Lejins v. City of Long Beach

Filed 12/1/21
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION ONE
DIANA LEJINS et al., B305134, B306506
Plaintiffs and (Los Angeles County
Respondents, Super. Ct. No.
18STCP02628)
v.
CITY OF LONG BEACH,
Defendant and Appellant.
APPEAL from a judgment of the Superior Court of Los
Angeles County, James C. Chalfant, Judge. Affirmed.
Charles Parkin, City Attorney, Howard D. Russell,
Principal Deputy City Attorney, Richard Anthony, Deputy City
Attorney; Jarvis, Fay & Gibson, Benjamin P. Fay, and Gabriel
McWhirter for Defendant and Appellant.
Colantuono, Highsmith & Whatley, Michael G. Colantuono,
and Matthew C. Slentz, for League of California Cities as Amicus
Curiae on behalf of Defendant and Appellant.
Benink & Slavens, Eric J. Benink, and Vincent D. Slavens
for Plaintiffs and Respondents.
_______________________________
Diana Lejins and Angela Kimball (collectively, Plaintiffs)
filed a petition for writ of mandate in the trial court, challenging
a surcharge defendant City of Long Beach (the City) imposes on
its water and sewer customers by embedding the surcharge in the
rates the Long Beach Water Department (the Water Department)
charges its customers for service. The surcharge covers transfers
of funds from the Water Department to the City’s general fund, to
be used for unrestricted general revenue purposes. The City
contends the surcharge was legally imposed because it was
approved by a majority of the City’s voters pursuant to article
1
XIII C of the California Constitution. Plaintiffs argue
notwithstanding majority voter approval, the surcharge violates
article XIII D, which prohibits a local agency from assessing a fee
or charge “upon any parcel of property or upon any person as an
incident of property ownership” unless the fee or charge satisfies
enumerated requirements the City acknowledges were not met
here. (Art. XIII D, §§ 3, subd. (a) & 6, subd. (b).) The trial court
entered judgment in favor of Plaintiffs, concluding the surcharge
is unconstitutional and invalid under article XIII D for the reason
Plaintiffs advance. As explained below, we agree with Plaintiffs’
argument and affirm the judgment and post-judgment order
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awarding attorney fees to Plaintiffs.
1
Undesignated article references are to the California
Constitution.
2
Plaintiffs also argue, and the trial court also concluded,
the surcharge is unconstitutional and invalid under article XI,
section 7 to the extent the City collects the surcharge from water
and sewer utility customers who receive service at a location
outside the City. We need not reach this issue based on our
2
BACKGROUND
I. Proposition 218 – A Brief Overview
In 1996, California voters adopted Proposition 218, the
“Right to Vote on Taxes Act,” which added articles XIII C and
XIII D—the California Constitution provisions the parties
reference in this action. As our Supreme Court has explained:
“ ‘Proposition 218 can best be understood against its historical
background, which begins in 1978 with the adoption of
Proposition 13,’ ” which added article XIII A. (Apartment Assn. of
Los Angeles County, Inc. v. City of Los Angeles (2001) 24 Cal.4th
830, 836 (Apartment Assn.).) Among other things, Proposition
213 “ ‘limited ad valorem property taxes to 1 percent of a
property’s assessed valuation and limited increases in the
assessed valuation to 2 percent per year unless and until the
property changed hands;’ ” it also prohibited local governments
“ ‘from enacting any special tax without a two-thirds vote of the
electorate.’ ” (Ibid.; art. XIII A, §§ 1, 2 & 4.)
Article XIII D, added in 1996 by Proposition 218, “ ‘allows
only four types of local property taxes: (1) an ad valorem
property tax; (2) a special tax; (3) an assessment; and (4) a fee or
charge’ ” for a property-related service. (Apartment Assn., supra,
24 Cal.4th at p. 837; art. XIII D, § 3, subd. (a), ¶¶ (1)-(4).)
Proposition 218 “ ‘buttresses Proposition 13’s limitations on ad
valorem property taxes and special taxes by placing analogous
restrictions on assessments, fees, and charges.’ ” (Ibid.) The
parties here agree the Measure M surcharge does not constitute
an ad valorem property tax, a special tax, or an assessment; as
discussed below, they disagree whether it constitutes a fee or
holding the surcharge is unconstitutional and invalid as to all
customers under article XIII D.
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charge “assessed by any agency upon any parcel of property or
upon any person as an incident of property ownership,” subject to
article XIII D’s restrictions. (Art. XIII D, § 3.) A “property-
related fee [or charge] violates article XIII D if [among other
things] the revenues derived from the fee [or charge] exceed the
amount required to provide the property-related service [(art.
XIII D, § 6, subd. (b), ¶ (1))]”; “if revenues derived from the fee [or
charge] are used for any purpose other than that for which it was
imposed (see art. XIII D, § 6, subd. (b)(2)) or if the fee [or charge]
is imposed for general governmental services (see art. XIII D, § 6,
subd. (b)(5)).” (Citizens for Fair REU Rates v. City of Redding
(2018) 6 Cal.5th 1, 14 (Redding).)
Article XIII C, added in 1996 by Proposition 218, “restricts
the authority of local governments to impose taxes by, among
other things, requiring voter approval of all taxes imposed by
local governments.” (City of San Buenaventura v. United Water
Conservation Dist. (2017) 3 Cal.5th 1191, 1200.) As defined in
article XIII C, a general tax is “any tax imposed for general
governmental purposes,” and a special tax is “any tax imposed for
specific purposes, including a tax imposed for specific purposes,
which is placed into a general fund.” (Art. XIII C, § 1, subds. (a)
& (d).) “Article XIII C buttresses article XIII D by limiting the
other methods by which local governments can exact revenue
using fees and taxes not based on real property value or
ownership.” (Redding, supra, 6 Cal.5th at p. 10.)
