their plural) throughout Proposition 218, they are defined only in Article XIII D. As noted in Apartment Association, Proposition 218 relates to levies imposed on property owners as such, i.e. in its capacity as property owner. (Apartment Association, supra, 24 Cal. 4th at 839-840.) 11

Article XIII C, 3 must be construed as part of the whole of Proposition 218. Thus, usage of the terms fee and charge throughout Proposition 218 must be the same -- as defined in Article XIII D, 2, subd. (e) -- especially in the absence of any reason to believe that the voters who adopted the measure had reason to use the words with one meaning in Article XIII C and with another in Article XIII D. Petitioner argues that the definition of fees and charges in Article XIII D 2 should not apply to the provisions of Article XIII C because, although Article XIII C does not have its own definition of fees and charges, Article XIII D is a distinctly separate article of the Constitution (Petitioner s Opening Brief pp. 1 and 5). Instead, Petitioner offers an interpretation, relying on no authority other than his own understanding of what he finds to be the natural and ordinary meaning, that fees and charges surely includes the [water] rates charged by the Agency. That interpretation is arguably natural and ordinary only if the phrase is read out of context from the entire Right to Vote on Taxes Act. When read in context, as the in pari materia rule requires, the natural and ordinary meaning of fees and charges is clearly as those terms are meticulously defined in Article XIII D and not as they might be defined by a litigant post hoc by resort to what is natural and ordinary. Amici do not concede that the term fees and charges as used anywhere in Proposition 218 includes usage-based rates. The power to establish and collect rates and other consumer charges stems from a public agency s proprietary and quasi-public capacity. (County of Inyo v. Public Utilities Commission (1980) 26 Cal. 3d 154, 161, see Durant v. City of Beverly Hills (1940) 39 Cal. App. 2d 133, 137, the power to fix water rates charged to customers is incidental to the power to 12

establish and operate a utility.) Payment of such rates and consumer charges is in the nature of a voluntary contractual relationship. (Isaac v. City of Los Angeles (1998) 66 Cal. App. 4 th 586, 597.) Consumption-based rates and other consumer charges are simply not imposed on consumers in their capacity as property owners; rather they are imposed only because a person chooses to purchase the commodity. Any attempt to convert a rate or consumer charge into a levy imposed on a parcel or on a person as an incident of property ownership by contending that a delinquent charge may be collected as a lien is unavailing. As stated by this Court in Apartment Association, Similarly unpersuasive is plaintiffs' contention, also emphasized at oral argument, that the city's ability to enforce payment of the inspection fee by imposing a lien on the property shows that the fee is property-related, not business-related. The fact is that the city is simply availing itself of all possible means to collect the fee. (24 Cal. 4 th at 844.) Article XIII D, Section 2 defines fee or charge as any levy other than an ad valorem tax, a special tax, or an assessment, 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. (Article XIII D 2 (e).) The terms fee and charge have consistently been interpreted to exclude consumption-based water rates because such rates are imposed as an incident of consumption and not as an incident of mere property ownership. These usage rates are basically commodity charges which do not fall within the scope of Proposition 218. They do not constitute fees as defined in article XIII D, section 2, because they are not 13

levies or assessments incident of property ownership. (Subd. (2)(e).) Nor are they fees for a property-related service having a direct relationship to property ownership. As indicated by the ordinances setting water rates, the supply and delivery of water does not require that a person own or rent the property where the water is delivered. The charges for water service are based primarily on the amount consumed, and are not incident to or directly related to property ownership. (HJTA v. LA, supra, 85 Cal. App. 4 th at 83.) B. THE COURT OF APPEAL PROPERLY APPLIED THE ANALYSIS OF RICHMOND V. SHASTA COMMUNITY SERVICES DISTRICT IN DETERMINING THAT BIGHORN S WATER RATES WERE NOT SUBJECT TO PROPOSITION 218. On initial grant of review in this matter, this Court transferred the case to the Court of Appeal with instructions to vacate its first decision and reconsider the cause in light of Richmond. Petitioner implies in his brief that the Court of Appeal failed to follow the Supreme Court s instruction and dismissed as dicta Richmond s seemingly simple and categorical statement that [a] fee for ongoing water service through an existing connection is imposed as an incident of property ownership. While the Court of Appeal did not limit its consideration of Richmond to the one sentence on which Petitioner focused, the Court did apply the analysis enunciated by the Supreme Court to Bighorn s water rates and service charges. The Richmond decision thoroughly analyzed what is meant by the requirement that a fee or charge be imposed as an incident of property ownership in order to constitute a fee or charge subject to Proposition 218. The Court of Appeal adhered to that analysis and concluded that the water rates and service charges were not subject to the initiative process 14

