Recent Developments: Proposition 218 s Fees and Charges Provisions The Meaning of Proposition 218 s Fees and Charges Provisions Remains Murky Despite a Seemingly Definitive Supreme Court Decision Presented by: John D. Bakker, Esq. Assistant City Attorney Cities of Milpitas and Union City 555 12 th Street, Suite 1500 Oakland, CA 94607 510.808.2000 www.meyersnave.com
Proposition 218 s Requirements for Property-Related Fees Procedural Requirements Majority Protest procedure requires: Notice to each property owner of the amount of the fee proposed to be charged Majority protest exists if a majority of property owners protest Voter Approval The fee must receive either, at the agency s option, a majority vote of the property owners or a two-thirds vote of the electorate. Fees for sewer, water, and refuse collection services are exempt
Proposition 218 s Requirements for Property-Related Fees Substantive Requirements. Property-related fees and charges may not: Generate revenues in excess of the cost of providing the service for which the fee charged. Be used for a purpose other than the service for which charged. Exceed the proportional cost of the service attributable to the parcel. Be imposed unless the service for which the fee is charged is used by or immediately available to the property owner to whom it is charged. Be imposed for general governmental services, such as police & fire.
What is a Property-Related Fee? Proposition 218 s Text: Fee or charge 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. Property-related service means a public service having a direct relationship to property ownership.
Apartment Association of Los Angeles County The California Supreme Court states this bright-line rule: Fees imposed upon a person as an incident of property ownership include only such fees as are imposed directly on property owners in their capacity as such. Thus, the residential rental-inspection fee imposed by L.A. and at issue in the case is not imposed solely because a person owns property. Rather, it is imposed because the property is being rented. It ceases along with the business operation, whether or not ownership remains in the same hands.
Apartment Association of Los Angeles County Shades of Gray in Apartment Association? Distinguishes the ballot materials statement that Proposition 218 applies to sewer, water, and refuse collection fees. Court notes that the ballot materials did not refer to levies linked more indirectly to property ownership. Distinguishes the rental inspection fee from the subordinate clause (including user fees for public services having a direct relationship with property ownership). Asserts that indirect because overlain by the requirement that the property must be rented. Taxpayer advocates argue these passages limit the core holding
Apartment Association of Los Angeles County But Court Makes Clear that Plain Language Controls Despite the incongruities in Proposition 218 s text and the ballot materials, the court makes clear that the text of the measure controls. Specifically notes that reliance on ballot materials is forbidden because language of measure is unambiguous. Rejects for same reason argument that exemptions for electric and gas fees support broader reading.
Howard Jarvis Taxpayers Assoc. v. City of Roseville Concerns Roseville s practices of charging its three utilities (water, sewer, and refuse collection) an in-lieu of franchise fee of 4% of gross revenues. Water fee imposed on property owners, on unmetered, flat-rate basis Sewer fee (at least in some cases) imposed on users on a flat-rate basis depending on type of use on the parcel (e.g. $15.50/mo. for single family residential). Refuse fee included a fixed minimum charge to each occupier of a dwelling.
Howard Jarvis Taxpayers Assoc. v. City of Roseville Concludes that the in-lieu fee, because it is not dependent on quantity of service used, is imposed on a person as an incident of property ownership. Appears inconsistent with facts, since even the City s flat-rate fee components are based on usage
Howard Jarvis Taxpayers Assoc. v. City of Roseville Concludes that imposed on property owners as property owners. Distinguishes Apartment Association because the in-lieu fee is charged because property is being owned Inconsistent with Apartment Association because the rental inspection fee was only imposed on owners. Roseville fees only charged if service used.