“As a constitutional initiative, Proposition 218 is binding
upon charter cities,” such as the City here. (Howard Jarvis
Taxpayers Assn. v. City of San Diego (2004) 120 Cal.App.4th 374,
391, italics omitted.)
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II. The City and Its Water Department
The City is governed by the Long Beach City Charter
(Charter), which created its Water Department at article XIV,
section 1400 et seq. of the Charter. The City’s Water
Department, which is not a legal entity separate from the City,
provides water and sewer services to most of the City’s residents
and businesses and to a small number of customers located in
nearby cities or unincorporated areas of Los Angeles County. At
all relevant times, plaintiff Diana Lejins has resided in the City
and is a water and sewer customer of the Water Department; and
plaintiff Angela Kimball has resided in an unincorporated area of
Los Angeles County and is a water customer of the Water
Department.
The Water Department is managed by a five-member
Board of Water Commissioners (the Board). (Charter, art. XIV,
§ 1400.) One of the Board’s powers, as provided in the Charter, is
to fix rates charged for water and sewer services. The rates
ultimately must be approved by the City Council. (Id. at
§ 1403(5)-(6).) Monies collected from customers for water service
are accounted for and initially maintained in the City’s Water
Revenue Fund, and monies collected from customers for sewer
service are accounted for and initially maintained in the City’s
Sewer Revenue Fund. (Id. at §§ 1403(13) & 1407.)
As described in the record on appeal, there is a long history
in the City of transferring revenues from the City’s utilities to the
City’s general fund to help support general City services, such as
police, fire, library, and parks.
III. Prior Litigation and Settlement
The City devised the surcharge at issue in this case to
account for a reduction of general fund revenue that resulted
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after Diana Lejins (one of the plaintiffs in this case) sued the City
in 2016 (in a different case), challenging a pipeline permit fee the
City required the Water Department to pay to the City’s general
fund to install and operate pipelines and other facilities in the
City’s streets and rights-of-way. The City established the
pipeline permit fee by ordinance, without approval by the City’s
voters. The Water Department’s pipeline permit fee payments
that were placed in the City’s general fund were treated as
unrestricted revenue. The Water Department, with City Council
approval, fixed its water and sewer rates at a level to recoup the
amount of the pipeline permit fees from its customers.
On November 8, 2017, the City and Lejins settled the
pipeline permit fee lawsuit. The City agreed to stop collecting
pipeline permit fees from the Water Department. The settlement
also allowed the Water Department to make payments to the
City’s general fund to cover street repair and public safety costs
associated with the Water Department’s activities. The City
commissioned studies of such costs during the pipeline permit fee
litigation and determined payments to the general fund to cover
such costs would be less than the amount the pipeline permit fee
had generated for the general fund. The City reduced water and
sewer rates accordingly, and agreed to transfer $12 million from
the City’s general fund to the Water Department over
approximately four years. On December 5, 2017, the City Council
adopted an ordinance reducing water and sewer rates in
accordance with the settlement.
IV. Measure M and the Surcharge Embedded in the
Rates the Water Department Charges Its Customers
In early 2018, the City Council held public meetings to
consider amending its Charter to address the loss of general fund
6
revenue resulting from the settlement of the pipeline permit fee
lawsuit—the amount which exceeded the Water Department’s
payments to the City’s general fund to cover street repair and
public safety costs associated with the Water Department’s
activities. During a January 10, 2018 meeting of the City’s
Charter Amendment Committee and the City Council there was
discussion regarding the long history in the City of transferring
revenues from the City’s utilities to the City’s general fund to
help support general City services, such as police, fire, library,
and parks.
The City devised Measure M, which would amend article
XIV, section 1407 of the Charter to authorize the Water
Department to transfer to the City’s general fund any funds from
the Water Revenue Fund and/or the Sewer Revenue Fund that
the Board determined “to be unnecessary to meet” other
obligations of the Water Department, not to exceed 12 percent of
the “annual gross revenues of the water works and sewer system,
respectively.” (Charter, art. XIV, § 1407(5).) Measure M would
permit the City to use the proceeds from these transfers for
“unrestricted general revenue purposes,” as the City Council may
direct “by budget adoption or other appropriation.” (Id. at
§ 1407(6)-(7).) Measure M would also authorize, but not require,
the Board to fix, and the City Council to approve, “water and
sewer rates in an amount sufficient to recover the cost” of any
transfers to the general fund that the Board may make. (Id. at
§ 1407(8).) As set forth in the City’s opening brief on appeal, the
purpose of the Measure M revenue transfers was “to provide
financial support for general city services.”
On March 7, 2018, the City Council adopted a resolution
calling for the submission of the proposed Charter amendment to
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City voters at the next general election. The Official Sample
Ballot for the general election at which Measure M was approved
asked voters the following: “To maintain general City services
like 9-1-1 emergency response, police/fire protection,
street/pothole repairs, senior services, parks and libraries, shall
the City of Long Beach amend its Charter to authorize annual
fund transfers from the City’s water, sewer and gas utilities to
the General Fund not to exceed 12% of utility gross revenues,
generating approximately $25,500,000 annually for unrestricted
general revenue purposes, requiring annual independent audits,
until ended by voters?” An “Impartial Analysis of Measure M”
prepared by the city attorney described the revenue to be
transferred from the utilities to the general fund under Measure
M as “surplus” revenue that is “not necessary to pay for a utility’s
capital improvements, bond/debt service, operations and
maintenance, personnel, reserves, and other costs.” At the June
5, 2018 general election, 53.76 percent of City voters approved
Measure M.
