"The City is engaging in the very activity Proposition 218 was intended to halt. It has exploited property-owners’ normal use of property to support its general fund operations. The Measure M surcharge embedded in rates violates both section 3 and section 6 [of Prop 218, part of the CA Constitution.] Voter approval does not rescue the City from its constitutional violations." the attorneys write in their 24-page opening brief (filed Aug. 23) in seeking a Petition for Writ of Mandate.

In October 2018, two Long Beach LB Water Dept. customers -- Diana Lejins (5th Council district resident) and Angela Kimball (a resident of the unincorporated L.A. County "island" east of Woodruff Ave. at Harco St.) -- sought the Petition for Writ of Mandate, represented by the same legal team that successfully handled their 2016 challenge to the LB Water Dept's payment of "pipeline permit fees" (paid by LB Water Dept. customers under a City Hall imposed practice begun by Councils under Mayor Bob Foster.)

In November 2017, the City agreed to settle with Ms. Lejins and repay $12 million to the LB Water Dept. over four years and reduce rates for LB water/sewer customers.

Later today (Sept. 3), one of six items scheduled for closed session City Council discussion is "Existing Litigation - closed session conference with legal counsel relating to existing litigation pursuant to Paragraph (1) of subdivision (d) of Section 54956.9 of the California Government Code: Diana Lejins and Angela Kimball v. City of Long Beach, Los Angeles Superior Court Case No. 18STCP02628."

The closed session precedes the 5:00 p.m. open Council meeting at which Councilmembers could vote to approve a FY20 City budget that relies on roughly $14.4 million [sum cited in petitioners' brief] in water/sewer revenue transfers from the Water Dept. to "balance" FY20 City spending.

[Scroll down for further.]

After settling the 2016 legal challenge by Ms. Lejins, City Hall moved to regain the General Fund revenue stream it "lost" (by no longer imposing the invalid "pipeline fees") by putting forward "Measure M," a City Charter amendment that City Hall contends cured the legal issue and authorizes new Water Dept. transfers for City Hall General Fund spending purposes.

On October 22, 2018, Ms. Lejins and Ms. Kimball challenged City Hall's Measure M action, alleging it violates Proposition 218 because it embeds a surcharge transferring a percentage of Water Dept.funds to the City's General Fund. The petitioners' attorneys argue this violates Proposition 218 (added to CA's Constitution by a 1996 statewide initiative and vote of the people) by imposing a tax that charges more than the cost of providing a service and uses the sum for general spending (in this case charging more than it costs to provide LB utility service and using utility fees for City Hall non-utility purposes.)

Ms. Kimball additionally argues that although she pays for LB Water Dept. service, she had no vote Measure M since she's not a City of LB resident. [LBREPORT.com presumes Signal Hill residents could make a similar argument.]

Anticipating City Hall's legal stance in response to their Petition for Writ of Mandate, the attorneys for the petitioners write:

The City is expected to argue that because section 1407 was approved by voters, the constitutional restrictions in section 3 and section 6 may give way. But local voter approval cannot rescue an unconstitutional act.

The People of California, in adopting Proposition 218, determined that local governments can never impose general taxes upon parcels or persons as an incident of property ownership -- even if local voters approve it. This is not surprising in light of the fact "Proposition 218 can best be understood against its historical background, which begins in 1978 with the adoption of Proposition 13" and "[t]he purpose of Proposition 13 was to cut local property taxes." (Howard Jarvis Taxpayers Ass’n v. City of Riverside (1999) 73 Cal.App.4th 679, 681 [citations omitted].)

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In pertinent part, the petitioners' attorneys state:

The City's actions violate plain constitutional restrictions enacted through Proposition 218 (Cal. Const., art. XIII D) and exceed its taxing authority.

First, the City concedes that the water and sewer fees and charges are inflated in order to fund the Measure M transfers and that the funds transferred are not used to fund utility-related services. Thus, the fees and charges violate article XIII D, section 6, subdivisions (b)(1)(2) & (5) of the California Constitution which govern property-related fees like water and sewer fees.

Second, the City contends that the surcharges embedded in the rates are general taxes approved by voters. Yet, section 3 prohibits the levy of any general tax upon parcels of property or upon persons as an incident of property ownership. (§ 3, subd. (a).) And "property ownership" includes tenancies of real property where tenants are directly liable to pay the fee in question. (§ 2, subd. (g).) The Measure M tax is imposed upon persons based on normal use of the property (i.e., as water and sewer customers) and is therefore imposed "as an incident of property ownership." (See Bighorn-Desert View Water Agency v. Verjil (2006) 39 Cal.4th 205, 226 (Bighorn) [holding a fee for ongoing water service is imposed "as an incident of property ownership" because it requires nothing other than normal ownership and use of property].)

