Benink & Slavens LLP

Benink & Slavens, LLP File Petition For Writ Of Mandate Against City Of Rialto

2023-09-25T08:53:10Z

On May 9, 2023, the Benink & Slavens, LLP., filed suit against the City of Rialto on behalf of their clients alleging the City fails to comply with Proposition 218 and other statutes. California’s Proposition 218, among other things, prohibits local agencies, such as the City of Rialto, from imposing upon ratepayers excessive property related service fees (including fees for water, sewer, and solid waste service) in order to generate surplus revenue for their general fund. The purpose of Proposition 218 is to halt local government attempts to evade the 1% property tax limitation established by Proposition 13 in 1978. Nevertheless, the suit alleges that the City of Rialto regularly violates Proposition 218 by charging water, sewer, and solid waste service fees that are designed to, and do, generate substantial general fund revenue.

The City of Rialto provides fee-based water and sewer services to its residents. But the suit alleges that, in addition to its costs to provide service, the City of Rialto includes a multi-million dollar surcharge in its service fees representing annual “lease” revenue the Rialto Utility Authority allegedly “agreed” to pay to the City for the “use” of its utilities. The suit further alleges that the City of Rialto spends the lease revenue on general government services unrelated to operating its utilities. The City of Rialto allegedly created and fully controls the Rialto Utility Authority. Despite having just leased its utilities to the Rialto Utility Authority, the City of Rialto and the Rialto Utility Authority allegedly concurrently agreed to maintain the status quo, i.e. the City of Rialto allegedly continued to own, control, operate and maintain the utilities, including setting rates, and billing and collecting rate revenue. Under Proposition 218, the City of Rialto may only charge ratepayers for its service costs; it is not permitted to earn excessive revenue off the backs of ratepayers under the guise of “lease payments.”

The City of Rialto also allegedly provides fee-based solid waste (i.e. trash) service. It allegedly contracts with a third party to provide waste collection and recycling services, including curb-side pickup. The City of Rialto is alleged to violate Proposition 218 because it allegedly embeds a 14% franchise fee surcharge in its solid waste service fees, even though the flat rate franchise fee is not based on any actual service costs. Rather, the franchise fee is allegedly just another revenue mechanism employed by the City of Rialto to avoid the limitations on property taxes, fees and charges established by the People of this State in enacting Propositions 13 and 218. Finally, the City of Rialto allegedly violates California’s Vehicle Code section 9400.8, because it allegedly embeds a “pavement maintenance fee” in its solid waste service fees for the common privilege of using its streets.

Petitioners seek a writ of mandate and declaratory relief that the City’s practices violates Proposition 218 and Vehicle Code section 9400.8 and prohibiting the City from profiting from its property related services or otherwise including illegal rate components and to limit the City to charging only the cost of providing those services.

Questions about this matter may be directed to Vincent D. Slavens, Esq., at vince@beninkslavens.com