On June 21, 2018, the Board passed a resolution fixing
water and sewer rates effective October 1, 2018, raising rates for
potable and recycled water by 7.2 percent, and leaving sewer
rates unchanged. In a Notice of Public Hearing for an August 30,
2018 hearing, the Water Department informed customers the
proposed increase in water rates was due to the following: “In
June 2018, voters in the city of Long Beach passed Measure M,
reauthorizing and affirming the City’s historical practice of
revenue transfers from the City’s utilities to the General Fund, as
approved by the City Council and Board of Water Commissioners.
The revenue transfer is subject to a cap of twelve percent (12%) of
each utility’s annual gross revenues, as shown by audited
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financial reports. All proceeds from utility revenue transfers to
the General Fund shall be used to maintain local General Fund
services, which include general City services such as police, fire
and paramedic response, street repair, parks, libraries and
youth/senior programs.” On September 6, 2018, the City Council
passed Ordinance No. ORD-18-0022, approving the rates fixed in
the Board’s June 21 resolution, including the potable and
recycled water rates that were increased by 7.2 percent to fund
the transfers to the City’s general fund authorized by Measure M.
The Measure M surcharge, which the City characterizes as
a general tax, is embedded in the Water Department customers’
utility service charges and is not separately identified in the
Water Department’s bills to customers. Thus, it is not possible to
discern from looking at the bills what percentage of the
customers’ utility charges make up the Measure M surcharge.
As the City explains in its opening brief on appeal, the
Measure M surcharge is “the part of the [water and sewer] rates
that raises unrestricted revenue for the support of the City’s
general fund,” not the part of the rates that is “designed to recoup
the Water Department’s costs of providing water and sewer
service.” The City characterizes the surcharge as a tax because it
“exceeds the Water Department’s costs of providing water and
sewer service,” as the City explains in its opening brief.
V. The Present Action
On October 22, 2018, Plaintiffs filed in this action a verified
petition for writ of mandate and complaint for declaratory and
injunctive relief, asserting the Measure M surcharge violates
article XIII D, section 6, subdivision (b) because the rate revenue
collected through the surcharge “does not benefit the water or
sewer utility, is not used for the provision of water and sewer
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service, and is not a reimbursement of costs incurred in the
General Fund for the benefit of the water and sewer utilities.
Instead, such rate revenue is used for general governmental
purposes.” Plaintiffs further asserted, to the extent the City
contends the Measure M surcharge is a general tax, article XIII
D, section 3, subdivision (a) “precludes local governments from
imposing general taxes upon any parcel [of property] or upon any
person as an incident of property ownership.”
By their first cause of action, Plaintiffs sought a writ of
mandate directing the City (1) to invalidate the September 6,
2018 ordinance (Ordinance No. ORD-18-002) approving utility
rates that include the Measure M surcharge; (2) to cease
transferring proceeds from the surcharge to the City’s general
fund; (3) to return to the Water Department any proceeds already
so transferred; and (4) to cease embedding the surcharge in water
and sewer fees and charges. In their second cause of action for
declaratory relief, Plaintiffs sought a judgment declaring the City
violated article XIII D, section 3, subdivision (a), and section 6,
subdivision (b), paragraphs (1)-(2) and (5), by imposing the
Measure M surcharge. In their third cause of action for an
injunction pursuant to Code of Civil Procedure section 526a,
Plaintiffs sought a permanent injunction precluding Measure M
transfers of funds from the Water Department and ordering the
return to the Water Department of previously-transferred funds.
Finally, Plaintiffs sought an award of attorney fees and costs.
After the City filed an answer to the petition for writ of
mandate and complaint, Plaintiffs filed a motion asking the trial
court to issue the requested writ of mandate, declaration, and
permanent injunction. In their opening brief on the petition for
writ of mandate, Plaintiffs argued the Measure M surcharge
10
violates article XIII D, section 3, subdivision (a), and section 6,
subdivision (b), paragraphs (1)-(2) and (5), for the reasons
3
asserted in their petition, as summarized above.
In opposition to the petition for writ of mandate, the City
argued article XIII D is inapplicable to a general tax imposed on
the use of a property-related service (water and sewer) after
approval by a majority of the City’s voters pursuant to article
XIII C. The City also conceded that to the extent a court
concludes the Measure M surcharge is a fee or charge subject to
article XIII D, the surcharge does not comply with article XIII D’s
requirements. The City’s opposition brief below states: “[T]he
City concedes that the general fund surcharges do not comply
with article XIIID [sic], section 6(b)’s substantive requirements;
after all, proceeds from the surcharges are not used to fund the
City’s water and sewer services, and instead are intended for
‘general revenue purposes.’ ”
On January 2, 2020, the trial court held a hearing on
Plaintiff’s petition for writ of mandate and causes of action for
declaratory and injunctive relief. After hearing argument by the
parties, the court adopted its 24-page tentative ruling as its final
decision, with oral modifications as set forth in the reporter’s
transcript of the hearing. The court concluded the Measure M
surcharge violates article XIII D, section 6, subdivision (b)
3
Plaintiffs also argued the Measure M surcharge violates
article XI, section 7 to the extent the City collects the surcharge
from water and sewer utility customers who receive service at a
location outside the City. As stated above, we need not reach this
issue because we conclude the surcharge is unconstitutional and
invalid as to all customers under article XIII D, for the reasons
set forth below.
