Unconstitutional Water Rates?

On August 9, Santa Barbara City Council voted unanimously to increase water rates, effective immediately, by as much as 57 percent for certain users. This increase came on the heels of a similarly high rate increase the previous year. The new rates were required to offset higher supply costs and reduced consumption during the drought. Although property owners lowered use from about 15,000 acre-feet to less than 10,000 acre-feet per year, it was costing more to supply less water. At the old rates, the city was losing approximately half a million dollars per month. Hence the rate increase.

But the way in which the new rates are structured may be out of compliance with Proposition 218, which requires that property-related fees are proportional to the actual costs of supplying service to that parcel or class of parcels. For example, if it costs more to supply water to a mountainous area, then those parcels may be charged more. However, Proposition 218, which amended the California Constitution in 1996, does not allow governments to set water rates to promote conservation.

How are Santa Barbara’s water rates structured?

First, the city charges different user classes (agricultural, commercial, recreational, residential) different rates, based on a priority system. User classes deemed higher priority are charged for the least expensive water. But Prop. 218 requires that to justify differential pricing, the water supplier must show that the cost of supplying one user class must be proportionally higher than the cost of supplying other user classes, an interpretation that was upheld in the Palmdale case in 2011.

Second, the city perpetuates a tiered system in which the price charged per water unit increases as the user’s consumption increases. Tiers are based on an estimate of which level of consumption is “normal” and which is “excessive.” Notwithstanding the important need for water conservation, tiered rate structures based on any reason other than cost of service are contrary to Prop. 218, as declared in the Capistrano case in 2015.

Third, the city is adding a surcharge of $6.21 per unit to all higher-use customers to pay for conservation services such as water audits and rebate programs. Yet these services are available to all water users. The clear intent is to “punish” high users by making them pay for 100 percent of the conservation costs, when in reality many of the high users have reduced consumption in excess of the city’s conservation goal. Once again, the city is not basing the surcharge on proportional cost to each user. The Water Control Board case in 2011 affirmed that if only a portion of users are subject to a fee, the government entity must show that the cost of service is generated by those being charged, which in Santa Barbara is untrue.

If a plaintiff successfully challenges the constitutionality of Santa Barbara’s water rates, the city would be liable not only for its own attorney fees and the plaintiff’s attorney fees, but possibly millions in reimbursements to past customers who were overcharged. It would behoove the City to reconsider its water rate structure before it is forced to defend it in court.

What changes to the water rates would be more in compliance with Prop. 218?

(1) Eliminate user classes based on a priority system. User classes could be based on cost of delivery to each class. If the city is unable to show that certain classes are less expensive to service, then eliminate classes altogether and charge all users the same rate.

(2) Eliminate tiers based on “normal” and “excessive” use. Determine the precise costs of delivering water at increasing levels of consumption and set tiers accordingly. If the city is unable to determine costs at increasing levels of consumption, institute a single-tier system.

(3) Eliminate punitive assessments of any kind, beyond the actual cost of delivery to that parcel or class of parcels.

(4) Eliminate any pricing by which a service or benefit available to all property owners is paid for by a segment of all property owners.

Conservation can still be achieved through consumer education, technical support, and perhaps a special recognition program. Environmentally aware Santa Barbarans are sensitive to the prolonged drought conditions and many have already voluntarily taken measures to reduce water usage. But using the water rates to promote conservation is out of step with the California Constitution.