SAN BUENAVENTURA, CITY OF v. UNITED WATER CONSERVATION DISTRICTAmicus Curiae Brief of Howard Jarvis Taxpayers FoundationCal.November 23, 2015SUPREME COURT COPY supecourFILED S226036 NOV 23 2015 IN THE SUPREME COURT OF THE STATE OF CALIFORNIA Frank A. McGuire Clerk Deputy City of San Buenaventura Plaintiff, Cross-Defendant, and Respondent / Cross-Appellants Vv. United Water Conservation District and Board of Directors of United Water Conservation District Defendants, Cross-Complainants, and Appellants / Cross-Respondents HOWARD JARVIS TAXPAYERS ASSOCIATION’S APPLICATION FOR LEAVE TO FILE BRIEF OF AMICUS CURIAE AND BRIEF OF AMICUS CURIAE IN SUPPORT OF CITY OF SAN BUENAVENTURA Review of a Published Decision of the Second Appellate District, Case No. B251810, Reversing a Judgment of the Superior Court of the State of California for the County of Santa Barbara, Case Nos. VENCI 00401714 and 1414739 Honorable Thomas P. Anderle, Judge Presiding Jonathan M. Coupal, SBN 107815 Trevor A. Grimm, SBN 34258 Timothy A. Bittle, SBN 112300 J. Ryan Cogdill, SBN 278270 Howard Jarvis Taxpayers Foundation 921 Eleventh Street, Suite 1201 Sacramento, CA 95814 Telephone: (916) 444-9950 Facsimile: (916) 444-9823 Counsel for Amicus S226036 IN THE SUPREME COURT OF THE STATE OF CALIFORNIA City of San Buenaventura Plaintiff, Cross-Defendant, and Respondent / Cross-Appellants Vv. United Water Conservation District and Board of Directors of United Water Conservation District Defendants, Cross-Complainants, and Appellants / Cross-Respondents HOWARD JARVIS TAXPAYERS ASSOCIATION’S APPLICATION FOR LEAVE TO FILE BRIEF OF AMICUS CURIAE AND BRIEF OF AMICUS CURIAEIN SUPPORTOF CITY OF SAN BUENAVENTURA Review of a Published Decision of the Second Appellate District, Case No. B251810, Reversing a Judgment of the Superior Court of the State of California for the County of Santa Barbara, Case Nos. VENCI 00401714 and 1414739 Honorable ThomasP. Anderle, Judge Presiding Jonathan M. Coupal, SBN 107815 Trevor A. Grimm, SBN 34258 Timothy A.Bittle, SBN 112300 J. Ryan Cogdill, SBN 278270 Howard Jarvis Taxpayers Foundation 921 Eleventh Street, Suite 1201 Sacramento, CA 95814 Telephone: (916) 444-9950 Facsimile: (916) 444-9823 Counsel for Amicus TABLE OF CONTENTS TABLE OF CONTENTS.......0..00 000 cc ceceee eee eee 1 TABLE OF AUTHORITIES .......... 0.00 ceceeeee eens li APPLICATION FOR LEAVE TO FILE ........ 2.0.0.0. ceceeee Vv 1, INTRODUCTION ...... 0...ceee ete ete ee eens ] Il. QUESTIONS PRESENTED .. 2.0...eeeeens 2 II. LEGISLATIVE HISTORY OF PROPOSITIONS13, 218, & 26 ............. 3 IV. THE PUMPING CHARGES VIOLATE PROPOSITION 218'S COST-OF- SERVICE REQUIREMENT ........ 0... cee eeeeens 6 A. The SecondDistrict’s Reliance on Apartment Association is Misguided and Contrary to Settled Precedent ...... 00... . ceceeee eee 7 1. The Pajaro Cases Must Govern the Case at Bar ............... 9 2. The Distinction Between Commercial and Residential Water Use Has No Basis in the Constitutional Text ..............0...0.. 1] 3. Even if the Commercial Distinction were Valid, the Facts of this Case Do Not Support the Second District’s Conclusion ........ 12 B. The District Has Not and CannotJustify its Pumping Charges ......... 14 V. THE PUMPING CHARGES VIOLATE PROPOSITION 26 ............... 17 VI. VII. A. The Pumping Charges Are Not “Regulatory Fees” as Described in Proposition 26 2.0.0...eeeee teens 19 B. Nor DoesProposition 26's ‘“Payor-Specific Benefit” Exception Apply .. 23 THE RATIO IMPOSED BY WATER CODESECTION 75594 VIOLATES THE COST-OF-SERVICE REQUIREMENTSOF BOTH PROPOSITIONS 218 & 26. Cnen een En eee Eee eee ene ee eee 28 CONCLUSION ... 0.0.0nenteee eee 30 WORD COUNTCERTIFICATION TABLE OF AUTHORITIES CASES: PAGE(S) Apartment Assn. ofLos Angeles County, Inc. v. City ofLos Angeles (2001) 24 Cal.4" 830 2.0...eetnas 7,8, 11 Bay Area Cellular Telephone Co. v. City of Union City (2008) 162 Cal.App.4th 686 2.0... 6ceeeeee 20, 22, 25 Bighorn-Desert View Water Agency v. Verjil (2006) 39 Cal.4th 205 200.neeee eens 8 Carlos v. Superior Court (1983) 35 Cal.3d 131 0...eeeees 23 City ofPalmdale v. Palmdale Water Dist. (2011) 198 Cal.App.4th 926 00...eeeeens 5 City ofSan Buenaventura v. United Water Conservation District (2015) 235 Cal.App.4th 228 2.0.0...centaee passim City ofSan Diego v. Shapiro (2014) 228 Cal.App.4th 756 22...eecteee eee ees 3 Collier v. City and County ofSan Francisco (2007) 151 Cal.App.4th 1326 2.0... ceceeeeee ene eee eens 22 Evansv. City ofSan Jose (1992) 3 Cal.App.4th 728 2.0...eens26 Gonzalez v. Santa Clara County Dept. OfSocial Services (2014) 223 Cal.App.4th 72 2.0... ceceeeeee ee eens 19 Griffith v. Pajaro Valley Water Management Agency (2013) 220 Cal.App.4th 586 2.6...eeeeee eens 8,9, 17 Howard Jarvis Taxpayers Assn. v. City ofRiverside (1999) 73 Cal.App.4th 679 0.6.66. eeee eens 16 il Howard Jarvis Taxpayers Assn. v. City ofRoseville (2002) 97 Cal.App.4th 637 2.0... c cceeee ee eens 4,29 Jacks v. City ofSanta Barbara (2015) 234 Cal. App. 47925 2...eetes 13 Kern County Farm Bureau v. County ofKern (1993) 19 Cal.App.4th 1416 20...ees22 Oakland Raiders v. City ofBerkeley (1976) 65 Cal.App.3d 623 2.0... ceceeennn 20, 22 O’Grady v. Superior Court (2006) 139 Cal.App.4th 1423 2...eeeeens 19 Pajaro Valley Water Mgmt. Agency v. Amrhein (2006) 141 Cal.App.4th 928, reh’g granted .. 2.6.6... eee eee eee eee 8 Pajaro Valley Water Mgmt. Agency v. Amrhein (2006) 150 Cal.App.4th 1364 2.0.0...eee teenies passim Schmeer v. County ofLos Angeles (2013) 213 Cal. App. 471310 2.0.0.eeeee 5, 18 Silicon Valley Taxpayers Assn. v. Santa Clara County Open Space Authority (2008) 44 Cal. 47 431oi teen eee 5, 16 Sinclair Paint Co. v. State Board ofEqualization (1997) 15 Cal. App. 4" 866 0.0...6ceeeeee eens 18, 23, 25 Taxpayers to Limit Campaign Spendingv. Fair Political Practices Com. (1990) 51 Cal. 3d 744 200eneene eens 23 Town ofTiburon v. Bonander (2009) 180 Cal. App. 4" 1057 2.0...cceeenee ees 4 United Business Com. v. City ofSan Diego (1979) 91 Cal. App.3d 156 2... ens20 ill Weisblat v. City ofSan Diego (2009) 176 Cal.App.4th 1022 2...eeene 25 STATUTES: California Constitution Article XIII A, Section (a)... . 0.eeeen enn e tenes 3 Article XIII A, Section 3(b)(4) 2...eentenes 26 Article XIII C, Section 1(e) 2.0...etee ene eens 18, 21 Article XIII C, Section 1(e)(1) . 2...eeee eens 18, 23 Article XIII C, Section 1(e)(3) 0.0...eeeee ene 18,19 Article XIII C, Section 1(e)(4) .. 6...eeeeeeens 26 Article XIII D, Section 3 2.0.6...cceeeene teenies 16 Article XIII D, Section 2(€) 2... 