The Mitigation Fee Act – Nexus Findings Explained

2021-10-05T18:32:46Z

Cities, towns, counties and other local government agencies in California routinely impose mitigation fees when properties are developed. The fees typically are attached to the property, meaning they “run with the land” and are owed by subsequent property owners. Under the Mitigation Fee Act (Gov’t Code §§ 66000 - 66025), a local agency imposing mitigation fees is required to make certain findings annually and every five years. If the findings are not made, the local agency must refund all unexpended fees to all current record owners of property against which the fee was imposed, even if the record owner did not actually pay the fee. (Gov’t Code § 66001, subd. (d)(2) and (e).) The purpose of these statutory provisions is to ensure that mitigation fees are expended promptly and for purposes for which they were originally imposed. In cases where the local agency fails to make the required findings, any current owner of property subject to the fee may seek a judicial order compelling the local agency to a) make the required findings and b) refund the unexpended funds to all current record owners of properties, as the Mitigation Fee Act commands. The Mitigation Fee Act broadly defines “Fee” as: "a monetary exaction other than a tax or special assessment, whether established for a broad class of projects by legislation of general applicability or imposed on a specific project on an ad hoc basis, that is charged by a local agency to the applicant in connection with approval of a development project for the purpose of defraying all or a portion of the cost of public facilities related to the development project, but does not include fees specified in Section 66477, fees for processing applications for governmental regulatory actions or approvals, fees collected under development agreements adopted pursuant to Article 2.5 (commencing with Section 65864) of Chapter 4, or fees collected pursuant to agreements with redevelopment agencies that provide for the redevelopment of property in furtherance or for the benefit of a redevelopment project for which a redevelopment plan has been adopted pursuant to the Community Redevelopment Law (Part 1 (commencing with Section 33000) of Division 24 of the Health and Safety Code)." (Gov’t Code § 66000, subd. (b).) The Mitigation Fee Act authorizes a local government agency to impose fees on specific development projects to defray the cost of new or additional public facilities that are needed to serve those developments. Common types of fees include tree mitigation fees, facilities fees, impact fees, among others. The Mitigation Fee Act establishes a variety of requirements to ensure local agencies timely use the fees to pay for the public facilities that serve those very developments rather than divert the fees for general revenue purposes. In fact, the Mitigation Fee Act prohibits a local government agency from levying, collecting, or imposing development mitigation fees for general revenue purposes. (Gov’t Code § 66008.) The ”nexus” findings required by the Mitigation Fee Act are set forth in Government Code section 66001, subdivision (d)(1), which provides that: "For the fifth fiscal year following the first deposit into the account or fund, and every five years thereafter, the local agency shall make all of the following findings with respect to that portion of the account or fund remaining unexpended, whether committed or uncommitted:

(A) Identify the purpose to which the fee is to be put.

(B) Demonstrate a reasonable relationship between the fee and the purpose for which it is charged.

(C) Identify all sources and amounts of funding anticipated to complete financing in incomplete improvements identified in paragraph (2) of subdivision (a).

(D) Designate the approximate dates on which the funding referred to in subparagraph (C) is expected to be deposited into the appropriate account or fund."

Section 66001, subdivision (d)(2) further provides, in part: “If the findings are not made as required by this subdivision, the local agency shall refund the moneys in the account or fund as provided in subdivision (e).” This statutory review and refund requirement prevents local agencies from collecting and holding a development fee for an extended period of time without a clear and demonstrable plan to use the fee for the purpose for which it was imposed. In addition to the five-year nexus findings required by section 66001, section 66006 subdivision (b)(1)(F) requires that a local agency prepare an annual report that identifies the approximate date by which the construction of the public improvement will commence if the local agency determines that sufficient funds have been collected to complete financing and the public improvement remains incomplete. Section 66001, subdivision (e) provides, in part: "[W]hen sufficient funds have been collected, as determined pursuant to subparagraph (F) of paragraph (1) of subdivision (b) of Section 66006, to complete financing on incomplete public improvements identified in paragraph (2) of subdivision (a), and the public improvements remain incomplete, the local agency shall identify, within 180 days of the determination that sufficient funds have been collected, an approximate date by which the construction of the public improvement will be commenced, or shall refund to the then current record owners…the unexpended portion of the fee." If the local government agency fails to comply with both the five-year nexus and the annual report finding, it has a self-executing duty to refund the balance of mitigation fees remaining in the mitigation fee account in accordance with the Mitigation Fee Act.