Third, the City serves (and therefore taxes) water customers outside its boundaries. As discussed further below, the City lacks constitutional authority to tax persons outside its jurisdiction.

Despite the superficial appeal of voter approval, a local electorate may not bless an action that violates our state Constitution. Petitioners Diana Lejins and Angela Kimball ("Petitioners") request that the Court enter a judgment and issue a writ of mandate that directs the City to, inter alia, (a) cease its illegal imposition and collection of the Measure M tax, and (b) restore all funds transferred pursuant to Measure M since October 1, 2018.

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The attorneys argue that the City's actions violate two sections (6 and 3) of Prop 218:

B. THE CITY’S SECTION 6 VIOLATIONS

As explained above, section 6 [of Prop 218] prescribes mandatory procedures for, and places strict limitations on, a local agency’s extension, imposition, or increase in fees and charges for property related services. (§ 6.) As used in article XIII D, a "fee" or "charge" is "any levy other than an ad valorem tax, a special tax, or an assessment, imposed by an agency upon a parcel or upon a person as an incident of property o wnership, including a user fee or charge for a property related service." (§ 2, subd. (e); see also Fresno, supra, 127 Cal.App.4th at p. 918.) Thus, general taxes are included in the definition of "fee" or "charge" so long as they are imposed upon a parcel or upon a person as an incident of property ownership. A "property-related service" is "a public service having a direct relationship to property ownership." (§ 2, subd. (h); see also Bighorn, supra, 39 Cal.4th at p. 217 ["once a property owner or resident has paid the connection charges and has become a customer of a public water agency, all charges for water delivery incurred thereafter are charges for a property-related service, whether the charge is calculated on the basis of consumption or is imposed as a fixed monthly fee."]; see also Fresno, supra, 127 Cal.App.4th at p. 918.) And "property ownership," as used in article XIII D, broadly includes "tenancies of real property where tenants are directly liable to pay" the fee in question. (§ 2, subd. (g); Fresno, supra, 127 Cal.App.4th at p. 918.) Thus, the water and sewer fees and charges at issue here must comply with section 6.

1. Section 6, subdivision (b)(1) violation

Petitioners do not deny the City is authorized to charge user fees to recover the cost of providing its property related services. But the City crosses the constitutional boundary by imposing fees that are intentionally inflated to generate surplus revenue to fund Measure M transfers. As explained above, the City raised water rates by 7.2% effective October 1, 2018 solely to fund Measure M transfers. Both sewer and water rates were designed to fund multimillion transfers. But Proposition 218 limits the amount of revenue a City may generate from property-related service fees to the "funds required to provide the property related service." (§ 6, subd. (b)(1).) Because the City imposes fees in an amount that exceeds the revenues needed to operate its utilities, the City violates section 6, subdivision (b)(1).

2. Section 6, subdivision (b)(2) violation

Section 6, subdivision (b)(2) prohibits the City from using "revenues derived from" user utility fees and charges for property related services "for any purpose other than that for which the fee or charge was imposed." (§ 6, subd. (b)(2); see also Roseville, supra, 97 Cal.App.4th at p. 647.)

Here, the City imposes fees and charges for water and sewer services. It then transfers a portion of its sewer and water fee revenue to the general fund pursuant to Measure M. Section 1407(7) provides that the funds may be used for unrestricted general revenue purposes unrelated to the provision of sewer or water service. Indeed, the funds transferred have not been earmarked for or restricted to any specific purpose or use. (Stip. ¶ 1.) Thus, the City violates section 6, subdivision (b) (2).

3. Section 6, subdivision (b)(5) violation

Section 6, subdivision (b)(5) prohibits charging a utility customer for a service that benefits the entire community, like police and fire protection services. (See § 6, subd. (b)(5) ["No fee or charge may be imposed for general governmental services including, but not limited to, police, fire, ambulance or library services, where the service is available to the public at large in substantially the same manner as it is to property owners."].) Yet, Measure M was promoted by the Police Chief, Fire Chief, and Mayor as a way to support "Long Beach firefighter, paramedic and police office staffing, as well as funding for pothole and street repairs" (LB 03555.) And the City Attorney's Impartial Analysis of Measure M explained that the "General Fund pays for general City services such as police, fire and paramedic response, street repairs, parks, libraries and youth/senior programs" and "the Long Beach City Council placed Measure 'M' on the ballot to maintain General Fund revenue." (LB 03554.)

