Riverside water rates case preempted by San Diego ruling

The question of how to remedy Riverside water rates deemed to be an unconstitutional tax has been confused by a new California law and a San Diego ruling regarding a similar policy.

Scott Simpson sued the City of Riverside on Oct. 11, 2022, saying that the city’s transfer of water rates revenue into the city’s general fund was a tax unapproved by the voters. The court agreed with Simpson. In a Dec. 3 ruling, Judge Harold Hopp ordered Riverside to refund the collected money.

The California Legislature, however, enacted a statute last legislative year that preempted Hopp’s ruling. Instead of a refund, the law required rate payers to recoup their money through credits.

“If a court determines that a fee or charge for a property-related service, including water, sewer, and refuse collection, violates Section 6 of Article XIIID of the California Constitution, then the local agency shall, in the next procedure to impose or increase the fee or charge, credit the amount of the fee or charge attributable to the violation against the amount of the revenues required to provide the property-related service unless a refund is explicitly provided for by statute,” the new law reads.

“Today, retail water and wastewater agencies throughout the state are facing legal challenges to their service fee structures. Three of these legal challenges affect my district, but the threat exists up and down the state,” bill author Steve Padilla (D-Chula Vista) told the Assembly Committee on Local Government on June 26, 2024.

“This is a matter of equity. This bill ensures that the lower water users are not subsidizing those on the higher end. It's a critical protection for public agencies as they address fee challenges. We must also safeguard equitable approaches to setting water rates while we provide our agencies with the flexibility they need to operate,” he said.

The city of San Diego was also sued over its absorption of water rates. That case resulted in a court order to refund rate payers a total of $80 million for excess fees over eight years. The city appealed the ruling. In a 116-page opinion, with a 62-page dissent, the Fourth District Court of Appeal, Division Two, directed San Diego Superior Court to review the appropriate remedy in light of the new law.

“Although we conclude that Government Code section 53758.5 applies to Class’s refund award, the proper disposition is not to reverse the refund award, as City argues. In their respective appeals, neither party has shown that the amount of the refund award is in error. However, remand is necessary so the trial court may, as City argues, “craft a remedy” to ensure that the refund award is credited in accordance with Government Code section 53758.5. This means the judgment must be amended to require City to credit an award in accordance with Government Code section 53758.5, and to not allow Class to enforce the refund award as a money judgment,” the ruling said.

In an Aug. 20 ruling, Hopp set a hearing to discuss the appropriate remedy in light of the San Diego decision and the new law. The hearing is set for Nov. 18.

Inland Empire Law Weekly reached out to both Simpson and Riverside. Neither party decided to offer a comment.