0...eneeen eee 6 Article XIII D, Section 2(h) 2.0...entnen ees 6 Article XII] D, Section 6 2.0...eeneee e tees 6, 11 Article XIII D, Section 6(b) 2... 0.6e eeeeee eens 15 Article XIII D, Section 6(b)(4) ..6.e eennn 15 Article XIJI D, Section 6(b)(5) 20...eeeeee eens 15 California Government Code Section 53750(M) ... 0...eenteen nent etna 8 Section 88002 . 0...ceeee eee ete e eee tee ene 23 California Public Resources Code Section 5010... ceeeee een nena eee eee 26 California Water Code Section 74000 et Seq. 6...eeenent tenet ena 6 Section 74520 . 0.ceeee eee nee eee ee eee eens 21 Section 75522 0...ceeeeeeee ee eee ete ee ene 7 Section 75594 2.0...e ene e eee eee ees 2, 3, 28, 29 iv APPLICATION FOR LEAVE TO FILE Howard Jarvis Taxpayers Association (““HJTA”) is a California nonprofit public benefit corporation with over 200,000 members. The late HowardJarvis, founder of HJTA,utilized the People’s reserved powerof initiative to sponsor Proposition 13 in 1978. Proposition 13 was overwhelmingly approved by California voters, and addedarticle XIII A to the California Constitution. Proposition 13 has kept thousandsoffixed- income Californians in their homesby limiting the rate and annual escalation of property taxes. In 1996, HJTA authored and sponsored Proposition 218, the Right to Vote on Taxes Act. California voters passed Proposition 218, which added articles XIII C and XIII D to the California Constitution and placedstrict limitations on local governmentalentities’ authority to levy taxes, fees, and charges for property-related services. HJTA also participated in the drafting process of Proposition 26 prior to its passage in 2010. Since that time, HJTA has litigated dozens of cases under Propositions 13, 218, and 26, some of whichare directly relevantto the case at bar. Onthe general merits of this case, Amicus HJTA supportsPlaintiff and urges this Court to overturn the decision of the Second District, Division Six, Court of Appeal. Amicus respectfully requests leave from this Court to file the accompanying Brief of Amicus Curiae in orderto lend its expertise and perspective as tax- and ratepayer advocates. Specifically, Amicibelieve their involvementas authors and sponsors of Propositions 13 and its progenywill be helpful to the Court, specifically regarding historical context and voterintent of those ballot initiatives. Amicus HJTA’s staff attorneys authored the entirety of the proposed brief, and Amicus HJTA neither made nor received any monetary contributions intended to fundthe preparation or submission ofthe brief. For the foregoing reasons, Amicus HJTArespectfully requests this Court’s permission to file the accompanying Brief of Amicus Curiae. Dated: November 17, 2015 Respectfully submitted, JONATHAN M. COUPAL TREVOR A. GRIMM TIMOTHYA.BITTLE J. RYAN COGDILL | Px Ah J.RYAN COGDILL 7 Counsel for Amicus v1 BRIEF OF AMICUS CURIAE I INTRODUCTION Amicus Howard Jarvis Taxpayers Association (“HJTA”) strongly supports Plaintiff and Respondent / Cross-Appellant City of San Buenaventura (hereafter, the “City”) and urge this Court to overturn the decision of the Second District, Division Six, Court of Appeal. (City ofSan Buenaventura v. United Water Conservation District (2015) 235 Cal.App.4th 228 (“Ventura”).) While the City has more than sufficiently briefed the relevant issues presented, Amicus writes separately to shareits expertise as a tax- and ratepayer advocate,andas the drafter and sponsor of Propositions 13 and 218. Proposition 218 was a response by the People of California to the unfair tactics used by local governmental entities seeking to circumvent Proposition 13. Specifically, the voters soughtto rein in the proliferation of tax hikes disguised as “fees”or “assessments” that followed the enactment of Proposition 13. But local governments remain undeterred, and continued to chip away at tax- and ratepayer protections even after the passage of Proposition 218. The caseat bar involves volumetric pumping charges imposed by United Water Conservation District (the “District”) on well operators, including the City, in certain parts of Ventura County. The pumping charges are intended to fund groundwater managementprogramsin order to prevent aquifer depletion and saltwater intrusion. Though such charges have long been considered fees or charges for property-related services and thus subject to Proposition 218, the Second District erroneously concluded that they are not property-related. The Second District then compoundedits error by adopting an extremely expansive interpretation of two ofthe enumerated exceptions in Proposition 26 that threatens to render nearly the entirety of the voter’s intent regarding Proposition 26 void. For these reasons, Amicus respectfully requests that this Court vacate the decision of the Second District. II QUESTIONS PRESENTED This Court certified the following questions in this matter: “(1) Do the District's ground water pumping charges violate Proposition 218 or Proposition 26? (2) Does the rate ratio mandated by Water Code section 75594 violate Proposition 218 or Proposition 26?” Aswill be shown below, the answerto the first question is yes; the pumping charges are governed by Proposition 218, and theyfail to satisfy its cost-of-service requirement. Therefore, they may be implemented only as a special tax subject to supermajority voter approval. For evenif the charges were governedby Proposition 26, they do notfit any of Proposition 26's enumerated fee exceptions and thus must be construedas taxes likewise subject to voter approval. The answerto the second question is the rate ratio imposed by Water Code sec. 75594 unequivocally violates the cost-of-service requirements of both Propositions 218 and 26, and likewise may be imposed only as a special tax subject to voter approval. Il LEGISLATIVE HISTORY OF PROPOSITIONS13, 218, & 26 In 1978, California voters overwhelmingly passed Proposition 13, which wasauthored and sponsored by HJTA founder Howard Jarvis. In passing Proposition 13, the People of California, having determinedthat they were already overtaxed, intendedto strictly limit the future tax-raising authority of the State and local governmentalentities. (City ofSan Diegov. Shapiro (2014) 228 Cal.App.4th 756, 761-62.) One mechanism by which Proposition 13 accomplished this was to cap ad valorem property tax rates. (Cal. Const., art. XIII A, sec. 1, subdiv.(a).)’ In order to circumventthe restrictions imposed ontheir taxing authority by Proposition 13, many local government entities began charging ‘Unless otherwise stated, all future referencesto “articles” refer to our State Constitution. 3 new or higher non-ad valorem taxes,fees, charges, and assessments. (See Town ofTiburon v. Bonander (2009) 180 Cal.App.4th 1057, 1072-74.) To remedy these and other abuses, HJTA authored and sponsored Proposition 218, which addedarticles XIII C and XIII D to our State Constitution: “In adopting this measure, the people found and declared that Proposition 13 was intended to provide effective tax relief and to require voter approval of tax increases. However,local governments have subjected taxpayers to excessive tax, assessment, fee and charge increases that not only frustrate the purposes of voter approval for tax increases, but also threaten the economicsecurity of all Californians and the California economyitself. This measure protects taxpayers by limiting the methods by which local governments exact revenue from taxpayers without their consent.” (Howard Jarvis Taxpayers Assn. v. City ofRoseville (2002) 97 Cal.App.4th 637, 640 (internal quotation marks omitted) (Roseville); citing Historical Notes, 2A West's Annotated California Constitution (2002 supp.) following article XIII C, section 1, page 38.) Indeed, as this Court has noted, “Proposition 218 specifically states that ‘[t]he provisions of this act shall be liberally construed to effectuate its purposes of limiting local government revenue and enhancing taxpayerconsent.’ (Ballot Pamp., supra, text of Prop. 218, § 5, p. 109; Historical Notes, supra, p. 85.) Also, as discussed above, Unless otherwise stated, all emphasis is added. 4 the ballot materials explained to the voters that Proposition 218 was designed to: ... makeit easier for taxpayers to win lawsuits; and limit the methods by which local governments exact revenue from taxpayers without their consent.” (Silicon Valley Taxpayers Assn., Inc. v. Santa Clara County Open Space Authority (2008) 44 Cal.4th 431, 448 (Silicon Valley Taxpayers).) Proposition 218 limits the authority of local governmentalentities to levy taxes, as well as fees and charges for property-related services such as water utility service. (City ofPalmdale v. Palmdale WaterDist. (2011) 198 Cal.App.4th 926.) In light of Proposition 218’s new restrictions on taxes, property- related fees and charges, and assessments, local governments again sought to circumventconstitutional restrictions on revenue generation,this time by broadening the scope of “fees.” The consequenceofthis trend, as well as this Court’s seeming approval ofthe trend in Sinclair Paint Co. v. State Bd ofEqualization (1997) 15 Cal.4th 866 (Sinclair Paint), was that the voters enacted Proposition 26 in 2010. (Schmeer v. County ofLos Angeles (2013) 213 Cal.App.4th 1310, 1322. (Schmeer).) “Proposition 26 expanded the definition of taxes so as to include fees and charges, with specified exceptions... and shifted to the state or local governmentthe burden of demonstrating that any charge, levy or assessmentis not a tax.” (/d.) IV THE PUMPING CHARGESVIOLATE PROPOSITION 218’S COST-OF-SERVICE REQUIREMENT Proposition 218 governs fees and charges for property-related services. (Art. XIII D, sec. 6.) “‘Fee’ or ‘charge’ means any levy other than an ad valorem tax, a special tax, or an assessment, imposed by an agency upon a parcel or upon a personasan incidentofproperty ownership, including a user fee or charge for a property related service.” (Art. XIII D, sec. 2, subdiv.(e).) “Property-related service” is defined as “a public service having a direct relationship to property ownership.” (Art. XIII D, sec. 2, subdiv.(h).) Asthe City persuasively demonstrates, the groundwater pumping chargeslevied by the District are, under existing case law, fees for property- related services and thus subject to Proposition 218. (AOBat p. 27.) As the City notes, the District was formed pursuantto the Water Conservation District Law of 1931 (Wat. Code sec. 74000 et seq.) in order to manage groundwaterin order to prevent overdraft and aquifer depletion in coastal Ventura County. (AOBat pp. 6-10.) The pumping chargeat issue hereis expressly authorized by the Water Conservation District Law: “The ground water charges are authorizedto be levied upon the production of ground water from all water-producing facilities, whether public or private, within the district or a zone or zones thereof for the benefit of all who rely 6 directly or indirectly upon the ground water supplies of the district or a zone or zones thereof and water imported into the district or a zone or zonesthereof.” (Wat. Code sec. 75522.) This statute expressly provides that ground water charges are to be levied on all (“public or private”) owners of water producingproperty, thus rendering such a charge “upon a parcel” or “as an incident of property ownership.” The appellate courts have previously considered the implications of Proposition 218 on such ground water management pumping charges. Indeed, the Sixth District twice considered pumping chargesthat are identical to those imposed by the District for all purposes relevantto this litigation. (E.g.: Pajaro Valley Water Mgmt. Agency v. Amrhein (2006) 150 Cal.App.4th 1364 (“Pajaro I’).) There, the court foundthat“the groundwater augmentation charge is indeed imposed asan incident of property ownership, that it is subject to the restrictions imposed on such charges by Article 13D.” (/d. at 1393.) A. The SecondDistrict’s Reliance on Apartment Association is Misguided and Contrary to Settled Precedent. The most profound mistake in the Second District's opinionisits misapprehensionof this Court's decision in Apartment Association ofLos Angeles County v. City ofLos Angeles (2001) 24 Cal.4th 830 (“Apartment Association’), which exempted from Proposition 218 fees for property inspection imposed on landlords. Apartment Association reasoned that the fees at issue were regulatory fees for housing code compliance not imposed as an incidence of property ownership. However, following this Court’s decision in Bighorn-Desert View Water Agency v. Verjil (2006) 39 Cal.4th 205, 216-17 (“Bighorn’’) no court has applied the reasoning ofApartment Association to cases involving fees related to water service prior. In Bighorn, this Court determined that charges for water service, including both fixed monthly overhead charges and metered water consumption charges, are fees for property-related services subject to Proposition 