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because it “is a general tax imposed as an incident of property
ownership and not a charge based on actual water usage. The
surcharge is not required to provide the water and sewer service
[(art. XIII D, § 6, subd. (b), ¶ (1))], is not used for that service
[(art. XIII D, § 6, subd. (b), ¶ (2))], and only benefits the general
community [(art. XIII D, § 6, subd. (b), ¶ (5))].” The court also
concluded the Measure M surcharge violates article XIII D,
section 3, subdivision (a) “because it is a charge as an incident of
property ownership that does not fall under any of the
enumerated exceptions” for a permissible fee or charge. The
court explained article XIII D, section 3, subdivision (a) “ensures
that the only levies that can be imposed on property ownership
per se are an ad valorem tax, a special tax, an assessment, or
some other levy that complies with the substantive requirements”
of article XIII D, section 6, subdivision (b), and the Measure M
surcharge does not fit within any of these categories. (Italics
omitted.) The court rejected the City’s contention that obtaining
voter approval of Measure M pursuant to article XIII C rendered
XIII D inapplicable to the surcharge, stating in its decision, “The
answer is that [article XIII C] does not relieve the City from
complying with [article XIII D], which carries independent
constitutional requirements.” Finally, the court concluded the
City’s imposition of a general tax (the Measure M surcharge)
upon customers who receive water and sewer services at locations
outside the City’s boundaries violates article XI, section 7.
On February 7, 2020, the trial court entered judgment in
favor of Plaintiffs and against the City, providing (1) the Measure
M general tax is unconstitutional and invalid under article XIII
D; (2) the Measure M general tax is unconstitutional and invalid
under article XI, section 7, to the extent the City collects the
12
surcharge from water and sewer utility customers who receive
service at a location outside the City; (3) “any transfers of the
proceeds of the Measure M general tax from the City’s Water
Revenue Fund and Sewer Revenue Fund to its General Fund are
unconstitutional and invalid” under article XIII D; and (4) “all
City ordinances that establish and/or fix water or sewer rates,
including, but not limited to, Ordinance No. 18-0022 and
Ordinance No. 19-0018 [the then-current water and sewer rate
ordinance, which became effective October 1, 2019], are
unconstitutional and invalid to the extent that they embed or
otherwise impose the Measure M general tax on the City’s water
and sewer utility customers.” The judgment enjoined the City
from making any further transfers of Measure M proceeds to its
general fund. The judgment also ordered the issuance of a
peremptory writ of mandate. On February 11, 2020, the clerk of
the trial court issued a peremptory writ of mandate to the City,
commanding it to set aside or rescind Ordinance No.
ORD-19-0018 and return all prior transfers of Measure M
proceeds from the City’s general fund to the Water Revenue Fund
and Sewer Revenue Fund.
The City appealed from the judgment. Pursuant to
stipulation by the parties, the trial court stayed enforcement of
the peremptory writ of mandate and the injunction, subject to
certain enumerated conditions, pending resolution of this appeal.
The parties stipulated to an award of attorney fees to
Plaintiffs. On May 27, 2020, the trial court entered an order
awarding attorney fees based on the stipulation. The City
appealed from the order, seeking reversal of the attorney fees
award to the extent this court reverses the judgment in favor of
Plaintiffs on the merits.
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Amicus curiae League of California Cities (Cal Cities) filed
in this appeal a brief in support of the City, and Plaintiffs filed an
answer to the amicus curiae brief. Cal Cities describes itself as
“an association of 476 California cities dedicated to protecting
and restoring local control to provide for the public health, safety,
and welfare of their residents and enhance the quality of life for
all Californians.” We have considered this additional briefing in
analyzing the matter before us.
DISCUSSION
The City contends the trial court erred in invalidating the
Measure M surcharge, arguing “a voter-approved general tax on
the use of municipal water and sewer service” is not a fee or
charge subject to article XIII D’s restrictions. We disagree with
the City’s interpretation of article XIII D’s scope and conclude the
trial court properly found in favor of Plaintiffs and against the
City.
I. Standard of Review
Whether the Measure M surcharge violates article XIII D is
a question of law that we review de novo based on the undisputed
facts. (Apartment Assn., supra, 24 Cal.4th at p. 836; Tesoro
Logistic Operations, LLC v. City of Rialto (2019) 40 Cal.App.5th
798, 806 (Tesoro).)
In construing article XIII D, “The aim of constitutional
interpretation is to determine and effectuate the intent of those
who enacted the constitutional provision at issue. [Citation.] To
determine that intent, we begin by examining the constitutional
text . . . .” (Richmond v. Shasta Community Services Dist. (2004)
32 Cal.4th 409, 418 (Richmond).) “ ‘The principals of
constitutional interpretation are similar to those governing
statutory construction.’ [Citation.] If the language [of the
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constitutional text] is clear and unambiguous, the plain meaning
governs. [Citation.] But if the language is ambiguous, we
consider extrinsic evidence in determining voter intent, including
the Legislative Analyst’s analysis and ballot arguments for and
against the initiative.” (Silicon Valley Taxpayers’ Assn., Inc. v.
Santa Clara County Open Space Authority (2008) 44 Cal.4th 431,
444-445 (Silicon Valley).) We conclude the language of article
XIII D is clear and unambiguous. In evaluating the issue before
us, however, we quote California Supreme Court authority, which
references extrinsic evidence, such as the Proposition 218
Legislative Analyst’s analysis.
II. The Measure M Surcharge Violates Article XIII D
A. Article XIII D, section 3
Article XIII D, section 3 provides:
“Property Taxes, Assessments, Fees and Charges Limited.
(a) No tax, assessment, fee, or charge shall be assessed by any
agency upon any parcel of property or upon any person as an
incident of property ownership except:
“(1) The ad valorem property tax imposed pursuant to
Article XIII and Article XIII A.
“(2) Any special tax receiving a two-thirds vote pursuant to
Section 4 of Article XIII A.
“(3) Assessments as provided by this article.
“(4) Fees or charges for property related services as
provided in this article.
“(b) For purposes of this article, fees for the provision of
electrical or gas service shall not be deemed charges or fees
imposed as an incident of property ownership.”
