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Case in Point - UPDATE: Prop 218 and Tiered Water Rates

California’s State Supreme Court has denied a request to depublish the 4th District Court of Appeal decision critical of tiered water rates in Capistrano Taxpayers Association, Inc. v. City of San Juan Capistrano. The Supreme Court’s ruling makes the case final and citable as precedent in future water rate cases.

People know the City of San Juan Capistrano best for the miracle of the swallows, but it may become famous in public finance circles for helping agencies better navigate Proposition 218.

Case in Point - Prop 218The Appellate Court (California, 4th District) recently upheld the City's reasoning on water rates in one area, while striking down another part of the regulation.

In this case, a local taxpayers’ association challenged the City’s new water rates for violating Proposition 218’s requirement that fees be based on the cost of service attributable to the parcel. The City included the cost of a future water recycling plant and created a tiered structure where increased water use would be charged at much higher rates.

The Appellate Court upheld the City's inclusion of the future water recycling plant's cost, stating that:

  • It could use a five-year horizon to set rates
  • When a single local agency provides water service "to different kinds of users…both are getting water that meets their needs." Thus, all users, even ones who never use recycled water, are subject to the new, higher rates.

However, the Appellate Court did agree with the trial court on the point that tiered water rates violated Proposition 218. The Appellate Court stated that the City "had to correlate its tiered prices with the actual cost of providing water at those tiered levels. Since City Water didn’t…we do hold that above-cost-of-service pricing for tiers of water service is not allowed by Proposition 218."

I recommend that you read the opinion about Capistrano Taxpayers Association, Inc. v. City of San Juan Capistrano. It offers a clear-eyed approach to a complex topic.

What do you think? Does this ruling help clarify Prop 218 for you? Also, do you think Prop 218 should be amended, given our drought in California? If so, how would you change it?


Dennis A. Anderson

For over 25 years, Dennis has helped communities throughout California and Nevada overcome legal hurdles and fund projects. He draws from an encyclopedic knowledge of the statutory and constitutional procedures and requirements for the formation and administration of public financing districts. Dennis knows how to work within the bounds set by Prop 218, the Mello-Roos Act and numerous other bond and district-creating laws so that agencies can deliver vital public infrastructure and services to their constituents. He is a member of the California Society of Municipal Finance Officers and the California Special Districts Association.

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