218. Uponthe issuance of Bighorn, the Sixth District reheard Pajaro I. Initially, the Sixth District had determinedthat the groundwater augmentation charge was exempt from Proposition 218 under the reasoning ofApartment Association. (Pajaro Valley Water Management Agency v. Amrhein (2006) 141 Cal.App.4th 928, reh'g granted.) Upon rehearing and in light of Bighorn, the Sixth District reversed itself and ruled that groundwater augmentation charges are charges for a property-related service subject to Proposition 218. (Pajaro J, supra, 150 Cal.App.4th at 1393.) The Sixth District reaffirmed its reasoning when it again held that groundwater augmentation charges imposed on well operators are within the scope of waterservice as defined by Government Code § 53750(m) and thus subject to Proposition 218. (Griffith v. Pajaro Valley Water Management Agency (2013) 220 Cal.App.4th 586 (“Pajaro IP”’).) The factual differences between the instant case and those from the Sixth District are immaterial. Each case involves the imposition of groundwater augmentation charges on well operators by a public entity in order to recharge the aquifer and stave off saltwater intrusion. Under the reasoning ofPajaro J and IJ, such charges are considered fees for a property-related service(i.e.: water service) subject to Proposition 218. However,in the instant case the Second District determined such charges are regulatory fees unrelated to the property or property ownership and thus not subject to Proposition 218. (Ventura, supra, 235 Cal.App.4th at 251-53.) 1. The Pajaro Cases Must Governthe Case at Bar. Between the Pajaro cases and the SecondDistrict’s opinion in the instant case, the formerare better reasoned. The Pajaro J court heldthat: “(T]he charge here is not actually predicated uponthe use of water but on its extraction, an activity in some ways more intimately connected with property ownership thanis the mere receipt of delivered water. The precise nature of a property owner's interest in underlying groundwater, and whetherit constitutes a kind of real property ownership,is an esoteric and nuanced subject. There appears to be no doubt, however, that an overlying ownerpossesses ‘special rights’ to the reasonable use of groundwater underhis land. Theserights are said to be ‘based on the ownership of the land and... appurtenant 9 thereto.” Thus, even if an overlying landowner does notstrictly ‘own’ the water underhis land, his extraction of that water(or its extraction by his tenant) represents an exercise ofrights derived from his ownership of land. In that respect a charge imposed on thatactivity is at least as closely connected to the ownership of property as is a charge on delivered water.” (Pajaro I, supra, 150 Cal.App.4th at 1391-92 [citations omitted].) Indeed, the Second District’s contrary conclusion that a property owner whoisself- reliant and supplies his or her own water service somehow has fewer property rights and lessened ratepayerprotections than an owner whorelies on offsite infrastructure for water delivery is logically backward. Self- sufficient property owners should be subject to no greater governmental interference with their property rights than those relying on the government for their utility service. Indeed, the court’s statement that generation of one’s ownutilities is “arguably ... not a normal use of property” would likely comeas a shock to the two million Californians whorely on private domestic wells* and the owners of more than 438,000 rooftop solar energy installations across the state. (Ventura, supra, 235 Cal.App.4th at 223.) 3A Guide for Private Domestic Well Owners (March 2015) California Water Resources Control Board [as ofNovember 13, 2015]. 4Go Solar California [as of November 16, 2015]. 10 2. The Distinction Between Commercial and Residential Water Use Has No Basis in the Constitutional Text. The SecondDistrict’s reliance on Apartment Association is fundamentally flawed becauseit hinges on a distinction between “commercial” and “residential” uses of water that is entirely unsupported by the constitutional text. (Ventura, supra, 235 Cal.App.4th at 248-50.) The decision declares that because the vast majority of the water pumpedbythe City and subject to the groundwater augmentation charge is for commercial purposes, then the charges are not incidental to properly ownership butare regulatory fees instead. (/bid.) However,this argument imagineslimitations on the constitutional text that simply do notexist. Proposition 218 governsall fees and charges imposed for property-related service. (Art. XIII D, sec. 6.) Fees for water service, including ground water management, are property construed as being imposed “incident[al] of property ownership.” (Pajaro J, supra, 150 Cal.App.4th at 1393.) Indeed, such charges were exactly what the People of California intended to limit when they enacted Proposition 218. There is no text to suggest that the voters intended to exempt from Proposition 218 any activities that might be linked to commercial activity. Accordingly,this Court should affirm the decision ofPajaro J and overrule the Second District here. 11 3. Evenif the Commercial Distinction were Valid, the Facts of this Case Do Not Support the Second District’s Conclusion. Even assuming the constitutionally unsupported distinction between residential and commercial water usageis relevant to the Proposition 218 analysis, the Second District misapplied its own rule to the facts at hand. The SecondDistrict noted that the vast majority of residential property owners obtain their water via water delivery systems administered by the City and obtainedviaits wells: ‘While the record does not disclose the exact numberofresidential customers who pump water in lieu of connecting to an existing water delivery network,it is evident that this number is insubstantial relative to the number of residential customers receiving delivered water. There are at most 840 parcels with wells in the District. The City, whose 11 parcels account for only about6 percent of the water extracted from these wells, delivers water to approximately 30,000 residential dwelling units in the District. Andofcourse the City itself uses the water it pumps for commercial rather than residential purposes.” (Ventura, supra, 235 Cal.App.4th at 248.) This analysis fails to consider that the City itself is bound by Proposition 218, specifically including the cost-of-service rate limitation, when it provides waterutility service to its