provisions of Proposition 218 because the consumer incurs the expense of the services voluntarily, not as a property owner or tenant. (Bighorn- Desert View Water Agency v. Beringson (2004) 4 th App. Dist. No. E033515, Slip Op. at 8). As the Court of Appeal observed: Bighorn s rates and charges do not burden landowners as landowners. Nor are they levied solely by virtue of property ownership. Instead, Bighorn s water rates and related charges are imposed on voluntary water users and the water rates are based on consumption, not on the user s status as a landowner. (Id. at 7). Before Apartment Association and Richmond, this Court had the opportunity in Sinclair Paint Co. v. State Bd. of Equalization (1997) 15 Cal. 4th 866, to explain the compulsory nature of tax levies on property owners as such. Although this Court cautioned in Sinclair Paint that it was not concerned with issues arising under constitutional amendments effected by a recent initiative measure (Proposition 218) (Id. at 873, fn. 2.), the discussion in that case is helpful, along with Apartment Association and Richmond, to understanding the levies subject to Proposition 218 and those, such as metered rates and other consumer charges, that are not. In Sinclair Paint, this Court acknowledged that tax has no fixed meaning, and that the distinction between taxes and fees is frequently blurred, taking on different meanings in different contexts, but nevertheless found that taxes are imposed for revenue purposes, rather than in return for a specific benefit conferred or privilege granted. (Id. at 874.) This Court also stated, Most taxes are compulsory rather than imposed in response to a voluntary decision to develop or to seek other government benefits or privileges. (Id.) Similarly, an assessment has been described as a compulsory charge levied on property as a unique exercise of the power to tax. (Knox v. City of 15

Orland (1992) 4 Cal 4 th 132, 141; Dawson v. Town of Los Altos Hills (1976) 16 Cal. App. 3d 676, 683; Inglewood v. County of Los Angeles (1929) 207 Cal. 697, 703-704.) In Apartment Association, this Court stated that Proposition 218 must be construed in the context of a continuation of the limitations on levies against property that began with the adoption of Article XIII A by Proposition 13 and that fees and charges subject to Proposition 218 are only those imposed on persons solely on account of their property ownership. In Richmond, this Court applied two tests to determine whether a fee or charge is imposed as an incident of property ownership, making it subject to the requirements of Proposition 218. The first was whether the fee or charge was compulsory on nothing more than ownership of property, or instead was incurred as the result of a voluntary decision by the property owner. The second was whether the nature of the fee permits compliance with the procedures required by Article XIII D, 6 for imposition or increasing fees to which it applies. Water rates and consumer charges are voluntary. By their nature rates and consumer charges cannot be imposed according to the procedures of Article XIII D, 6 because the amount to be charged a customer, inherently dependent on unknown private decisions to consume water at a particular address and in particular amounts, cannot be known in advance. Amici do not contend that no water charges are subject to Proposition 218 s requirements. Indeed, based on this Supreme Court s statement in Richmond that charges for on-going water service may be subject to Proposition 218 if the charge requires nothing more than ordinary ownership and use of property (Richmond, supra, 32 Cal. 4 th at 427), amici acknowledge that such fees as water availability or water standby 16

charges, which may be imposed regardless of whether water service is actually used or not, may fall within the scope of Proposition 218. 5 However, such charges are generally imposed pursuant to separate statutory authority from the authority to impose rates and consumer charges (e.g. Water Code 31031 (county water districts); Water Code 71630, 71631 (municipal water districts); Pub. Util. Code 16475 (public utility districts); Bighorn-Desert View Act 50 (Bighorn)) and further are imposed on property and apportioned per parcel. 6 Another example of a fee subject to Proposition 218 is the fire protection fee that water agencies, cities, and counties are authorized to impose pursuant to Government Code Section 53069.5. This fee may be imposed on property or property owners merely because they own property in the area benefited by the availability of water for fire protection purposes. In stark contrast are water service rates and consumer charges, like those at issue in this case: which are apportioned on usage and other 5 Some water charges in agencies that do not yet rely on water meters or do not otherwise base charges on consumption (for example, the charges are based on acreage, land use or other physical characteristic of property rather than on pipe diameter or other characteristic of the provision of service) may also be characterized as property related fees subject to Proposition 218, especially if they are collected on the property tax roll. 6 Compare Howard Jarvis Taxpayers Assn. v. City of Salinas (2002) 98 Cal.App.4th 1351, where the court found that a levy intended to defray the cost of constructing improvements to the storm and surface water management infrastructure was imposed as an incident of property ownership. (Id. at 1353.) That storm drainage fee levy was imposed on each and every developed parcel of land within the City, and the owners and occupiers thereof, jointly and severally. (Id. at 1353.) Further, it was applied and apportioned not on amount of services voluntarily requested by the occupant, but rather based on essentially immutable, physical properties of the parcel itself. (Id. at 1354.) While the court also acknowledged the water charge exception to Prop 218, it refused to interpret it so broadly as to include storm water drainage services. (Id. at 1358.) 17

