L.A. Overcharging for Water

Koko the gorilla a resident of the Los Angeles Zoo had become quite adept at picking the pockets of the zoo keeper. One day Koko used the zoo keeper’s key to let himself out of his cage and ambled over to the snack shop. Climbing onto a bar stool he grunted "Water." When the man returned with a bottle of Aquafina Koko handed him a $20 bill from the zoo keeper’s wallet. Guessing the gorilla wasn’t too smart the man gave Koko one dollar in change. "We don’t get a lot of business from the animals here" the man remarked. Koko snorted "At $19 for bottled water I’m not surprised."

Koko is not the only Los Angeles resident paying too much for water. And the snack shop isn’t the only water purveyor hoping that its customers aren’t too smart. In fact every Los Angeles water customer has been overcharged for years. And although the California Supreme Court ruled last year that cities can no longer charge customers more than it costs to provide water service the City of Los Angeles was hoping it could break the law again this year and no one would notice. Sorry L.A. we at the Howard Jarvis Taxpayers Association noticed.

But first a little history: In 1999 we sued the City of Los Angeles over its water rates because for each of the preceding four years the City set rates at an amount that significantly exceeded its cost to provide water. The overcharges resulted in a surplus of over $20 million each year which the City transferred to its General Fund for the City Council to spend at its discretion.

Our lawsuit alleged that the overcharges violated Proposition 218 which in part states "Revenues derived from the fee or charge shall not exceed the funds required to provide the property related service" and "Revenues derived from the fee or charge shall not be used for any purpose other than that for which the fee or charge was imposed." The suit also alleged that to the extent water rates did exceed the funds required to provide water service and were spent on other purposes the overcharge constituted a special tax which required voter approval.

Unfortunately the Court of Appeal sided with the City ruling that metered water rates are not fees for a property-related service and therefore are not subject to Proposition 218’s cost-of-service requirement. The Court certified its opinion for publication which made it a precedent binding every lower court in California. Cities and counties throughout the state immediately took advantage of the decision by raising their water rates to generate new General Fund revenue for things unrelated to water.

This was the state of affairs for six years. Then in 2006 the California Supreme Court granted review of a case called Bighorn-Desert View Water Agency v. Verjil. The Bighorn case
involved a voter’s initiative to reduce water rates after a water district promised rate relief but didn’t deliver. The lower court adhering to the precedent in HJTA v. City of Los Angeles held that water rates are not subject to Proposition 218. That meant according to the court that rates could not be reduced using 218’s initiative power.

The Supreme Court reversed the lower court. The high court not only ruled that reducing rates is within the people’s initiative power it also held that water rates are subject to the other requirements of Proposition 218 as well. In so doing the court expressly overruled the precedent from six years earlier in HJTA v. City of Los Angeles.

The Supreme Court issued the Bighorn decision one year ago in July 2006. Anyone with faith in the rule of law would expect that by now the City of Los Angeles would have adjusted its water rates to comply with the law as laid down by the state’s highest court. Only a cynic would be looking for the small legal notice that appeared in the Metropolitan News-Enterprise addressed to "All persons interested in the matter of the validity of the transfer of $29931300 from the Water Revenue Fund of the City of Los Angeles to the City’s Reserve Fund."

According to the notice circulated only in this one obscure newspaper and only for three days the City of Los Angeles recently filed a lawsuit against all of its water customers and this was their notice that they are being sued. If someone sees the notice and files an Answer to the lawsuit by July 23rd the notice explained then the City will litigate with that person whether it may legally continue to generate and transfer a surplus from its Water Fund to the General Fund Reserve. However the notice continued if no one files an Answer by July 23rd then the Court will enter a Default Judgment against all of the City’s water customers validate the transfer of funds and the issue will be settled forever.

Although the City was obviously hoping that no one would catch the notice someone did. We prepared an Answer to the City’s lawsuit denying the City’s asserted right to continue generating and transferring a surplus and affirmatively alleged that the City’s practice became illegal not only generally but specifically as to the City of Los Angeles when the Supreme Court overruled HJTA v. City of Los Angeles. The two sides will now battle it out in court and we’re not monkeying around.

Jon Coupal is the President of the Howard Jarvis Taxpayers Association. Timothy Bittle is the organization’s Director of Legal Affairs.