residents. In such cases, the City is not engaged in commercein any meaningful sense of the term. Rather, the City is acting merely as a middleman constitutionally boundto sell waterstrictly at cost and entitled 12 to no profit. It is the water ratepayers (i.e.: Ventura residents) rather than the City whotruly bear the financial costs of the pumping charges. Though the City might write the check for the District’s augmentation charge, the City immediately recoups that cost by passing it through to ratepayers. The passthroughissue in the instant case is remarkably similarto that ofJacks v. City ofSanta Barbara (2015) 234 Cal.App.4th 925 (Jacks), an opinion drafted by the authorof the instant case and presently under review by this Court. Jacks involved a 1% surcharge onelectricalbills collected by Southern California Edison and remitted to the City of Santa Barbara in accordancewith a franchise agreement. After determining the franchise fee at issue was “an illegal tax masqueradingas a franchise fee,” the court rejected an argumentthat constitutional ratepayer protections did not apply becausethe illegal taxes were imposed on an intermediary rather than the ratepayers directly: “The other basic flaw in the League’s argument is its assumption that the 1% surcharge was imposed on [Southern California Edison]. As we have explained, it was actually imposed on the utility users. [Southern California Edison] is merely a conduit through which the tax revenues flow with norealinterest in the tax’s validity or amount.” (Jacks, supra, 234 Cal.App.4th at 935.) The samereasoning ought to applyto the case at bar. The City is merely a passthrough for the vast majority of pumping chargesto its 13 residential water service customers. Under these circumstances, the constitutional protections afforded to ratepayers oughtto apply to the City as well. That the City serves as an intermediary should notinsulate a fee for a property-related service from Proposition 218's protections. B. The District Has Not and Cannot Justify its Pumping Charges. As has been demonstrated, the pumping charges are properly considered fees for property-related service subject to Proposition 218. Proposition 218 specifically provides: “A fee or charge shall not be extended, imposed, or increased by any agency unlessit meetsall of the following requirements: (1) Revenues derived from the fee or charge shall not exceed the funds required to provide the property related service. (2) Revenuesderived from the fee or charge shall not be used for any purpose other than that for which the fee or charge was imposed. (3) The amountof a fee or charge imposed upon anyparcel or person as an incident of property ownership shall not exceed the proportional cost of the service attributable to the parcel. [...] (5) No fee or charge may be imposed for general governmental servicesincluding, but not limited to, police, fire, ambulanceor library services, where the serviceis available to the public at large in substantially the same manner as it is to property owners.[...] In any legal action contesting the validity of a fee or charge, the burden shall be on the agency to demonstrate compliance with this article. 14 (Art. XIII D, sec. 6, subdiv. (b).) As the City has painstakingly established, the District has not and cannotjustify the pumping chargeasa cost-of- service attributable to individual property owners. (AOBat pp. 40-53.) Indeed, the Second District explicitly acknowledged the impossibility of calculating individual costs-of-service to justify the pumping charges under Proposition 218 because, under its analysis, the property ownersreceive no identifiable service: “We think it self-evident that in charging property owners for pumping groundwater, the District is not providing a ‘service’ to property owners in the same waythat the Bighorn agency provideda service by delivering water through pipes to residences. The conceptual difficulty with a contrary conclusion is apparent from [Pajaro I's] attempt to define what the ‘service’ at issue is. In its view, the District's service is securing the water supply for everyone in the basin. But, if so, such a service cannot meet the requirement that it be “actually used by, or immediately available to, the owner of the property in question.” (Cal. Const., art. XIH D, § 6, subd. (b)(4).) Moreover, it would fall within the realm of prohibited “[flees or charges based on potential or future use of a service.” (Ibid.) Worsestill, such a service is “available to the public at large in substantially the same mannerasit is to property owners.” (Jd.at subd. (b)(5).) There is a fundamental conflict between a pumpfee's classification as a property-related service and its validity under article XIII D.” (Ventura, supra, 235 Cal.App.4th at 251-52.) 15 The Second District may well be correct in its assessmentthat groundwater managementbenefits are too ill-defined to be properly apportioned to individual property owners. However, that analysis does not support its ultimate conclusion. Charges for water service, including groundwater management fees imposed on well operators, are, for the reasons discussed previously herein, precisely the sort of charges the voters meantto control when they enacted Proposition 218. If the District cannot meetits burden of establishing the validity of its charges, then that does not meantheyare therefore immunefrom Proposition 218 review;rather,it meansthe pumping charges mayonly be properly construed as special taxes subject to voter approval. (Art. XIII D, sec.3.) “Proposition 218 allows only four types of local property [levies]: (1) an ad valorem property tax; (2) a special tax; (3) an assessment; and (4) a fee or charge. It buttresses Proposition 13's limitations on ad valorem property taxes and special taxes by placing analogous restrictions on assessments, fees, and charges.” (Silicon Valley Taxpayers, supra, 44 Cal.4th at 443 [citations and quotation marks omitted]; citing Howard Jarvis Taxpayers Assn. y. City ofRiverside (1999) 73 Cal.App.4th 679, 681-682.) The pumping charges hereare clearly not ad valorem property taxes or assessments; therefore, if they cannot be characterized as fees for property-related service, they mustbe specialtaxes. 