characteristics of service, not on physical characteristics of property; which are imposed in connection with the use of the commodity or service, not on property; which can be avoided by terminating service or disconnecting from the system; and which can be reduced by curtailing water consumption. C. NOTHING IN THE INITIATIVE PROVISION OF PROPOSITION 218 COMPELS THE CONCLUSION THAT IT WAS MEANT TO RESCIND ALL EXISTING PRINCIPLES OF LAW GOVERNING THE INITIATIVE POWER. Petitioner contends that Article XIII C, 3 displaces all existing principles of law governing the power of initiative as it affects initiatives to reduce or repeal any local tax, assessment, fee or charge. The language of Article XIII C, 3 merely states, the initiative power shall not be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge. (Emphasis added.) A reasonable interpretation of that language is that the Legislature and local governments may not make any laws limiting or prohibiting initiative power as it is currently interpreted to exist, as it respects the reduction or repeal of any local tax, assessment, fee or charge. Article XIII C, 3 s use of the phrase the initiative power implies that the definition and scope of that power existed prior to and apart from Proposition 218. Thus, the essential nature of that power remains as defined by this Court in decisions dating from 1911. Nothing in the wording or context of Article XIII C, 3 indicates that the voters who adopted it intended to sweep away all existing statutory and case law governing the exercise of the initiative and to leave courts and elections officials no guiding principles for initiatives affecting local levies. Such an interpretation would expand the universe of matters subject to 18

initiative far beyond existing limits, to include utility rates and consumer charges for all types of water, sewer, electricity, telecommunications, gas and other utility services provided by local governments, resulting in an obvious and devastating impact on the ability of California s public utility agencies to sell bonds and obtain credit in other forms, further exacerbating the fiscal and infrastructure crisis facing this State. The Kelley Initiative illustrates the problems with Petitioner s interpretation, as it violates several existing principles governing the initiative power. 1. Conflict with the California Constitution. The initiative purports to impose a vote requirement as a condition of the enactment of any future increases in Bighorn s water rates and consumer charges. Assuming, arguendo, these rates and charges are subject to Proposition 218, this requirement directly conflicts with Article XIII D 6, which exempts fees and charges for water, sewer and refuse collection from a pre-imposition vote requirement. A local initiative cannot impose a vote requirement that conflicts with provisions of the California Constitution. (See Howard Jarvis Taxpayers Assn. v. City of San Diego (2004) 120 Cal. App. 4 th 374 (Review denied, September 22, 2004), wherein an initiative amendment to the San Diego charter that sought to increase the vote necessary to enact general taxes from a simple majority to two-thirds was held to violate Article XIII C Section 2(b), which requires only a majority vote.) 19

2. The Initiative Violates the Limits Imposed by the State Legislature on the Agency s Authority to Operate a Utility Service. The initiative purports to set water rates and service charges without regard to the requirement of section 25 of the Bighorn-Desert View Act that the board of directors, so far as practicable, fix such rate or rates for water in the agency and in each improvement district therein as will result in revenues which will pay the operating expenses of the agency, and the improvement district, provide for repairs and depreciation of works, provide a reasonable surplus for improvements, extensions, and enlargements, pay the interest on any bonded debt, and provide a sinking or other fund for the payment of the principal of such debt as it may become due. Like the governing bodies of other public agencies that operate utility enterprises, Bighorn s board of directors is statutorily mandated to set rates and other consumer charges at levels sufficient to assure the continuing viability of the enterprise. To do otherwise is to benefit current ratepayers at the expense of future ratepayers who must eventually pay the piper and has the same effect as non-voter approved debt, which the Constitution generally prohibits. (E.g., California Constitution, Article III A, 1(b), Article XVI, 18 (two-thirds voter approval required for general obligation bonds of local governments).) The Legislature has, through the adoption of a myriad of similar statutory provisions, established a statewide policy mandating that water agencies set water rates and other consumer charges in amounts sufficient to assure continued operation of the enterprise. For districts formed under the Municipal Water District Law, the requirements of its rate setting authority are nearly identical to the Bighorn-Desert View provision. (Water 20