The word “agency,” as used in article XIII D “means any
local government,” including a charter city. (Art. XIII D, § 2,
15
4
subd. (a); art. XIII C, § 1, subd. (b).) “Property ownership” is
defined in article XIII D “to include tenancies of real property
where tenants are directly liable to pay the assessment, fee, or
5
charge in question.” (Id. at § 2, subd. (g).) A “property-related
service” for purposes of article XIII D, “means a public service
having a direct relationship to property ownership.” (Id. at § 2,
subd. (h).)
B. Article XIII D, section 6
Article XIII D, section 6 provides, in pertinent part:
“(b) Requirements for Existing, New or Increased Fees and
Charges. A fee or charge shall not be extended, imposed, or
increased by any agency unless it meets all of the following
requirements:
“(1) Revenues derived from the fee or charge shall not
exceed the funds required to provide the property related service.
4
Cal Cities asserts in its amicus curiae brief that “voter
approval takes [a tax, like the Measure M surcharge,] outside
article XIII D, as such a tax is not imposed by an ‘agency,’ but by
voters.” Not so. As our Supreme Court has explained, when an
agency places a measure on the ballot for voter approval—as the
City did here—it is the agency, not voters, that assesses or
imposes the tax, assessment, fee, or charge within the meaning of
article XIII D. (California Cannabis Coalition v. City of Upland
(2017) 3 Cal.5th 924, 940-941, 942 [“that a local government’s
imposition of a general tax ‘will not take effect’ absent
subsequent approval by the voters” does not mean it is the voters,
as opposed to the local government, who impose the tax].)
5
Thus, “article XIII D broadly defines ownership to include
rental interests.” (Howard Jarvis Taxpayers Assn. v. City of
Fresno (2005) 127 Cal.App.4th 914, 925, fn. 3 (Fresno).)
16
“(2) Revenues derived from the fee or charge shall not be
used for any purpose other than that for which the fee or charge
was imposed.
[¶] . . . [¶]
“(5) No fee or charge may be imposed for general
governmental services including, but not limited to, police, fire,
ambulance or library services, where the service is 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.”
“Fee” or “charge,” as used in article XIII D “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 person as an
incident of property ownership, including a user fee or charge for
a property related service.” (Art. XIII D, § 2, subd. (e).) As our
Supreme Court has explained, “Because article XIII D provides a
single definition that includes both ‘fee’ and ‘charge,’ those terms
appear to be synonymous,” and may be used interchangeably.
(Bighorn-Desert View Water Agency v. Verjil (2006) 39 Cal.4th
205, 214, fn. 4 (Bighorn).)
C. The City imposed the Measure M surcharge as
an incident of property ownership
As set forth above, article XIII D, section 3, subdivision (a)
prohibits an agency from assessing a tax, fee, or charge “upon
any parcel of property or upon any person as an incident of
property ownership,” with limited exceptions. Article XIII D,
section 6, subdivision (b) places restrictions on an agency’s
imposition of a fee or charge “upon a parcel or upon a person as
an incident of property ownership, including a user fee or charge
17
for a property related service.” (Art. XIII D, § 2, subd. (e).)
Whether the Measure M surcharge is imposed upon a parcel or
upon a person as an incident of property ownership is the key
dispute between the parties to be resolved in this appeal. The
City has acknowledged the Measure M surcharge does not comply
with article XIII D, section 6, subdivision (b)’s requirements
applicable to fees or charges imposed upon a parcel or upon a
person as an incident of property ownership, as set forth more
fully below.
As our Supreme Court explained in Apartment Assn.,
“article XIII D only restricts fees imposed directly on property
owners in their capacity as such.” (Apartment Assn., supra, 24
Cal.4th at p. 838.) “In other words, taxes, assessments, fees, and
charges are subject to the constitutional strictures [of article XIII
D] when they burden landowners as landowners.” (Id. at p. 842.)
The Supreme Court in Apartment Assn. concluded an inspection
fee imposed on private landlords by city ordinance was not a fee
upon a parcel or upon a person as an incident of property
ownership, within the meaning of article XIII D, because the fee
was imposed on landlords “by virtue of their ownership of a
business—i.e., because they [were] landlords,” not because they
were property owners. (Apartment Assn., at p. 842.) The fee was
“imposed only on those landlords who [chose] to engage in the
residential rental business, and only while they [were] operating
the business.” (Id. at p. 840.) In other words, the fee was
“imposed because the property [was] being rented. It cease[d]
along with the business operation, whether or not ownership
remain[ed] in the same hands.” (Id. at p. 838; cf. Tesoro, supra,
40 Cal.App.5th 798, 801, 814 [“an ‘annual business license tax’ of
‘up to One Dollar [($1.00)] per year for each One (1) cubic foot of
18
liquid storage capacity’ on ‘[a]ny person engaged in the business
of owning[,] operating, leasing, supplying[,] or providing a
wholesale liquid fuel storage facility’ in the City” violated article
XIII D, section 3 because it was “a tax on real property and on
persons, namely, owners of wholesale liquid fuel storage
facilities, as an incident of owning the facilities,” “regardless of
whether the facilities or the storage tanks [were] used in any
business operations,” and no exception set forth in section 3
applied].)
The City characterizes the Measure M surcharge as a valid
“utility users tax, or an excise tax levied on the use of utility
services—including water and sewer service.” The City argues
the surcharge is not imposed upon a parcel or upon a person as
an incident of property ownership, within the meaning of article
XIII D, because one may own real property without obtaining
water or sewer service. Case law does not support the City’s
view.
In Richmond, supra, 32 Cal.4th 409, our Supreme Court
held “a charge that a local water district imposed as a condition
of making a new connection to the water system, and that the
district used to finance capital improvements to the water
system,” was not subject to article XIII D’s restrictions, as the
district did not “impose the capacity charge on real property as
such, but on individuals who apply for new service connections.”
