Goodman v. County of Riverside

• Decision Date: 16 March 1983
• Citation: 190 Cal.Rptr. 7,140 Cal.App.3d 900
• Court: California Court of Appeals Court of Appeals
• Parties: Owen F. GOODMAN and Ann S. Goodman, Plaintiffs and Appellants, v. COUNTY OF RIVERSIDE, a political subdivision of the State of California, Defendant and Respondent, Desert Water Agency, et al., Intervenors and Respondents. Civ. 27400.

Page 7

190 Cal.Rptr. 7

140 Cal.App.3d 900

Owen F. GOODMAN and Ann S. Goodman, Plaintiffs and Appellants, v. COUNTY OF RIVERSIDE, a political subdivision of the State of California, Defendant and Respondent, Desert Water Agency, et al., Intervenors and Respondents.

Civ. 27400.

Court of Appeal, Fourth District, Division 2, California.

March 16, 1983.

Hearing Denied July 14, 1983.

[140 Cal.App.3d 902] Owen F. Goodman, Bakersfield, for plaintiffs and appellants.

Thomas J. Graff and John W. Krautkraemer, San Francisco, as amicus curiae in support of plaintiffs and appellants.

Gerald J. Geerlings, County Counsel and Loyal E. Keir, Deputy County Counsel, Riverside, for defendant and respondent County of Riverside.

Best, Best & Krieger, Arthur L. Littleworth and Anne T. Thomas, Riverside, for intervenor and respondent Desert Water Agency.

O'Melveny & Myers and Donald M. Wessling, Los Angeles, for intervenors and respondents Banks.

George Deukmejian and John K. Van De Kamp, Attys. Gen., R.H. Connett, Asst. Atty. Gen. and Emil Stipanovich, Jr., Deputy Atty. Gen., for intervenor and respondent California Dept. of Water Resources.

Carl Boronkay, Gen. Counsel, Warren Abbott, Asst. Gen. Counsel and James W. Mountain, Deputy Gen. Counsel, Los Angeles, for intervenor and respondent Metropolitan Water Dist. of Southern California.

Surr & Hellyer and Robert J. Bierschbach, San Bernadino, for intervenor and respondent San Gorgonio Pass Water Agency.

OPINION

McDANIEL, Associate Justice.

Owen F. and Ann S. Goodman own real property within the boundaries of the Desert Water Agency (DWA). The DWA levied ad valorem taxes on their property to help fund DWA's payments on its water supply contract with the California Department of Water Resources. The taxes were later collected on behalf of DWA by the County of Riverside.

The Goodmans (plaintiffs) filed an action against the County of Riverside to recover the taxes. They alleged that the levy and collection of these taxes violated Article XIIIA of the California Constitution, popularly known as Proposition 13. As the real party in interest, DWA intervened as a defendant, as did the California Department of Water Resources (the Department), the Metropolitan Water District of Southern California (MWD), the San Gorgonio Pass Water Agency, and five banks which own, or hold as trustees, the bonds sold to provide funds to construct the State Water Project.

The case was tried largely on stipulated facts. Four issues were presented, only two of which concern us on this appeal:

(1) Whether taxes levied by local agencies, such as DWA, to raise money due under their state water contracts are levied to pay an "indebtedness approved by the voters" before July 1, 1978, so as to come within the exception set out in section 1(b) of Article XIIIA;

(2) If not, and if Article XIIIA therefore operates to outlaw such taxes, whether XIIIA violates the contract clause of the state or federal Constitutions.

The trial court decided against the plaintiffs on both these issues, ruling that the taxes in question fell within the exception noted, having been levied and collected to pay an indebtedness previously approved by the voters. The court also ruled that a contrary construction of the ballot measure would impair the rights of the bondholders noted so as to make Article XIIIA unconstitutional under the contract clause of the federal Constitution. This appeal followed.

OVERVIEW OF THE STATE WATER PROJECT

The California Water Plan (Plan) is a comprehensive master plan for California's present and future water conservation, distribution, and utilization. The components of the Plan include the State Water Project, together with both federal and local developments. It is the State Water Project which concerns us here.

The State Water Project (Project) consists of a series of twenty-one dams and reservoirs, five power plants, and sixteen pumping plants which stretch from Lake Oroville in Butte County to Lake Perris in Riverside County. Project water flows from the Feather River to the Sacramento River and then into the Sacramento-San Joaquin Delta. It is lifted by the Delta Pumping Plant into the California Aqueduct, and the aqueduct conveys it south.

