San Juan Capistrano

  Water Rate Lawsuit Update
As many San Juan residents are aware, local taxpayer watchdog group the Capistrano Taxpayers Association (CTA) filed a lawsuit against the City after repeated warnings that their water rates and billing structure violated Proposition 218.

Prop 218 holds that rate payers can only be charged the actual cost to deliver water, and that they may not be charged for recycled water they are not receiving. 

In August, 2013, OC Superior Court Judge Gregory Munoz agreed with the CTA and declared SJC’s water rates illegal under Proposition 218. The City was ordered to abandon its water rate structure and to base all rates on cost of service, in conformance with the California Constitution. The court also entered a judgment restraining the City from collecting fees from residents for recycled water that they do not actually use and which is not immediately available to them. Judge Munoz based his ruling on a section of the California Constitution that deals with “Waste of Taxpayer Funds”.

In January 2014, then-City Council majority members Sam Allevato, Larry Kramer and John Taylor voted to appeal the ruling to the 4th District Court of Appeals. The City argued that tiers are really “penalties”, not fees, and as such are not subject to Proposition 218. They further asserted that the City was justified in forcing domestic (residential) water users to subsidize recycled water users “because everyone benefits from the use of recycled water because it increases supply.”

In their response, CTA attorneys rejected those arguments, pointing to the fact that Prop 218 forbids charging for services not received by rate payers. Penalties are not services and therefore cannot be charged to rate payers.

The case was heard by the appellate court on January 21, 2015. A ruling is expected within 90 days but could come at any time.

During the appeals process, the City Council majority decided to continue billing the illegal rates for a period of time, exposing the City to the potential of significant refunds of water overcharges. If the court rules in favor of the CTA, the City may have to refund money illegally paid by water customers. Refunds could total millions of dollars.

The City Council majority’s refusal to listen to the residents and their failure to adhere to Proposition 218 despite repeated warnings resulted in a lawsuit and legal expenses that could have been avoided.

In the meantime, cities and water agencies throughout California await the decision of the appellate court. Should the lower court’s decision be upheld, many water agencies could be faced with changing the way they bill for water. The winners will be customers who were previously held hostage by water agencies that charged arbitrary rates for a required, essential service.

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