Code 71616.) 7 The rate-setting authority delegated to districts formed under the County Water District Law, 8 and the Water Replenishment District Act, while not identical to that used in the Bighorn Act, also specify that the rates shall be set to cover certain expenses. (Water Code 31007 (county water districts), 60245 (water replenishment districts).) Many water agencies operating under special acts of the Legislature are also bound by authorizing statutes that require their governing bodies to set water rates to cover specified expenses. 9 Similar provisions apply to water, sewer, solid waste and other utilities of cities, counties and other local agencies under the Revenue Bond Law of 1941. (Government Code 54513 54516.) The statute governing the setting of water rates by counties limits the costs for which water rate revenues may be used. (Gov t Code 25696.) This Court has repeatedly held that the power of local initiative does not apply to areas as to which the Legislature has preempted the field. The presumption in favor of the right of initiative is rebuttable upon a definite indication that the Legislature, as a part of the exercise of its power to preempt all local legislation in matters of statewide concern, has intended to restrict that right. [Citation omitted.] 7 ACWA has 28 public agency members formed under the Municipal Water District Law. 8 ACWA has 41 public agency members formed under the County Water District Law. 9 E.g., Mojave Water Agency, Antelope Valley-East Kern Water Agency, Desert Water Agency Law, San Gorgonio Pass Water Agency Law, Castaic Lake Water Agency Law, Crestline-Lake Arrowhead Water Agency, the County Water Authority Act and Metropolitan Water District Act; (West s Annotated Water Code Appendix 97-16, 98-77, 100-25, 101-25, 103-24, 104-27, 45-7, subd. (j), 109-1.) All of these public entities are ACWA members. 21

Accordingly, we have concluded that the initiative and referendum power could not be used in areas in which the local legislative body s discretion was largely preempted by statutory mandate. DeVita vs. County of Napa (1995) 9 Cal. 4 th 763,776. The initiative further violates the principle that an initiative can only propose such legislation as the local legislative body has the power to enact. (Bagley v. City of Manhattan Beach (1979) 18 Cal. 3d 22, 26.) The Kelley Initiative would not only exercise a power exclusively delegated to Bighorn s governing body, but would do so in violation of statutory restrictions on the exercise of the authority delegated to Bighorn s board of directors. This is because the Kelley Initiative made no provision for covering the expenses of operation and maintenance of the Agency, and lacked any rationale for the rates it did set. 3. Permitting an Initiative to Affect Rates and other Consumer Charges Violates the Principle that Initiatives may not Impair the Essential Functions of Government. Extending the initiative power to local government utility rates and consumer charges would shake the foundations of utility financing and operation by public agencies in California. This result would constitute an unlawful impairment of an essential government function, i.e., an enterprise operation (here a water system) in contravention of established California law. In City of Atascadero v. Daly (1982) 135 Cal.App.3d 466, the court invalidated a proposed initiative ordinance that would have defined the term special tax to include any device which has as its purpose in whole or in part the imposition or increase of a source of revenue. (Id. at 469.) The court found the proposed ordinance invalid in part because it was an 22

unlawful attempt to impair essential government functions through interference with the administration of the City s fiscal powers. (Id. at 470 (citing Geiger v. Board of Supervisors of Butte County (1957) 48 Cal.2d 832, 839-40).) For similar reasons, in Dare v. Lakeport City Council (1970) 12 Cal.App.3d 864, the court struck from the ballot an initiative to repeal a city ordinance imposing a room capacity occupancy tax, because [s]uch a proposed ordinance, even if approved by a vote of the electors, cannot be used as a means of tying the hands of the city council and depriving it of the right and duty to exercise its discretionary powers in a taxation matter such as is here involved. (Id. at 868; 10 see also Simpson v. Hite (1950) 36 Cal.2d 125, 134 (issuing writ of mandate to omit from the ballot an initiative ordinance repealing L.A. County resolutions for siting a courthouse and designating a different site, reasoning that [t]he initiative or referendum is not applicable where the inevitable effect would be greatly to impair or wholly destroy the efficacy of some other governmental power, the practical application of which is essential ).) Moreover, cutting the Bighorn s rates, which already may do no more than recover its costs of operation, by half is tantamount to dissolving the agency. The Legislature has provided a statutory procedure for dissolution of public agencies, which is mandatory on Bighorn s voters and property owners, and with which this 10 Dare v. Lakeport also holds that rate-setting under Health & Safety Code Section 5471 another statute commonly relied upon by local agencies which operate utilities is delegated by the Legislature to legislative bodies alone and may not be exercised by initiative for that reason, as well. The Court of Appeal said, It is worthy of note that the initiative powers here contended for by appellants would necessarily defeat the intent of section 5471 that the sewer district s governing body prescribe and revise the charges for its sewer facilities and services. (12 Cal.App.3d at 869.) 23