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Environmental & Natural Resources Legal Alert
April 7, 2015              
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Authored by Mark J. Hattam while an attorney at Allen Matkins, currently employed as General Counsel of the San Diego County Water Authority

Groundwater Fees in Flux Following Recent Conflicting Proposition 218 Cases

With California in the midst of a record-breaking drought (as reported in a recent Allen Matkins legal alert, Governor Edmund G. Brown Jr. issued an Executive Order ordering mandatory actions to reduce California's water usage by 25%), and groundwater resources under severe strain, agencies statewide will no doubt increase their attempts to manage groundwater usage.

However, two recent California appellate decisions have reached differing results as to whether public agencies are allowed to charge fees for groundwater extraction without going through a lengthy (and potentially fee-fatal) Proposition 218 process. In light of this conflict, groundwater users who may pay such charges, or local agencies which may want to impose groundwater charges, should seek immediate legal assistance to review those charges.

Process unclear for public agencies to charge for management of groundwater resources

The conflict in the two cases, City of San Buenaventura v. United Water Conservation Dist. (2015) 2015 Cal.App.LEXIS 242 from the Second Appellate District, and Great Oaks Water Company v. Santa Clara Valley Water District (2015) 2015 Cal.App.LEXIS 264 from the Sixth Appellate District, has created a serious practical issue as to whether or not public agencies will be able to effectively charge for management of groundwater resources if the public opposes such fees. Their differing rulings may not be resolved until addressed by the California Supreme Court. In the meantime, property owners who use groundwater should be on the alert for what local agencies may want to charge for extraction, as such fees may be subject to effective public protest.

Public agencies which manage groundwater resources, such as those that may be formed under the new Sustainable Groundwater Management Act, often charge groundwater users in their jurisdiction fees to cover the cost of administering the resource. However, do these fees have to comply with "Proposition 218" (which term generally loosely refers to Proposition 218 (1996) and amendments via Proposition 26 (2010) that created and revised Articles XIIIC and XIIID of the State Constitution)? If so, there is a public notice, and most importantly a public protest process, under Article XIIID that can potentially stall any proposed groundwater extraction fee.

Is a groundwater extraction fee a property-related fee?

In City of San Buenaventura the Second District, after first finding other facts applied to limit application of Proposition 218, held that groundwater extraction fees are not property-related fees, but pump fees similar to excise taxes levied on the activity of pumping water. It determined that when charging property owners to pump groundwater, an agency was not providing a service to property owners in the manner necessary to trigger Proposition 218. In its analysis it used the Sustainable Groundwater Management Act to bolster its argument. It noted that the Legislature, in Water Code section 10730.2, required fees that fund the cost of "groundwater management" to comply with Article XIIID of the Constitution, while fees to fund the cost of a "groundwater sustainability program" under Water Code section 10730(a) have no such requirement. Though the district in the case was not subject to these Code provisions, as it was not a groundwater sustainability agency, the Second District felt that the statutes showed the Legislature did not believe all groundwater fees were automatically property-related.

In contrast, the Sixth District in Great Oaks Water Company did find a groundwater extraction fee to be property-related, and thus subject to the requirements of Article XIID of the State Constitution. It found that because the rights to use water, such as an overlying right, are typically property rights, then charges that would burden such activity are related to property ownership.

If Article XIIID does apply to a groundwater extraction fee, then as Great Oaks Water Company notes there are three requirements that are triggered:

First, it required the District to give advance notice of the proposed charge to affected owners and to conduct a hearing at which owners could submit protests; if a majority of owners lodged such protests, the charge could not go into effect. (Article 13D, § 6, subd. (a).) Second, unless the charge was for “sewer, water, [or] refuse collection services,” it could not take effect unless it was ratified by a majority of voters or, at District’s option, by two-thirds of affected owners. (Id., § 6, subd. (c).) Finally, the charge had to satisfy a number of substantive constraints, essentially to the effect that it be tailored to the benefit conferred on each affected parcel or owner. (Id., § 6, subd. (b).)
Id., *21-*22.

Implications for groundwater users

Thus, there are serious procedural impediments under Article XIIID for an agency that wants to impose groundwater extraction fees. However, will the Article XIIID requirements apply? For agencies that are not groundwater sustainability agencies under the new Sustainable Groundwater Management Act, the answer is unclear and may have to await Supreme Court review. For groundwater sustainability agencies designated under the new Sustainable Groundwater Management Act, the Legislature has stated in Water Code section 10730.2 that certain fees must comply with Article XIIID, and it may be that all groundwater-related fees have to comply, since the Legislature cannot by code alter the State Constitution.

The practical end result is this: charges that local agencies plan to place on groundwater extraction should be carefully reviewed by legal counsel to determine if those charges are appropriate, and what process is required for them. Unless and until the California Supreme Court clarifies the reach of Article XIIID in the context of groundwater fees, there may be possible legal challenges to such fees.