Necessary water rate increases shouldn’t be subject to referendum

In 1996, California's voters amended the state constitution by approving Proposition 218. The measure placed new requirements on cities, counties and districts that want to increase taxes, assessments (e.g., for streets, lighting) or fees (e.g., for water, trash or sewer services). Proposition 218 expressly guaranteed the right of voters to repeal or reduce any of these financing mechanisms by use of their initiative power. It was silent, however, on the use of a voter referendum.

Unlike an initiative, in which proponents draft a law and then go through a lengthy vetting process to enact it, a referendum rescinds a law if a majority of voters vote "No." More problematic, especially in the context of government finances, it also suspends the operation of the law, once the elections official certifies that the petition has enough signatures to qualify for the ballot. That can be a huge problem, and even pose an existential threat to small districts that rely on a single revenue source.

The power of the referendum was reserved by the people in the state constitution, and it is "the duty of the courts to jealously guard" it. Rossi v. Brown, 9 Cal. 4th 688 (1995). Nevertheless, the courts have long limited the use of the power when it would interfere with the proper functioning of government. For example, the power does not apply to administrative, as opposed to legislative, acts. Hopping v. Richmond, 170 Cal. 605 (1915) (referendum "would destroy the efficiency necessary to the successful administration of the business affairs of a city."). The referendum also may not be used to impair an "essential governmental function," even if legislative in nature. Chase v. Kalber, 28 Cal.App. 561 (1915) (street improvements).

Another exception is taxes. The state constitution expressly prohibits referenda on state "statutes providing for tax levies." The California Supreme Court extended this to local tax levies, noting that "[o]ne of the reasons, if not the chief reason, why the Constitution excepts from the referendum power acts of the Legislature providing for tax levies ... is to prevent disruption of its operations by interference with the administration of its fiscal powers and policies." Geiger v. Board of Supervisors, 48 Cal. 2d 832 (1957) (emphasis added). The court reaffirmed this principle decades later: "Managing the county government's financial affairs ... was entrusted to elected representatives." Santa Clara County Local Transportation Authority v. Guardino, 11 Cal. 4th 220 (1995) (emphasis added).

Thus, the court's extension of the constitutional prohibition on referenda on state tax levies to local government was grounded in century-old common law. Referenda could not be used to interfere with the administration of a city's, county's or district's financial affairs. There is nothing about a "tax" in this regard that does not apply with equal force to an assessment or fee. All raise funds for the proper functioning of local government.

In fact, Proposition 218 itself recognizes no such distinction. In its findings and declarations section, Proposition 218 states: "The people of the State of California hereby find and declare 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." Ballot Pamp., Gen. Elec. (Nov. 5, 1996) text of Prop. 218, Section 1, p. 108.)

Which brings us to Wilde v. City of Dunsmuir. The city had rejected a referendum petition submitted by Ms. Wilde on the grounds that its resolution establishing new water rates over a six-year period was not subject to referendum, but only a voter initiative. The trial court ruled for the city, but the 3rd District Court of Appeal reversed.

The Court of Appeal concluded "that Proposition 218 did not negatively impact voters' referendum power." This appears certain but did not answer the larger question, namely, whether voters had the power to repeal an assessment or fee increase by referendum prior to the passage of Proposition 218. The authors of Proposition 218 were amending the state constitution, a lengthy and very expensive process. By including a provision on initiatives -- but not referenda -- they either had never heard of the principle of statutory construction, inclusio unius exclusio alterius, or they simply assumed, as I believe, that the referendum power does not apply to taxes, assessments or fees.

Nevertheless, the Court of Appeal rejected the city's arguments that both the administrative and "essential governmental function" exceptions applied. The court dispatched the administrative exception by concluding that Dunsmuir's rate increase "represents policy choices" (i.e., it is legislative in nature). As for the "essential governmental function" exception, the court simply noted that "Wilde's referendum seeks repeal of Resolution 2016-02 without constraining the city in its ability to formulate and implement a different water rate master plan." (Emphasis added.) Of course, the court failed to address what the city is supposed to do in the meantime, or what happens if the new rate increase is also rejected.

And there is little chance that these fee increases are unnecessary or "too high." Proposition 218 requires the local entity to justify any increase with studies and data presented in public records and hearings. A fee must meet these five requirements: (1) the fee may not exceed the funds required to provide the service; (2) the fee may not be used for any purpose other than that for which the fee is imposed; (3) the amount of the fee must not exceed the proportional cost of the service attributable to the parcel; (4) the fee may not be imposed for a service, unless the service is actually used by the owner of the property; and (5) no fee may be imposed for general governmental services (e.g., police, fire or libraries).

After voting to grant review 7-0 on January 30, the Supreme Court seems poised to consider the important policy and legal issues presented by Wilde v. Dunsmuir, S252915.