The Project has been financed in part by state bonds issued pursuant to the Burns-Porter Act (the Act). ¹ The Act was confirmed by the voters in November 1960 "to provide funds to assist in the construction of a State Water Resources Development System for the State of California." (§ 12931.) The Act directs the Department to enter into contracts for the sale, delivery or use of water or power, or for other services and facilities made available by the State Water Resources Development System (System). (§ 12937 subd. (b).)

Proceeding under this statutory directive, the Department has entered into thirty-one such water contracts with local governmental entities with taxing powers, such as DWA. The contracts require regular payments to the state in return for participation in the System. Not all the districts

actually receive water, ² but all must make payments according to their respective maximum annual water entitlements and the portion of the System required to deliver such entitlements. Those which actually receive water also pay amounts attributable to the water received.

EVENTS LEADING UP TO THE VOTERS' APPROVAL OF THE BURNS-PORTER ACT

A number of studies on the feasibility of the Project were made before the Act was approved by the voters in 1960. The financial aspects of the Project were, needless to say, of particular concern.

The Legislature's Joint Committee on Water Problems reported in 1958 that "A firm tax base is required to support any general obligation bond issue," (Twelfth Partial Report by the Joint Committee on Water Problems, "Economic and Financial Policies for State Water Projects," (Mar. 24, 1958) p. 23) and Bulletin 78 of the Department of Water Resources, published in 1959, stated that if the Project were to be self-liquidating it would be necessary to obtain money for costs not met by water sale revenues, and that such money could be obtained from "taxes in service areas, in some such manner as has been employed by The Metropolitan Water District to provide funds for the Colorado River Aqueduct...." (Dept. Water Resources, Bulletin No. 78, "Investigation of Alternative Aqueduct Systems to Serve Southern California," (Dec. 1959) p. 27.)

Accordingly, the Senate Fact Finding Committee on Water Resources recommended that the water delivery contracts required under the Act be made "only with public agencies with taxing powers." (Partial Report of the Fact Finding Committee on Water Resources, "Contracts, Cost Allocations, Financing for State Water Development," (Mar. 1960) p. 10.)

The Report of the Senate Committee concluded: "Legislation should require that rates for services from the facilities be set so as to return with interest the reimbursable expenditures on the facilities, whether made from bond funds or the California Water Fund." (Id. at p. 9.)

About nine months before the election at which the Act was approved, the Department published the "Governor's Contracting Principles for Water Service Contracts." The Contracting Principles were precisely that, i.e., rules for implementing the water contracts required under the Act.

The Department was the administrative agency responsible for negotiating the contracts required by the Act. The Contracting Principles represent the Department's construction of that portion of the Act dealing with the contract requirements. The Governor's Contracting Principles not only carried out the Senate Committee on Water Resources' recommendation that water contracts be made only with public agencies with taxing power, but also specifically required that the contracts provide for the mandatory use of local taxes:

"Each contracting agency will agree that, in the event in any year it is unable or fails through other means to raise the funds necessary in any year to pay the state the sum required under the contract [i.e., enough to pay all costs of the system], it will use its taxing or assessment power to raise such sum." (Emphasis added.)

The Contracting Principles also indicated that contract rates should be set so as to return to the State:

"... all costs of project operation, maintenance and replacement, all principal and interest on (1) bonds, (2) expenditures from the California Water Fund, and (3) other monies used in the construction of the project works."

After the Contracting Principles were published, but before the Act was approved by the voters, the Department entered into its first local water supply contract pursuant to the Act with MWD. The contract Consistent with the requirements of the Act and the Contracting Principles, Article 5 of the MWD contract provided:

was negotiated on the basis of the Contracting Principles and was contingent on the Act's later approval. Negotiations were of statewide significance because it was generally recognized that the contract would be the prototype for all later Project contracts, for Article 45 of the MWD contract required that the basic terms and conditions of all later contracts be substantially uniform.

"This contract is entered into for the direct benefit of the holders and owners of all general obligation bonds issued under the [Burns-Porter] Act, and the income and revenues derived from this contract are pledged to the purposes and in the priorities set forth in that Act."

Also consistent with the Contracting Principles, the contract further provided in Article 34(a):

"If in any year the District fails or is unable to raise sufficient funds by other means, the governing body of the District shall levy upon all property in the District not exempt from taxation, a tax or assessment sufficient to provide for all payments under this contract then due or to become due within that year."

These two provisions...