SAN FRANCISCO (CN) — The rural Northern California town of Dunsmuir can impose a water rate hike on residents to fund a $15 million system upgrade, the California Supreme Court ruled Monday.
In 2016, local Dunsmuir business owner Leslie Wilde tried to repeal through a referendum the town council’s plan to finance the replacement of its aging water tank and 50,000 feet of old water pipes by raising water rates. But the town declined to put the referendum on the ballot, arguing that Proposition 218, a constitutional amendment passed by California voters in 1996 to limit the ways in which local governments can create or increase taxes, does not apply to referenda.
While an appellate court sided with Wilde, the state high court reversed that decision Monday, finding the town’s water rate hike falls within a constitutional exemption for taxes levied to fund essential government functions, like supplying residents with water.
“Municipal water rates and other local utility charges may be challenged by other means, but they are not subject to referendum,” Justice Leondra Kruger wrote, citing Article II, section 9, subdivision (a) of the California Constitution, which gives voters the power to challenge statutes through referenda with the exception of “urgency statutes, statutes calling elections, and statutes providing for tax levies or appropriations for usual current expenses of the state.”
A different appellate panel concluded last year in Howard Jarvis Taxpayers Assn. v. Amador Water Agency that new water service rates are exempt from referendum “and that the scope of this exemption was not altered by Proposition 218.”
At oral argument in May, the justices set aside Proposition 218, focusing instead on whether the rate increase qualified as a tax.
Their decision Monday put the city’s water rate in the context of Geiger v. Board of Supervisors, where the high court held that a Butte County sales tax ordinance was exempt from referendum.
In that case, Kruger said, the court explained that "allowing a referendum on these taxes would hamstring the ability of counties to budget and manage their fiscal affairs.”
Kruger wrote, “Article II, section 9’s exemptions from referendum reflect a recognition that in certain areas, legislators must be permitted to act expediently, without the delays and uncertainty that accompany the referendum process.”
Cases like Geiger, she continued, help explain why the constitution exempts exactions like income, sales, and even water charges.
“Here, the city depends on water charges to provide water to residents and to maintain the infrastructure necessary to do so. Even the temporary suspension of a rate-setting resolution would run the risk of undermining the city’s ability to finance its water utility and manage its fiscal affairs,” Kruger wrote. “The result would be to impair the city’s ability to carry out one of its most basic and essential functions. The potential for disruption from subjecting water rates to referendum is at least as significant as the disruption that results from temporarily suspending an increase in the sales tax.”
Wilde had argued, and the Third Appellate District panel agreed, that a referendum would not have impaired the city’s “future ability to study, plan, and implement a new water rate master plan.”
But as Kruger countered, this takes time the city doesn’t have.
“Waiting to institute new water rates until a successful referendum runs the risk of forcing the city to wait too long,” she wrote. "The purpose of the taxation exception in Article II, section 9 is to alleviate that risk.”
Wilde was represented at oral argument by attorney Tim Bittle with the Howard Jarvis Taxpayers Association, who did not return an email seeking comment Monday.
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