16 I M E . S a T y Well-settled precedent holds that the pumping chargesat issue here are fees or charges for property-related service subjectto all of Proposition 218's requirements, includingthe cost-of-service requirement. Because the District has not and cannotjustify its charges as a function of actualcost, the chargesviolate our state Constitution andare thus invalid unless and until they are presented to and approvedby the voters. Vv THE PUMPING CHARGES VIOLATE PROPOSITION 26 As an advocate for tax- and ratepayers, Amicus would obviously prefer that groundwater pumping charges be classified as special taxes needing two-thirds voter approval. But the judicial precedents that have led the law to this point compel the conclusion that groundwater charges constitute a property-related water service fee which may be imposed under article XJIID withoutan election, provided merely that the agency mail notice, hold a hearing, and take care to avoid overcharging or disproportionality. (See, e.g., Pajaro I & I].) If this Court rejects the existing precedents, however, and decides that groundwater charges are not subject to the lesser controls ofarticle XIIID,then as the Second District acknowledged, “we must addressthe City’s alternative contention that the pump chargesare taxes that were imposedin violation of Proposition 26.” (Ventura, supra, 235 Cal.App.4th at 253.) 17 “Proposition 26 expanded the definition of taxes so as to include fees and charges, with specified exceptions... and shifted to the state or local government the burden of demonstrating that any charge,levy or assessmentis not a tax.” (Schmeer, supra, 213 Cal.App.4th at 1322.) Prior to the enactment of Proposition 26, the term “tax” had no fixed meaning and “the distinction between taxes and fees [was] frequently “blurred,” taking on different meaningsin different contexts.” (Sinclair Paint, supra, 15 Cal.4th at 874.) Now, however, “tax” is definedin the state constitution as “any levy, charge, or exaction of any kind imposedby a local government” unlessspecifically exempted. (Art. XIIIC, sec. 1(€).) Asthe Second District stated, “Pursuant to Proposition 26’s presumption that ‘any levy, charge, or exaction of any kind imposed by a local government’is a tax, the pump fees must be taxes unlessthey fall into one of seven enumerated exceptions.” (Ventura, supra, 235 Cal.App.4th at 253.) The Second District found “two of these exceptions... apply to varying extents.” (Jbid.) These were (1) the regulatory fee exception in article XIIIC, section 1(e)(3); and (2) the exception for a payor-specific benefit or privilege in section 1(e)(1). If the Court erred and neither exception applies, then the District’s groundwatercharge is, by default, a tax which required butdid not receive two-thirds voter approval. Amicus will establish why neither exception is relevant to the instantcase. 18 A. The Pumping Charges Are Not “Regulatory Fees” as Described in Proposition 26. Article XIIIC, section 1(e)(3) exempts “charge[s] imposed for the reasonable regulatory costs to a local governmentfor issuing licenses and permits, performing investigations, inspections, and audits, enforcing agricultural marketing orders, and the administrative enforcement and adjudication thereof.” This exception is carefully wordedto apply only to charges for a limitedlist of specified regulatory functions, indicating voter intentthat it not be treated as a general exemption for funding the entirety of a regulatory program. Where an exceptionis limited bya list in this way, courts construe voter intent by applying the maxim expressio uniusest exclusio alterius, that is, the enumeration of things to which the exception applies is presumedto excludethings not mentioned. (Gonzalez v. Santa Clara County Dept. ofSocial Services (2014) 223 Cal.App.4th 72, 89-90; O’Grady v. Superior Court (2006) 139 Cal.App.4th 1423, 1443.) That the exception is narrowed bythislist is also evident from Proposition 26’s declaration of purpose, whichstates in part: “Fees couched as ‘regulatory’ but which exceed the reasonable costs of actual regulation or are simply imposed toraise revenue for a new program andare notpart of any licensing or permitting program areactually taxes and should be subject to the limitations applicable to the imposition of taxes.” (Ballot Pamp., Gen. Elec. Nov. 2, 2010, text of Prop. 26,sec. 1, p. 114, reprinted in 19 Historical Notes, 2A West's Ann. Cal. Const. (2013 supp.) followingart. XIIIC,sec. 3, pp. 141-142.) Consulting the exception’s list, then,it is clear that a charge for issuing a permit to the payor, or for conducting an inspection of the payor’s operation, wouldnot be a tax under Proposition 26. But the charge at bar, which raises undesignated revenue for a commingled assortment of program costs, does constitute a tax becauseitis muchtoo broadto fit the narrow exception described in Proposition 26. Indeed, this was arguably true even before Proposition 26. The difference between valid regulatory fees and taxes that require voter approval was described in Oakland Raiders v. City ofBerkeley (1976) 65 Cal.App.3d 623. In thatcase, the court noted that the ordinancein question, like the pumping chargeshere, contained “no provision which would regulate the conductof anyone whois subject to the ordinance,” and went on to concludethat “[w]here [a] statute contains no regulatory provisions, but only provides for the subjects and amounts of [revenue collection],”it is a tax. (Id. at 627.) Similarly, the court in United Business Com. v. City of San Diego (1979) 91 Cal.App.3d 156, 165,stated: “If revenueis the primary purpose andregulation is merely incidental the imposition is a tax.” (See also Bay Area Cellular Telephone Co. v. City of Union City (2008) 162 Cal.App.4th 686, 694, fn. 7. (Bay Area Cellular).) Proposition 26 has now defined “tax” so as to make the necessity of voter approval the generalrule. 