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The Third District Court of Appeal issued a decision this week holding that Proposition 218 does not affect the authority of local governments to impose fees or charges to recover the costs of state mandates.  Paradise Irrigation Dist. v. Comm’n on State Mandates (Oct. 1, 2018, C081929) __Cal.App.5th__ [2018 Cal. App. Lexis 894].  The court also held that local governments’ fee authority is not controlled by whether they have tried and failed to impose fees.  Even if a local government unsuccessfully attempts to impose a fee to cover a state mandated cost, it will not be entitled to reimbursement.  As a result, local governments may find themselves in a position where they could be unable to pay for new requirements imposed by the state.

The California Constitution requires the state to reimburse local governments for the cost of “a new program or higher level of service” imposed by the Legislature or a state agency.  State reimbursement is not required when the local government “has the authority to levy service charges, fees, or assessments sufficient to pay for the mandated program or increased level of service.”  The Legislature created the Commission on State Mandates (Commission) to hear and decide local government claims for reimbursement when the state allegedly mandates a cost.

In 2011 and 2013, several irrigation districts and a water district (collectively “Districts”) filed test claims with the Commission, seeking reimbursement for the cost of implementing certain water conservation requirements imposed by the Water Conservation Act of 2009.  In 2014, the Commission issued its decision denying reimbursement.  The Commission also dismissed the claims of two of the districts that do not receive ad valorem property tax revenue, finding them ineligible for reimbursement on that basis.  The Commission denied reimbursement as to all of the Districts based on its conclusion that the Districts have sufficient authority to levy fees to cover the costs associated with the new mandates, and that Proposition 218 does not affect the Districts’ ability to levy new or increased fees for this purpose.

In 2015, the Districts filed a petition for writ of mandate in the Sacramento County Superior Court challenging the Commission’s decision.  The Districts argued that the applicable majority protest requirement in Proposition 218 undermined their statutory authority to levy fees to pay for the new programs and that the cost should be reimbursed as a state-imposed mandate.  The superior court denied the Districts’ petition and the Districts appealed.

The primary question before the appellate court was whether the passage of Proposition 218 affected the Districts’ authority to collect fees to such an extent that the Districts were entitled to reimbursement for the state-mandated water conservation requirements.  The Court of Appeal affirmed the trial court’s decision and held that despite Proposition 218’s majority protest requirement, the Districts still have adequate authority and procedures to levy fees to pay for the requirements in the Water Conservation Act.

Additionally, the appellate court stated that it could be presumed that voters would “give appropriate consideration and deference to state mandated requirements relating to water conservation measures required by statute.”  Paradise Irrigation Dist. v. Comm’n on State Mandates (Oct. 1, 2018, C081929) __Cal.App.5th__ [p. 22].  The court also reasoned that the majority protest procedure was a “constitutionally sound power-sharing arrangement” rather than a “deprivation of fee authority.”  Ibid.  The appellate court rejected the trial court’s “try and fail” approach under which the Districts would be entitled to reimbursement if they tried to levy a fee to cover the program but were unsuccessful.  The court again noted that voters will be presumed to give the appropriate consideration to fee proposals, and that this ultimately does not affect the Districts’ authority to levy fees.  In light of its holding on the Proposition 218 issue, the appellate court found that it did not need to consider whether the Commission erred by dismissing claims of districts that do not receive ad valorem property taxes.

As a result of the appellate court’s decision, if the state imposes a mandate on a local government with “fee-levying authority,” the local government will not be entitled to reimbursement even if voters block a new or increased fee proposed to cover the state mandate.  In addition, local governments will have to cover the costs of state-mandated programs by imposing new or increased fees on customers, or by finding another funding source to pay for the costs.

Somach Simmons & Dunn represented two of the districts that are parties in this case.

For additional information please contact Andrew Hitchings at ahitchings@somachlaw.com or Alexis Stevens at astevens@somachlaw.com.

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