City of Palmdale v. Palmdale Water Dist., B224869.

CourtCalifornia Court of Appeals
Writing for the CourtWOODS, J.
Citation131 Cal.Rptr.3d 373,11 Cal. Daily Op. Serv. 11067,2011 Daily Journal D.A.R. 13081,198 Cal.App.4th 926
PartiesCITY OF PALMDALE, Plaintiff and Appellant,v.PALMDALE WATER DISTRICT, et al., Defendants and Respondents.
Docket NumberNo. B224869.,B224869.
Decision Date25 August 2011

198 Cal.App.4th 926
131 Cal.Rptr.3d 373
11 Cal.
Daily Op. Serv. 11,067
2011 Daily Journal D.A.R. 13,081

CITY OF PALMDALE, Plaintiff and Appellant,
PALMDALE WATER DISTRICT, et al., Defendants and Respondents.

No. B224869.

Court of Appeal, Second District, Division 7, California.

Aug. 9, 2011.As Modified Aug. 25, 2011.

[131 Cal.Rptr.3d 374]

Wm. Matthew Ditzhazy, City Attorney, City of Palmdale; Richards, Watson & Gershon, Gregory M. Kunert and Whitney G. McDonald for Plaintiff and Appellant.Lagerlof, Senecal, Gosney & Kruse, Timothy J. Gosney, James D. Ciampa and Francis J. Santo, Pasadena, for Defendants and Respondents.Daniel S. Hentschke, Oceanside, for Association of California Water Agencies (ACWA) as Amicus Curiae on behalf of Defendant and Respondent Palmdale Water District.WOODS, J.
[198 Cal.App.4th 928] INTRODUCTION

In this appeal, the City of Palmdale (City) asserts the trial court erred in finding the Palmdale Water District (PWD) had adopted a new water rate structure in conformity with the constitutional requirements of Proposition 218.

After conducting an independent review of the record ( Silicon Valley Taxpayers Assn., Inc. v. Santa Clara County Open Space Authority (2008) 44 Cal.4th 431, 448, 79 Cal.Rptr.3d 312, 187 P.3d 37), we conclude PWD failed to satisfy its burden to establish that its new water rate structure complies with the mandates of Proposition 218 (as set forth in article XIII D of the California Constitution (article XIII D)), including the proportionality requirement which specifies that no fee or charge imposed upon any person or parcel as an incident of property ownership shall exceed the proportional cost of the service attributable to the parcel. Accordingly, we reverse the judgment.


As of 2008, Palmdale Water District (PWD) revenues had decreased by about $1.3 million (“primarily due to a decline in water sales”), while its expenses had increased by about $1.2 million in 2008 (and $2.4 million in 2007). PWD's General Manager concluded a 15 percent rate increase was necessary to balance the budget.

At a cost of $136,000, Palmdale Water District (PWD) retained Raftelis Financial Consultants (RFC) to prepare a rate study and recommend a new rate structure. According to RFC's Water Rate Study Report,

[131 Cal.Rptr.3d 375]

PWD serves a population of approximately 145,000 with about 26,000 service connections. PWD's water supply consists of 60 percent surface water (from Little Rock Reservoir and State Water Project (SWP)) and 40 percent from PWD's 25 area groundwater wells. Single family residential customers account for 72 percent of PWD's total water usage. Remaining water usage is as follows: commercial/industrial (10 percent), multi-family residential (9 percent), irrigation (5 percent), and construction and other customers such as schools and municipalities (4 percent).

[198 Cal.App.4th 929] According to RFC's report, over the preceding five years, PWD had spent more than $56 million to upgrade its water treatment plant and depleted its reserves. PWD wanted to issue $38.25 million in debt by July 2009 for future capital projects and refinancing. RFC presented policy issues for the Board to decide, including water budget allocation defaults and methods for calculating desired fixed revenue from proposed new rates. RFC advised the Board regarding two options for determining fixed revenues: a “Cost of Service” option and a “Percentage of fixed cost” option. Advantages of the Cost of Service option were noted as “Defensible—Prop 218” and “Consistent with industry standards” but one disadvantage was “Greater revenue fluctuation with varying demand.” An advantage of the alternative (FV) option was “rate stability” while disadvantages included “Significant impact on small customers who conserve water” and “weaker signal for water conservation.” RFC indicated fixed revenue should not exceed 30 percent of revenues.