Howard Jarvis Taxpayers Assoc. v. City of Roseville Relies heavily on the subordinate clause and ballot materials Distinguishes Apartment Association because fees for sewer, water, and refuse collection are directly tied to property ownership. Also notes that in-lieu fee not overlain by requirement that property be rented, and therefore not indirect Analysis inconsistent with Apartment Association because goes beyond the plain language of Proposition 218 s text
Howard Jarvis Taxpayers Assoc. v. City of Roseville Also relies heavily on exemptions and partial exemptions for various utility fees in text of Proposition 218 Argues that there is no point in exempting these fees if not subject to Proposition 218 Analysis inconsistent with Apartment Association because the Supreme Court specifically states that the exemptions may have been included in an abundance of caution in case court interpretations of article XIII D similar to the Court of Appeal s should prevail
Howard Jarvis Taxpayers Association v. City of Salinas Concludes that Salinas s stormwater-utility fee is a propertyrelated fee that is not exempt from the voter-approval requirement. Fee imposed on each developed parcel in the City and the owners and occupiers thereof. The fee did not apply to undeveloped parcels and was reduced to the extent a property owner could demonstrate that the property did not contribute all of its stormwater to the City s stormwater system
Howard Jarvis Taxpayers Association v. City of Salinas Court s focus is on the fact that the service is in its view a property-related service. The key for the court is that the amount of the fee is not based on consumption or services requested but on the physical characteristics of property. This appears inconsistent with Apartment Association since the fee is designed to be based, not on ownership in and of itself, but on usage of the stormdrain system.
Howard Jarvis Taxpayers Association v. City of Salinas Court rejects the argument that the fee was not imposed solely by virtue of property ownership. Reasserts belief that a property related service. Rejects factual premise that the fee can be avoided Notes that characteristics of property and not actions of owner determine amount of the reduction Again, seems inconsistent with Apartment Association because the fee can be avoided by not contributing storm water in excess of properly in its natural state.
Howard Jarvis Taxpayers Association v. City of Salinas Note that by its terms the fee in Salinas was actually imposed on property. This is one way to distinguish the case from Apartment Association.
Options for Dealing with Utility Fees Under Proposition 218 Apply Apartment Association literally Its core holding is straightforward, broad, and easily applied. If the fee can be avoided by something short of selling one s property, it is not a property-related fee. It is difficult to reconcile Apartment Association with Roseville and Salinas Not without risks, of course, but both Roseville and Salinas can be explained by their unique facts Avoid simple repeals of existing fees; preclude class actions for refunds
Options for Dealing with Utility Fees Under Proposition 218 Shore up existing fees by avoiding these pitfalls: Make clear that service can be cancelled. Draft ordinances to require tenants to pay for utility services. Allow persons that are not associated with a parcel to obtain service. If possible, impose charges based on actual use not estimated use. If possible, avoid fees that calculate charges based on physical characteristics of property Avoid flat-rate and minimum charges unless the use-based justification is explained in detail.
Options for Dealing with Utility Fees Under Proposition 218 Comply with Proposition 218 Water, sewer and refuse collection fees are only subject to the majority-protest requirement. Other fees are subject to voter approval.
Options for Dealing with Utility Fees Under Proposition 218 Sell your utility to a private company Private utilities are not subject to Proposition 218, and City can receive franchise fees Also requires voter approval
Richmond v. Shasta Community Services Dist. Does Proposition 218 Apply to Fees Predating its Enactment? This Court of Appeal decision for which review has been granted holds (among other things) that the substantive provisions of Proposition 218 apply to fees that were in existence prior to Proposition 218 s enactment Currently briefed and awaiting argument in Calif. Supreme Court
Richmond v. Shasta Community Services Dist. The argument has marginal textual support Heading of substantive is labeled Requirements for Existing, New or Increased Fees and Charges. States that beginning July 1, 1997, all fees shall comply with this section. Court also cites ballot materials that state that passage would require reduction or elimination of some fees.
Richmond v. Shasta Community Services Dist. The argument is inconsistent with the operative language in the substantive provisions The substantive provisions only apply to fees that are extended, imposed, or increased. Extended and increased are defined in Omnibus Proposition 218 Implementation Act Imposed is undefined, but usage in Proposition 218 strongly suggest that it only applies to the act of creating a new fee and not the annual or monthly act of levying an existing fee