(Richmond, at pp. 415, 420.) The Court “conclude[d] that a water
service fee is a fee or charge under article XIII D if, but only if, it
is imposed ‘upon a person as an incident of property ownership.’
(Art. XIII D, § 2, subd. (e).) A fee for ongoing water service
through an existing connection is imposed ‘as an incident of
property ownership’ because it requires nothing other than
19
normal ownership and use of property. But a fee for making a
new connection to the system is not imposed ‘as an incident of
property ownership’ because it results from the owner’s voluntary
decision to apply for the connection.” (Richmond, at p. 427.)
The Court in Richmond explained that the Proposition 218
“Legislative Analyst apparently concluded that water service has
a direct relationship to property ownership, and thus is a
property-related service within the meaning of article XIII D
because water is indispensable to most uses of real property;
because water is provided through pipes that are physically
connected to the property; and because a water provider may, by
recording a certificate, obtain a lien on the property for the
amount of any delinquent service charges [citation]. But the
Legislative Analyst was apparently referring to fees imposed on
existing water service customers, not fees imposed as a condition
of initiating water service in the first instance.
“Several provisions of article XIII D tend to confirm the
Legislative Analyst’s conclusion that charges for utility services
such as electricity and water should be understood as charges
imposed ‘as an incident of property ownership.’ For example,
subdivision (b) of section 3 provides that ‘fees for the provision of
electrical or gas service shall not be deemed charges or fees
imposed as an incident of property ownership’ under article XIII
D. Under the rule of construction that the expression of some
things in a statute implies the exclusion of other things not
expressed [citation], the expression that electrical and gas service
charges are not within the category of property-related fees
implies that similar charges for other utility services, such as
water and sewer, are property-related fees subject to the
20
restrictions of article XIII D.” (Richmond, supra, 32 Cal.4th at
pp. 426-427.)
In Bighorn, supra, 39 Cal.4th 205, a case in which our
Supreme Court held article XIII C, section 3 “grants local voters a
right to use the initiative power to reduce the rate that a public
water district charges for domestic water,” the Court cited with
approval the above-quoted principles from its opinion in
Richmond. (Bighorn, at pp. 209, 214-215.) In analyzing the issue
presented to it under article XIII C, the Court in Bighorn
reiterated its conclusion in Richmond “that a public water
agency’s charges for ongoing water delivery . . . are fees and
charges within the meaning of article XIII D.” (Bighorn, at p.
216.)
In Fresno, supra, 127 Cal.App.4th 914, the Fifth District
Court of Appeal relied on the Supreme Court’s analysis in
Richmond in concluding a fee “ ‘in lieu of property and other
taxes normally placed upon private business,’ ” imposed “by
Fresno on its utility departments and divisions, and passed
through to ratepayers [by blending it into the user fees], [was] a
fee subject to the restrictions of article XIII D, section 6” because
it was imposed as an incident of property ownership. (Fresno, at
pp. 917, 918, 925, 926.) The appellate court rejected Fresno’s
argument—identical to the City’s argument here—that the fee
was “ ‘imposed on the use of utility services,’ ” rather than
6
“ ‘solely on the basis of property ownership.’ ” (Id. at p. 925; see
6
The City attempts to distinguish Fresno based on
differences between Fresno’s charter and the City’s charter, for
example, the fact Fresno’s charter expressly prohibited Fresno
from taxing any person for using a utility service. (Fresno, supra,
127 Cal.App.4th at p. 926.) The facts the City cites are not
21
also Howard Jarvis Taxpayers Assn. v. City of Roseville (2002) 97
Cal.App.4th 637, 647 [Third District Court of Appeal held article
XIII D applied to in lieu franchise fee of four percent on water,
sewer, and refuse collection utilities’ annual budgets, paid by
ratepayers and transferred to Roseville’s general fund, as the fee
was “necessarily tied to property ownership”]; Crawley v.
Alameda County Waste Management Authority (2015) 243
Cal.App.4th 396, 408 [“Ordinance’s fee for the collection of
household hazardous waste is imposed ‘as an incident of property
ownership’ ” because it is imposed on each household in the
county and “ ‘vacant [h]ouseholds also require household
hazardous waste collection and disposal in connection with
property improvements, maintenance, or landscaping.’ Thus, the
fee requires nothing other than normal ownership and use of
property”].)
Following our Supreme Court’s guidance, we conclude the
City imposed the Measure M surcharge upon a parcel or upon a
person as an incident of property ownership, within the meaning
of article XIII D. “A fee for ongoing water service through an
existing connection is imposed ‘as an incident of property
ownership’ because it requires nothing other than normal
ownership and use of property.” (Richmond, supra, 32 Cal.4th at
p. 427.) Because the Measure M surcharge therefore qualifies as
a “levy other than an ad valorem tax, a special tax, or an
assessment, imposed by an agency upon a parcel or upon a
person as an incident of property ownership, including a user fee
germane to our analysis of whether the Measure M surcharge is
imposed upon a parcel or upon a person as an incident of
property ownership, and violates article XIII D, and we need not
address such facts further.
22
or charge for a property related service,” it satisfies the definition
of “fee” or “charge” in article XIII D. (Art. XIII D, § 2, subd. (e).)
D. The Measure M surcharge must comply with
article XIII D, section 6, subdivision (b)’s
requirements regardless of voter approval
As set forth above, and as relevant to the parties’ dispute
here, article XIII D, section 6, subdivision (b) requires that
“[r]evenues derived from the fee or charge shall not exceed the
funds required to provide the property related service”;
“[r]evenues derived from the fee or charge shall not be used for
any purpose other than that for which the fee or charge was
imposed”; and “[n]o fee or charge may be imposed for general
governmental services, including but not limited to, police, fire,
ambulance or library services, where the service is available to
the public at large in substantially the same manner as it is to
property owners.” (Art. XIII D, § 6, subd. (b), ¶¶ (1), (2) & (5).)
