In a unanimous opinion, the state Supreme Court has ruled that a community service district’s water connection charge and fire suppression charge are exempt from the restrictions of Proposition 218.

The ruling was only the state high court’s second in a Proposition 218 case, and in both instances, the court ruled for local government.

The court held that the Shasta Community Service District’s connection charge was neither a "fee" nor a "charge" within the meaning of Proposition 218 (article XIII D of the state constitution) and thus was not subject to the initiative’s majority-protest provisions. "A connection fee is not imposed simply by virtue of property ownership, but instead it is imposed as an incident of the voluntary act of the property owner in applying for a service, connection," Justice Joyce Kennard wrote for the court.

Attorney Michael Colantuono, who argued the case for Shasta CSD at the high court, said the decision "provides clear guidance for local governments that utility connection and capacity charges needed to fund services to new development are not subject to voter or property owner approval."

Attorney William Ross, who filed an amicus brief for the California Fire Chiefs Association, said the decision "widens the possibility of revenue streams for local government."

However, both Colantuono and Ross warned that the case had enough unique facts that the decision was probably not a major precedent for controversies involving Proposition 218 or development impact fees. In fact, the high court ruled that the connection charge was not a development fee, a conclusion with which Colantuono differed.

State voters approved Proposition 218 — the Right to Vote on Taxes Act — in 1996. Proponents said it was needed to close loopholes that local governments had opened in Proposition 13. Under Proposition 218, a fee for general government services requires two-thirds voter approval. Additionally, an assessment levied for the benefit of certain pieces of property is subject to a majority-protest process, in which the owners who would pay the majority of the total assessment amount can kill the assessment.

Shasta CSD operates a water system and volunteer fire department in the unincorporated community of Shasta, just west of Redding. In 1994, the district adopted an ordinance establishing a "standard connection fee" of $2,000, plus the cost of a water meter. The amount included a capacity charge to fund future improvements to the water system and a fire suppression charge to fund fire department equipment. In 1997, the district hiked the capacity charge to $3,176 and continued collecting the $400 fire suppression charge. The $3,176 was based on the estimated cost of future improvements assigned to new development ($762,300) divided by the estimated number of future connections (240).

In March 1998, four property owners filed a lawsuit contesting the fees on three key grounds: The district failed to follow Proposition 218’s requirements for levying an assessment, the fire suppression fee was an illegal fee for general government services under Proposition 218, and the district could not use a resolution to amend the 1994 ordinance.

After an eight-day trial, Shasta County Superior Court Judge Richard McEachen ruled for the district, concluding that the connection fee was a "development fee" and therefore was exempt from Proposition 218. He also ruled that the fire suppression charge was exempt from Proposition 218 because it was only the continuation of a charge that existed before the initiative was passed. Finally, he ruled that the district’s use of a resolution was legal.

The Third District Court of Appeal upheld the lower court except with regard to the fire suppression charge, which the court said was illegal under Proposition 218 because voters had not approved the charge (see CP&DR Legal Digest, April 2002). The decision seemed to satisfy neither side. The case then went to the state Supreme Court, which affirmed the trial court decision. However, the Supreme Court specifically ruled that the connection charge was not a "development fee" because a new water connection was not necessarily related property development.

Citing language in Proposition 218, the Supreme Court determined that the initiative requires an agency imposing an assessment to identify "all parcels which will have a special benefit conferred upon them and upon which an assessment will be imposed." Shasta CSD, however, "estimated that there would be 240 new connection applications, but the district did not and could not identify the specific parcels for which new connection applications would be made … because many existing undeveloped parcels would likely be subdivided into an indeterminable number of smaller parcels," Kennard wrote. Therefore, the agency could not comply with Proposition 218’s requirement.

"Because the District does not impose the capacity charge on identifiable parcels, but only on individuals who request a new service connection, the capacity charge is not an assessment within the meaning of article XIII D," Kennard wrote.

But neither was the capacity charge a development fee, the court continued. "It is similar to a development fee in being imposed only in response to a property owner’s voluntary application to a public entity, but it is different in that the application may be only for a water service connection without necessarily involving any development of the property," Kennard wrote.

The fire suppression charge was intended to provide money for firefighting and emergency response equipment. Several analysts have questioned whether the charge was legal under Proposition 13, which prohibits taxes for general government services without two-thirds voter approval. But the Shasta CSD property owners did not make a Proposition 13 argument. Instead, they contended that the charge was illegal under Proposition 218 because it was never approved by voters — an argument accepted by the Court of Appeal.

The Supreme Court disagreed. For the charge to be illegal under Proposition 218, it must be assessed "as an incident of property ownership." That was not the case here, the court ruled. "The district does not impose the fee on parcels of real property but on persons who apply for a water service connection," Kennard wrote.

"[W]e agree that water service fees, being fees for property-related services, may be fees or charges within the meaning of article XIII D," Kennard continued. "But we do not agree that all water service charges are necessarily subject to the restrictions that article XIII D imposes on fees and charges. Rather, we conclude 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 incident of property ownership.’ 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. 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."

Shasta CSD attorney Colantuono expressed concern over Kennard’s indication that water service charges are subject to Proposition 218. He expects taxpayer advocates will use the opinion to contest routine service charges. But Colantuono further contended that Kennard’s statement was dicta — meaning it was not essential to deciding the case — and that such an interpretation of Proposition 218 conflicted with existing case law.

The court further ruled that the district could modify its fees by resolution.

The state high court’s only other Proposition 218 ruling came in Apartment Owners Association of Los Angeles County, Inc. v. City of Los Angeles, 24 Cal.4th 830 (2001) (see CP&DR Legal Digest, February 2001), in which the court ruled that an annual apartment inspection fee to fund slum abatement was not subject to the initiative.

The Case:
Richmond v. Shasta Community Services District, No. S105078, 04 C.D.O.S. 1146, 2004 DJDAR 1429. Filed February 9, 2004
The Lawyers:
For Richmond: Walter McNeill, (530) 222-8892.
For Shasta CSD: David Edwards, (530) 221-0694, and Michael Colantuono, Colantuono, Levin and Rozell, (213) 533-4155.