In a case closely watched by public agencies and taxpayer groups alike, the Supreme Court voted 7-0 on January 30 to grant review in Wilde v. City of Dunsmuir (Case No. S252915). The City had rejected a referendum petition submitted by Ms. Wilde on the grounds that, under Proposition 218, the resolution establishing new water rates was not subject to referendum, but only a voter initiative. The trial court ruled for the City, but the 3rd District Court of Appeal in Sacramento reversed.

The Court of Appeal concluded “that Proposition 218 did not negatively impact voters’ referendum power….” Of course, that did not answer the larger question, namely, whether voters ever had the power to repeal a rate, fee or assessment increase by referendum in the first place. The Supreme Court seems poised to consider that important question.

In 1996, California voters adopted Proposition 218, adding article XIII C to the California Constitution, and expressly reserving their right to challenge local taxes, assessments, fees and charges by initiative. However, Proposition 218 said nothing about the referendum power. For decades, it has been settled law that a referendum may not be used to repeal a tax. (See Myers v. City Council of City of Pismo Beach (1966) 241 Cal.App.2d 237.)

The initiative and referendum powers were “reserved” by the People in Article II of the California Constitution. They courts are charged with “jealously guarding” these powers. “If doubts can reasonably be resolved in favor of the use of this reserve power, courts will preserve it.” (Associated Home Builders v. City of Livermore (1976) 18 Cal.3d 582, 591.)

However, the policy considerations underlying the judicial prohibition on repealing a tax with a referendum would appear to apply with equal force to a water rate increase, at least one justified by a valid Proposition 218 study. Moreover, Proposition 218 itself is a type of referendum in which ratepayers may defeat the increase through a protest vote.

The Court of Appeal also rejected the City’s argument that the rate increase was an “essential governmental service” and, therefore, not subject to a referendum. (See Citizens for Jobs and the Economy v. County of Orange (2002) 94 Cal.App.4th 1311 [initiative invalid as interfering “with the essential government functions of fiscal planning and land use planning.”].) The Court held that Dunsmuir’s rate increase “represents policy choices and marks out a different approach to the City’s water infrastructure and rates. For this reason, Wilde’s referendum was not subject to the exception on voter referendum powers made for measures that will undermine ongoing and essential governmental services and budgeting.”

In another case that presents the same issues, Howard Jarvis Taxpayers Assn. v. Amador Water Agency (Case No. C082079), the 3rd District Court of Appeal notified counsel on January 11, 2019, that it was ready to issue its opinion, but has held the case for now. Steve Churchwell of Churchwell White represents Amador Water Agency in that litigation.

If you have any other questions please contact Steve Churchwell at steve@whitebrennerllp.com or Churchwell White LLP at (916) 468-0950.