20 It expressly narrowedthe circumstances under which a “regulatory fee” exception would apply. Under Proposition 26, therefore,it is even harder for a levy like the District’s pumping charge to escape voter approval. As the SecondDistrict conceded,“[m]Jany of the costs associated with managing, protecting, conserving, and enhancingthe District’s water resources lie beyond the scopeofthis exception.” It then erroneously reasoned, “but not all [do]. In particular, the District is authorized to ‘make surveys and investigations’ of its water supply and resources. ({Wat. Code sec.] 74520.) These costs, to the extent they are included in the pumpfees, are not taxes.” (Ventura, supra, 235 Cal.App.4th at 253.) The SecondDistrict clearly erred. If “many of the costs” funded by this charge “lie beyond the scope of this exception,” then the exception cannot apply at all because the charge is obviously excessive to the extentit funds more than just qualifying costs. Proposition 26 places on the District “the burden of proving by a preponderanceofthe evidence... that the amount [ofthe charge] is no more than necessary to coverthe reasonable costs of the governmental activity.” (Cal. Const., art. XIIIC, § 1(e).) Here, since the Court of Appeal conceded that the amount of the charge is more than necessary to coverthe qualifying regulatory activities, the District has not met its burden of proving that its pumping chargesfit the regulatory fee 21 exception. Even before Proposition 26, courts classified excessive regulatory “fees” as taxes. “Special taxes do not encompass fees chargedto particular individuals in connection with regulatory activities or services when those fees do not exceed the reasonable cost of providing the service oractivity for which the fee is charged, and are not levied for unrelated revenue purposes.” (Kern County Farm Bureau v. County ofKern (1993) 19 Cal.App.4th 1416, 1421; Collier v. City and County ofSan Francisco (2007) 151 Cal.App.4th 1326, 1346; Bay Area Cellular, supra, 162 Cal.App.4th at 694.) Proposition 26 draws an eventighter circumference aroundthe regulatory activities for which an exempt “fee” may be charged. Under Proposition 26 it is even clearer that the pumping chargesare “excessive” because they pay for a multi-faceted program nopart of which actually licenses or regulates the payor. Such chargesare therefore taxes requiring voter approval.° ‘Even the one supposedly qualifying activity identified by the Second District may be ineligible for the exception. The court describedit as “the District ... mak[ing] surveys andinvestigations ofits water supply.” Butthis activity is not regulating the payor. (Oakland Raiders, 65 Cal.App.3d at 627.) The Proposition 26 exception exempts a charge collected to investigate the payor, but not necessarily to take inventory of the agency’s own resources. ‘The District’s AnswerBrief, in arguing for an expansive “regulatory fee” exception, contendsthat “the authors of Proposition 26, which included... the Howard Jarvis Taxpayers Association, acknowledged that regulatory fees on activities designed to achieve environmental goals are [exempt from both Propositions 218 and 26].” (AB at p. 24.) As support for this statement, the 22 B. Nor Does Proposition 26's “Payor-Specific Benefit” Exception Apply. The second potential exception cited by the Second Districtis the exception for a payor-specific benefit or privilege. (Art. XIIIC,sec. 1(e)(1).) That section exempts “A charge imposed for a specific benefit conferred or privilege granted directly to the payorthat is not provided to those not charged, and which does not exceed the reasonable costs to the local governmentof conferring the benefit or granting the privilege.” This benefit exception builds on the foundationofa test articulated by this Court in Sinclair Paint: “In general, taxes are imposed for revenue purposes, rather than in return for a specific benefit conferred or privilege granted. Most taxes are compulsory rather than imposed in response to a voluntary decision to develop or to seek other governmentbenefits or privileges.” (Sinclair Paint, supra, 15 Cal.4th at 874 [citations omitted].) Proposition 26 elevated the Sinclair Paint exceptiontotilt the scale toward a presumed District quotes the Ballot Argumentin Favor of Proposition 26. (/bid.) The argument should be ignored. Amicus HJTA wasneither an authorof Proposition 26 nor a signerof the ballot argument. Moreover,ballot arguments are notoriously unreliable indicators of a measure’s actual—oreven intended-effects. They appear in the Voter Information Guide above a warning: “Argumentsprinted on this page are the opinions of the authors and have not been checked for accuracy by anyofficial agency.” (Gov. Code § 88002.) For courts as well as voters, “[o]ne difficulty with relying on ballot argumentsis that they are stronger on political rhetoric than onlegal analysis.” (Carlos v. Superior Court (1983) 35 Cal.3d 131, 143 fn. 11.) In any event, “[t]he opinion of drafters ... who sponsor an initiative is not relevant since such opinion doesnotrepresentthe intent of the electorate and we cannot say with assurancethat the voters were awareofthe drafters’ intent. [Citations.]” (Taxpayers to Limit Campaign Spendingv. Fair Political Practices Com. (1990) 51 Cal.3d 744, 764-765, fn. 10.) 23 conclusion that a levy is a tax. Now,in addition to being “in responseto a voluntary decision ... to seek governmentbenefits or privileges,”the benefit or privilege must be conferred or granted“directly to the payor” and must be “not provided to those not charged.” This exception, according to the Court of Appeal, provides the best argument that groundwater charges are not a tax under Proposition 26: “The District’s strongest argumentthat the groundwaterextraction fees are not taxes is that they fall within the first exception for payor-specific benefits and privileges. Pumpersreceive an obvious benefit-they may extract groundwater from a managed basin.” (235 Cal.App.4th at 254.) But the benefit is not obviousat all. A levy is exempt under this exception only whenthe levying agency has “granted directly to the payor”a benefit not providedto those not charged. Underthe facts of this case, however, the District granted nothing to the City in 2011 whenit began charging the fee challenged by this lawsuit. The City wasalready extracting water from a managed basin, and doingso legally. The City was not granted anything new. Nordid the District begin providing any new service. Indeed, the only thing new was the pumping charge. According to the Second District’s ownrecitation of the facts, the charge newly levied on the City in 2011 was a chargethat had been collected in other areas of the District prior to 1987. However,it was not 24 collected from the City because the City andthe District had stipulated in a written agreementthat the City did not benefit from its expenditure. (Ventura, supra, 235 Cal.App.4th at 237.) The charge wasto fund construction of the Freeman Diversion Project which recharges a basin other than the one the City draws from, whichis not hydrologically connected to the City’s basin. (/d. at 236-37.) By holding that the District may now levy this charge (which has neverbeen put before the voters) on the City for projects in other