Howard Jarvis Will Challenge Fullerton’s Illegal Water Tax

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It looks like our city may be in for another lawsuit. Check out this letter that was sent from the Howard Jarvis Taxpayers Association just before Turkey Day (emphasis mine):

Mr. Joe Felz, City Manager
City of Fullerton
303 W Commonwealth Avenue
Fullerton,CA 92832

Re:  Water Department “In Lieu Fees”

Jack Dean, a friend of the Howard Jarvis Taxpayers Association, has brought to our attention that the City of Fullerton pads the rates charged to water customers in order to transfer funds from the Water Fund to the General Fund.  These transfers appear in the City’s Budget under Water Fund expenses and General Fund revenue as a 10% in-lieu franchise fee.  We believe the fee and revenue transfers are illegal.

If a private company provided water service to the residents of Fullerton, the City could charge the private company a negotiated franchise fee for occupying public rights of way with its pipelines.  That is not the case in Fullerton, however, as the City operates its own municipal water utility.  The rates the City may charge are governed by the California Constitution, which limits rates to just the amount required to provide service, and prohibits transferring rate revenue for use elsewhere.

California Constitution article XIII D § 6(b) states in relevant part: “(1) Revenues derived from the fee or charge shall not exceed the funds required to provide the property related service. (2) 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.”

We successfully litigated this issue several years ago in lawsuits against the cities of Roseville and Fresno. The courts in those two cases ruled that a city’s utility enterprise can reimburse the General Fund for actual, documented expenditures incurred on behalf of the utility, such as the utility’s use of the City Attorney’s services, or the utility’s share of a common insurance fund.  However, the utility cannot serve as a supplemental source of revenue for the General Fund.  As the court in the Roseville case said:

How about a refund?

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