As stated above, the City admits that the Measure M transfers are not earmarked for or restricted to any specific purpose or use. (Stip. No. 1; see also Roseville, supra, 97 Cal.App.4th at p. 650 [holding city violated section 6 subdivision (b)(5) because in-lieu fee was placed in general fund and not "pledged, formally or informally[,] for any specific purpose."].) The fact that Measure M is a general tax underscores that the City uses these funds for general governmental purposes. (See Cal. Const., art. XIII C, § 1, subd. (a) ["General tax" means any tax imposed for general governmental purposes.].) Thus, by imposing fees on utility customers that fund general governmental services, the City violates section 6, subdivision (b)(5).

C. THE CITY’S SECTION 3 VIOLATIONS

...[S]ection 3 prohibits local governments from assessing any tax, assessment, fee, or charge upon any parcel of property or upon any person as an incident of property ownership, unless it meets one of four exceptions:

(1) The ad valorem property tax imposed pursuant to Article XIII and Article XIII A;

(2) Any special tax receiving a two-thirds vote pursuant to Section 4 of Article XIII A;

(3) Assessments as provided under Article XIII D; or

(4) Fees or charges for property related services as provided by Article XIII D (§ 3, subd. (a)(1-4).)

The City cannot assert that the Measure M general tax meets any of these exceptions. Its only defense is that this tax is not upon any parcel of property or upon any person as an incident of property ownership. But the City admits that some of the water and sewer "fees" and "charges" fall within the meaning of section 2, subdivision (e). (Answer, ¶ 9.) Apparently, it excludes the portion of the fees and charges representing the Measure M tax as being imposed as an incident of property ownership. The Court should reject such sophistry. It cannot be reasonably disputed that the only persons paying the Measure M tax are water and sewer customers. Nor can it be reasonably disputed that utility customers are being taxed based solely on normal ownership and use of the property. (See Bighorn, supra, 39 Cal.4th at p. 226 [holding a fee for ongoing water service is imposed "as an incident of property ownership" because it requires nothing other than normal ownership and use of property]; see also Fresno, supra, 127 Cal.App.4th at p. 161 [rejecting contention that in lieu fee was based on use of utility services rather than on basis of property ownership].) Here, the "normal use" of the property is the consumption of water and sewer services. And in fact, the tax is embedded and bound up in the rates and is denominated a "service" or "usage" charge on utility bills.

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In a key portion of their brief, the petitioners' attorneys write:

D. VOTER APPROVAL DOES NOT TRUMP CONSTITUTIONAL RESTRICTIONS

The City is expected to argue that because section 1407 was approved by voters, the constitutional restrictions in section 3 and section 6 may give way. But local voter approval cannot rescue an unconstitutional act.

The People of California, in adopting Proposition 218, determined that local governments can never impose general taxes upon parcels or persons as an incident of property ownership -- even if local voters approve it. This is not surprising in light of the fact "Proposition 218 can best be understood against its historical background, which begins in 1978 with the adoption of Proposition 13" and "[t]he purpose of Proposition 13 was to cut local property taxes." (Howard Jarvis Taxpayers Ass’n v. City of Riverside (1999) 73 Cal.App.4th 679, 681 [citations omitted].)

The attorneys ask the Court to invalidate or void the Water Dept. water and sewer rate ordinance "to the extent it embeds amounts designed to fund transfers to the general fund pursuant to section 1407(5) & (8);" to cease collecting rate revenue under the ordinance; cease imposing the water/sewer fees/charges "to the extent they embed surcharges to fund transfers to the general fund pursuant to section 1407(5) & (8)"; cease imposing the Measure M tax "on any customers residing outside of the City limits" [would apply to Ms. Kimball, a resident of the ELB unincorporate County "island"; and "restore to the Water Revenue Fund and Sewer Revenue Fund all transfers made beginning October 1, 2018...to the extent such transfers have been funded through the Water Dept. rate ordinance;

They also ask the Court to declare that "the City has violated article XIII D, section 3, subdivision (a) and section 6, subdivision (b)(1)(2) and (5) of the California Constitution and declares that the City does not have constitutional authority to impose the Measure M tax outside its city limits"; to "permanently enjoin the City from transferring any funds pursuant to section 1407(5) from the Water Revenue Fund and Sewer Revenue Fund to the general fund collected through Ordinance No. ORD-018-0022 and through any water and sewer rate ordinance adopted before judgment; and order the City to restore all prior Measure M transfers made beginning October 1, 2018 through judgment."

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Procedurally, the City will presumably file a brief in response. A hearing on the Writ is currently scheduled for Nov. 7.

Developing.

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