The City argues article XIII D, section 6, subdivision (b)’s
restrictions on fees and charges are inapplicable to the surcharge
at issue here because Measure M was approved by a majority of
the City’s voters pursuant to article XIII C, which requires voter
approval of taxes imposed by local governments. There is no
language in article XIII C or article XIII D that supports the
City’s argument. Article XIII D makes clear that regardless of
whether the imposition is characterized as a tax, assessment, fee,
or charge, if it is imposed upon a parcel of property or upon a
person as an incident of property ownership—as we have
concluded the Measure M surcharge is—it must satisfy one of the
exceptions to the prohibition on an agency’s imposition of a tax,
assessment, fee, or charge upon a parcel of property or upon a
person as an incident of property ownership, enumerated in
23
article XIII D, section 3. The only exception relevant here is a fee
or charge for a property-related service that complies with the
requirements of article XIII D, section 6, subdivision (b). (Art.
7
XIII D, § 3, subd. (a), ¶ (4).) There is no exception for a voter-
approved tax, assessment, fee, or charge imposed upon a parcel of
property or upon a person as an incident of property ownership
that does not satisfy one of the four enumerated exceptions in
article XIII D, section 3, subdivision (a). Indeed, article XIII D,
section 6, subdivision (c) has its own voter approval requirements
for certain property-related fees and charges (not applicable
here), which do not obviate subdivision (b)’s requirements for a
valid property-related fee or charge. (Art. XIII D, § 6, subd. (c)
[“Voter Approval for New or Increased Fees and Charges. Except
for fees or charges for sewer, water, and refuse collection services,
no property related fee or charge shall be imposed or increased
unless and until that fee or charge is submitted and approved by
a majority of the property owners of the property subject to the
fee or charge or, at the option of the agency, by a two-thirds vote
of the electorate residing in the affected area”].)
Thus, voter approval of Measure M pursuant to article XIII
C does not rescue the City from an independent constitutional
violation of article XIII D. (See Silicon Valley, supra, 44 Cal.4th
at p. 449 [“voter consent cannot convert an unconstitutional
7
The other exceptions to the prohibition on an agency’s
imposition of a tax, assessment, fee, or charge upon a parcel of
property or upon a person as an incident of property ownership
are for an ad valorem property tax, a special tax receiving a two-
thirds vote, and an assessment. (Art. XIII D, § 3, subd. (a), ¶¶
(1)-(3).) The City does not dispute that none of these other
exceptions applies here.
24
legislative assessment into a constitutional one”].) The cases the
City cites in support of its position are inapposite.
For example, in Capistrano Taxpayers Assn. v. City of San
Juan Capistrano (2015) 235 Cal.App.4th 1493 (Capistrano), the
Fourth District Court of Appeal held Proposition 218 allows
“public water agencies to pass on to their customers the capital
costs of improvements to provide additional increments of water,”
but Proposition 218 also “requires public water agencies to
calculate the actual costs of providing water at various levels of
usage” under article XIII D, section 6, subdivision (b), paragraph
(3)—a provision not pertinent to the parties’ dispute here.
(Capistrano, at p. 1497.) The City relies on Capistrano for the
following dicta set forth in the conclusion of the appellate court’s
opinion:
“The way Proposition 218 operates, water rates that exceed
the cost of service operate as a tax, similar to the way a ‘carbon
tax’ might be imposed on use of energy. But, we should
emphasize: Just because such above-cost rates are a tax does not
mean they cannot be imposed—they just have to be submitted to
the relevant electorate and approved by the people in a vote.
There is no reason, for example, why a water district or local
government cannot, consistent with Proposition 218, seek the
approval of the voters to impose a tax on water over a given level
of usage—as we indicated earlier, that might be a good idea.
However, if a local government body chooses to impose tiered
rates unilaterally without a vote, those tiers must be based on
cost of service for the incremental level of usage, not
predetermined budgets. (For the moment, of course, we need not
decide whether such a proposed tax would constitute a general
25
tax or special tax.)” (Capistrano, supra, 235 Cal.App.4th at p.
1515.)
The court in Capistrano did not analyze the tax it proposed
to determine if it might qualify as a valid special tax under
article XIII D, section 3, subdivision (a), and we have no cause to
engage in that undertaking. Suffice it to say, we conclude the
Measure M surcharge at issue here is a fee or charge imposed
upon a parcel of property or upon a person as an incident of
property ownership, that was not approved by two-thirds of the
City’s voters (and is not an ad valorem tax or an assessment), and
therefore must comply with article XIII D, section 6, subdivision
(b)’s requirements in order to be valid. (Art. XIII D, § 3, subd.
(a).)
The City also cites Redding, supra, 6 Cal.5th 1, a case in
which our Supreme Court concluded an electric utility’s transfer
of utility funds to Redding’s general fund did not result in an
increase in rates customers paid, and the customers’ rates did not
exceed the reasonable costs of providing electric service, so voter
approval of the rates was not required pursuant to article XIII C.
(Redding, at pp. 4-5, 15.) In analyzing the issue, the Supreme
Court did not interpret article XIII D. As set forth above, article
XIII D expressly states: “For purposes of this article, fees for the
provision of electrical or gas service shall not be deemed charges
or fees imposed as an incident of property ownership.” (Art. XIII
D, § 3, subd. (b).) Nonetheless, the City cites the following
language the Court used in Redding in discussing article XIII C
in relation to the facts of that case: “[F]or any service charge to
which the article [art. XIII C] applies, a local government must
either charge a rate that does not exceed the reasonable costs of
providing the service or obtain voter approval for rates that exceed
26
costs.” (Redding, at p. 18, italics added.) This language has no
applicability here, as charges for water and sewer service—like
those at issue here—are not excluded from article XIII D’s
definition of fee or charge.