locations that do not necessarily benefit the City, the Court is rejecting the voters’ unambiguousintentof tightening the Sinclair Painttest. Indeed,there is a strong argumentthat the District’s pumping charges do not even pass muster under the now-obsolete standard of Sinclair Paint and its predecessors. “Special assessments and development, regulatory and userfees are generally not regardedas taxes, and thus are exempt from the reach of[the voter approval requirementfor taxes] because with each ofthese levies, a discrete group receives a benefit, service, or public improvementthat inures to the benefit of that discrete group. The courts have recognized that although the public as a whole may be incidentally benefitted by the expenditure of the proceedsof theselevies,a discrete groupis specially benefitted by the expenditure.” (Weisblatv. City ofSan Diego (2009) 176 Cal.App.4th 1022, 1038; Bay Area Cellular, supra, 25 162 Cal.App.4th at 695; Evansv. City ofSan Jose (1992) 3 Cal.App.4th 728, 738.) Asdiscussed previously herein, the Second District explicitly held that the District does not provide a ‘service’ to the City. (Section IV(B), supra.) This is why the court “distinguished” the existing precedents holding that groundwatercharges are property-related fees for water service under Article XIIID. According to the Second District, the District providesa “benefit” instead of a “service.” The benefit that the District providesis managementofthebasinsin the District: “A pumpfeeis... like the entrance fee to a state or local park, which is not a tax (see Cal. Const., art. XIII C, § 1, subd. (e)(4); id. art. XTIL A, § 3, subd. (b)(4)). Althoughcitizens generally havethe right to enter such public land, the governmentis entitled to charge them a fee for its efforts to maintain the land so that it can be enjoyedbyall whouse it. (See Pub. Resources Code, § 5010.) Without the District’s resource management operations, groundwater would be depleted far faster and overdraft in the District would be far more severe.” (Ventura, supra, 235 Cal.app.4th at 254.) In so reasoningthe court has brazenly rewritten the regulatory fee exception in order to removeallofits limitations. After noting that “many ofthe costs associated with managing [the basin] lie beyondthe scope of [Proposition 26’s regulatory fee exception] (/d. at 253),” the Court then holdsthat those costs fall within the exception for payor-specific benefits because “[p]umpers receive an 26 obvious benefit-they may extract groundwater from a managedbasin.... Withoutthe District’s resource managementoperations, groundwater would be depleted far faster and overdraft in the District would be far more severe.” But the word “management”is nothing more than a synonym for “regulation.” If the District’s managementofthe basinis the basis for exempting these fees from Proposition 26, then one mustlook to the regulatory fee exemption. (See Section V(A), supra.) The reasoning of the Second District contorts both constitutional text and legal concepts in an attempt to transmute a non-exempt regulatory function into an exempt payor-specific benefit. The result is the bastardization of Proposition 26's discrete, enumerated exceptions so as to remove most, if not all, limitations. Notonly is this result beyond the plain text of Proposition 26 and the voters’ unambiguousintent, it creates a loopholethat threatens to swallow the rule. As explained in Section IV, supra, the pumping charges are properly construed as fees or charges for property-related services subject to Proposition 218. However, even if the pumping charges are not considered fees for property-related services, they remain subject to Proposition 26's requirements. Becausethe activities funded by the pumping charges do not fall within any of the fee exceptions enumerated in Proposition 26, they 27 must be construed as taxes subject to voter approval. Because no such approvalever occurred, the pumping chargesare therefore invalid. VI THE RATIO IMPOSED BY WATER CODE SECTION 75594 VIOLATES THE COST-OF-SERVICE REQUIREMENTSOF BOTH PROPOSITIONS218 & 26 Water Code sec. 75594 provides,in relevant part: “[A]ny ground water charge in any year shall be established at a fixed and uniform rate for each acre-foot for water other than agricultural water whichis not less than three times nor more thanfive times the fixed and uniform rate established for agricultural water. However, any groundwater charge in any year for water other than agricultural water used for irrigation purposes on parks, golf courses, schools, cemeteries, and publicly ownedhistorical sites may be established at a fixed and uniform rate for each acre-foot which shall not be less than the rate established for agricultural water, nor more thantherate established for all water other than agricultural water.” As discussed previously herein, the pumping chargesare subject to but substantively noncompliant with Proposition 218, and must be construed as taxes under Proposition 26 in any case. This is so because both Propositions 218 and 26 include payor-specific cost-of-service requirements; undereither Proposition, the charges levied against the payor mustbejustified in termsof actual, proportionalcost of the benefit or service received, or the actual cost of the regulatory program at issue. 28 The ratio imposed by sec. 75594 is facially unconstitutional irrespective of whether this Court construes the pumpingcharges as subject to Proposition 218 or 26 for that same reason. The statute unambiguously requires a price floor for non-agricultural waterthat correlates notto cost, but to the price of agricultural water. Becausethis price floor (“not less than three times nor more than five times”) is not correlated in any wayto» the cost of non-agricultural water, it has the effect of skewingtheprice of agricultural water as well. For if the total revenue from groundwater rates cannot exceed the cost of providing service, then sec. 75594 can be implemented only by overcharging non-agricultural pumpersin order to subsidize agricultural pumpers. Therefore,the ratio is entirely arbitrary as to the costit purports to represent, andis therefore invalid. (See Roseville, supra, 97 Cal.App.4th at 648.) H/ 29 Vil CONCLUSION For the foregoing reasons, Amicus HJTArespectfully requests that this Court vacate the decision of the Second District. Dated: November17, 2015 Respectfully submitted, JONATHAN M. COUPAL TREVOR A. GRIMM TIMOTHYA.BITTLE J. RYAN COGDILL | p