RFC again met with PWD's Board regarding the “need to adopt a water rate increase structure for a future bond issue....” It was determined PWD's new rate structure would recover 75 percent of its costs from fixed fees and 25 percent from variable fees “based on the bond team's recommendation and conservation factors....” The proposed rate structure then included a fixed monthly service charge based on meter size and commodity charges based on a water budget allocation. Residential customers were provided indoor and outdoor allocations, commercial customers received a three-year average allocation and irrigation customers received only an outdoor allocation. Commodity rates were then imposed under a tiered structure, determining how much the customer went over (or stayed within) the allocated budget.

Again, RFC presented two options for determining the commodity rates and monthly service charge: the Cost of Service (COS) option and the Fixed/Variable Cost Allocation (FV). With the FV option, monthly fixed charges would represent 75 percent of total costs while the COS alternative would include only billing and customer service costs plus meter charges in the fixed monthly fees. RFC indicated this option offered “more revenue stability” but a “weaker conservation signal.” The reverse was true for the COS option: “less revenue stability” but a “stronger conservation signal.”

When RFC presented its final Water Rate Study Report to the PWD Board in March 2009, the Board approved the FV option but modified it such that 60 percent of fixed costs would be recovered from fixed monthly charges and 40 percent would be recovered from variable charges.

PWD prepared a “Notice of Public Hearing” pursuant to Proposition 218, and the City (and its Redevelopment Agency) sent letters to PWD protesting the rate increase. PWD held a public hearing in May 2009 at which City [198 Cal.App.4th 930] representatives spoke against the increase and members of the public appeared to object as well. At

[131 Cal.Rptr.3d 376]

the same meeting, the Board adopted a resolution approving its 2009 bonds to replenish its reserves. “The success of this bond issue is dependent on the adoption of the pending water rate increases.”

As approved, the new rate structure now imposes a fixed monthly service charge based on the size of the customer's meter and a per unit commodity charge for the amount of water used, with the amount depending upon the customer's adherence to the allocated water budget. The customer pays a higher commodity charge per unit of water above the budgeted allotment, but the incremental rate increase depends on the customer's class. More particularly, all customers pay Tier 1 rates ($.64/unit in 2009) at 0 to 100 percent of their water budget allocation. Thereafter, however, the increased rate depends on the customer category:

                ¦ ¦SFR/MFR ¦Commercial¦Irrigation¦
Tier 2 ($2.50/unit) 100–125% 100–130% 0–110%
                Tier 3 ($3.20/unit) 125–150% 130–160% 110–120%
                Tier 4 ($4.16/unit) 150–175% 160–190% 120–130%
                Tier 5 ($5.03/unit) Above 175% Above 190% Above 130%

The following day, the City filed a complaint seeking to invalidate the water rate increase and the 2009 bonds. (The case was deemed related to another action filed by the City against PWD seeking injunctive and declaratory relief to stop imposition of the new rates. The cases were not consolidated.)

This action was tried in February 2010. The City sought to introduce evidence beyond the scope of the administrative record, after propounding discovery and serving Public Records Act requests for documents. The trial court granted the City's motion to amend its complaint but denied its motion to augment the record. The City filed an offer of proof identifying evidence it would have presented at trial had it been allowed to do so and requested a statement of decision. Initially, the trial court's tentative ruling was to invalidate the rate increase but after hearing oral argument and taking the matter under submission, the trial court issued its ruling validating PWD's rates and the 2009 bonds. At the court's request, both the City and PWD submitted proposed statements of decision (and the City also filed objections to PWD's statement). The court issued PWD's statement without changes. (The court mistakenly believed the City had not filed a proposed statement [198 Cal.App.4th 931] but when the error was brought to the court's attention, decided PWD's statement should stand.) Judgment was entered. The City appeals.


“In November 1996, California voters adopted Proposition 218, the Right to Vote on Taxes Act.[ ] 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 economic security of all Californians and the California economy itself. 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 of Roseville (2002) 97 Cal.App.4th 637, 640, 119 Cal.Rptr.2d 91, footnotes omitted.) “Proposition 218 added articles XIII C and XIII D to the California Constitution. Article


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  • City of Palmdale v. Palmdale Water Dist., B224869.
    • United States
    • California Court of Appeals
    • August 25, 2011
    ...198 Cal.App.4th 926131 Cal.Rptr.3d 37311 Cal. Daily Op. Serv. 11,0672011 Daily Journal D.A.R. 13,081CITY OF PALMDALE, Plaintiff and Appellant,v.PALMDALE WATER DISTRICT, et al., Defendants and Respondents.No. B224869.Court of Appeal, Second District, Division 7, California.Aug. 9, 2011.As Mo......

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