E. The City has conceded the Measure M
surcharge is not a valid fee or charge under
article XIII D, as it does not comply with
subdivision (b)’s requirements
The City has acknowledged that to the extent article XIII D
applies to the Measure M surcharge—as we concluded above—
the surcharge is unconstitutional because it does not comply with
article XIII D, section 6, subdivision (b)’s requirements. The
City’s opposition brief in the trial court states: “[T]he City
concedes that the [Measure M] general fund surcharges do not
comply with article XIIID [sic], section 6(b)’s substantive
requirements; after all, proceeds from the surcharges are not
used to fund the City’s water and sewer services, and instead are
intended for ‘general revenue purposes.’ ” Similarly, the City’s
opening brief on appeal asserts: “Because the proceeds of a
general tax [referring to the Measure M surcharge] are used for
general governmental purposes [citation], and the proceeds of a
‘fee’ or ‘charge’ may only be used to provide the service for which
the ‘fee’ or ‘charge’ is collected [citing art. XIII D, § 6, subd. (b),
par. (2)], general taxes can never satisfy the substantive
limitations applicable to ‘fees’ and ‘charges.’ ”
The City made no attempt to prove the Measure M
surcharge complies with article XIII D, section 6, subdivision (b)’s
requirements, relying instead and solely on its argument article
XIII D does not apply to a voter-approved general tax imposed on
the use of municipal water and sewer services, an argument we
27
have rejected. For example, the City did not attempt to
demonstrate any correlation between the Measure M transfers
from the Water Department to the City’s general fund/the
Measure M surcharge, and the costs to the City associated with
the Water Department’s use of the City’s infrastructure. (See art.
XIII D, § 6, subd. (b), ¶ (1) [“Revenues derived from the fee or
charge shall not exceed the funds required to provide the
property related service”].) As the record before us shows, and
the City acknowledges in its briefing, the purpose of Measure M
is to raise unrestricted revenue to support a variety of municipal
services (9-1-1 emergency response, police/fire protection,
street/pothole repairs, senior services, parks, and libraries), not
to reimburse the City for costs associated with the Water
Department’s use of the City’s infrastructure.
In this regard, the matter before us is distinguishable from
Wyatt v. City of Sacramento (2021) 60 Cal.App.5th 373, a recent
Third District Court of Appeal case on which the City relies in
support of its contention a city’s voter-approved general tax on
utility services, to fund transfers to the city’s general fund, does
not violate article XIII D. In Wyatt, Sacramento argued—and the
Court of Appeal concluded Sacramento proved—a voter-approved
mandatory 11 percent tax Sacramento imposed on utilities’
revenues was a cost of providing services that the utilities could
pass on to ratepayers without violating article XIII D, section 6,
subdivision (b). (Wyatt, at pp. 378, 380, 383.) We express no
opinion on whether Wyatt was correctly decided. We note only
that Wyatt’s analysis is inapplicable to the case before us because
the City here never argued, and there is nothing in the record
indicating, the Measure M transfers and/or surcharge were in
28
any way related to the costs of providing water and sewer
services.
As it pertains to whether the City proved—or even
attempted to prove—the Measure M surcharge complies with
article XIII D, section 6, subdivision (b)’s requirements, this case
is more similar to Fresno, supra, 127 Cal.App.4th 914, where the
Court of Appeal explained: “On the current record . . . Fresno has
not even claimed the in lieu fee approximates the cost of city
services to the utility departments and divisions, much less has it
established such a relationship as a fact. (See art. XIII D, § 6,
subd. (b)(5) [allocating to governmental agency burden to
demonstrate compliance with art. XIII D].) Accordingly, the trial
court correctly issued an injunction to prohibit Fresno from
collecting the current 1 percent in lieu fee from the water,
wastewater, and solid waste divisions of the department of public
utilities.” (Fresno, at p. 927.)
Based on the City’s concessions that the Measure M
surcharge does not comply with article XIII D, section 6,
subdivision (b)’s requirements, and the absence of anything in the
record before us indicating such compliance, we need not address
this issue further. The Measure M surcharge is a fee or charge
within the meaning of article XIII D, section 6, and the City has
not carried its burden of demonstrating compliance with
subdivision (b)’s requirements. (Art. XIII D, § 6, subd. (b), ¶ (5)
[“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”].) Thus, we hold the Measure M surcharge is
unconstitutional because it violates article XIII D.
The City and Cal Cities assert the invalidation of the
Measure M surcharge on these grounds will mean the
29
invalidation of numerous taxes imposed by local governments
throughout California. The only tax, fee, or charge before us is
the Measure M surcharge. We express no opinion on the validity
of taxes not before us.
Because we conclude the Measure M surcharge violates
article XIII D as to all Water Department customers, for the
reasons explained above, we need not determine whether the
trial court correctly decided the surcharge also violates article XI,
section 7 to the extent the City collects the surcharge from water
and sewer utility customers who receive service at a location
outside the City. And because we affirm the judgment on the
merits, we have no cause to reverse the stipulated award of
attorney fees to Plaintiffs.
DISPOSITION
The judgment and post-judgment order awarding attorney
fees are affirmed. Respondents are entitled to recover costs on
appeal.
CERTIFIED FOR PUBLICATION
CHANEY, J.
We concur:
ROTHSCHILD, P. J.
CRANDALL, J.*
*Judge of the San Luis Obispo County Superior Court,
assigned by the Chief Justice pursuant to article VI, section 6 of
the California Constitution.
30