Court Enters $12.6 Million Judgment Against The City Of Palo Alto For Overcharging Gas Utility Ratepayers Without Voter Approval In Violation Of Propositions 218 and 26

2023-09-25T08:54:51Z

In a taxpayer action, a judge of the Santa Clara County Superior Court ruled that the City of Palo Alto violated California Constitution article XIII C (“Propositions 26/218”) by imposing, without voter approval, rates, fees, and charges for gas utility service that are more than the reasonable cost of providing the service. In particular, the Court found that the City of Palo Alto designed its gas rates to finance transfers of money from its gas utility to its general fund for general government services unrelated to the provision of gas service, and that this practice violates Propositions 26/218, an initiative amendment to the California Constitution, in the absence of voter approval. The Court has found that the City of Palo Alto owes refunds to all ratepayers for the amounts it collected which exceed the City’s reasonable cost of providing gas service. On June 25, 2021, the Court entered judgment against the City of Palo Alto. The City of Palo Alto is expected to seek a new trial and/or appeal the Court’s judgment. Stay tuned.

Cities Creatively Include “Rents” And “Right Of Way Fees” As “Costs of Service” To Evade Liability Under Propositions 218 And 26

2023-09-25T08:55:46Z

Under California Constitution, article XIII D, local governments are prohibited from imposing fees and charges that exceed the cost of service. Under article XIII C, a fee or charge for a service is a potential tax, unless the local government can show that the fee does not exceed its cost of service. So the game many local governments play is to deceptively increase their costs by charging their own utilities for “rents,” or “franchise fees” or “right of way fees,” without tying such fees to any actual cost incurred by the local government to provide the service. It allows local governments to generate substantial profits from excessive rates funded by local ratepayers. Such charges for “rent” or “rights of way” often can amount to millions of dollars in profits for the local government. They are often just mechanisms to conceal the fact that the local government is taxing its ratepayers through excessive municipal utility rates. Local Governments typically argue that rents, franchise fees and similar “costs” are typical expenses incurred to operate a utility that are properly included in their cost of service or revenue requirement calculation. The key is to overcoming such arguments is to show that such “rents” or “rights of way fees” do not actually reflect a cost paid by the local government, despite their labels. If they are not tied to actual costs, they must be excluded from the local government’s costs of service determination. If excluding such “charges” causes the local government’s property-related fees to exceed costs, the local government is likely violating article XIII D, section 6. If the utility rates are taxes as defined by Proposition 26, the taxes likely must be approved by voters.

Cities Are Deceptively Using Reserves To Evade Proposition 26

2023-09-25T08:56:04Z

In 1996, the People of the State of California approved Proposition 218, “The Right to Vote on Taxes Act” which amended the State Constitution by adding articles XIIII C and XIII D. Article XIII C prohibits local governments from imposing, extending or increasing special or general taxes without the consent of voters. At the time it was passed, municipal owned electric utility rates were not considered taxes, even if they included substantial profits flowing to a local government’s general fund. In fact, local governments found loopholes in Propositions 13 and 218 allowing them to disguise revenue generating taxes as fees and charges for government services and regulations. They got away with it for many years. In 2010, the People of the State of California approved Proposition 26 to close those loopholes, by adding an expansive definition of the term “tax” to article XIII C. It defined tax as virtually any levy or charge imposed by a local government, with seven enumerated exceptions. Among the exceptions is for service fees that do not exceed the cost to the local government to provide the service. One would have thought that would be the end of loopholes. Think again. Local Governments have devised numerous ways to work around Proposition 26 and avoid having to obtain voter approval of their excessive fees and charges. For instance, local governments have been using reserves to avoid liability for their excessive utility fees. The following hypothetical is helpful to understand the issue: It is the year 2011 and your city is proposing new electric rates. To meet its obligations under Proposition 26, in particular, its burden to establish that its rates do not exceed its cost of providing electric service, the city prepares a so-called revenue requirement calculation. The process typically involves the city preparing a 5-year budget forecast of electric service costs (including operations and maintenance costs or O&M, fuel costs, energy costs, capital costs, and, of course, reserves to fund capital expenditures or to help stabilize rates over the years as fuel costs fluctuate). In 2011, the city claims the reserves are needed given the high cost of capital improvements or due to the difficulty in predicting future power needs and to ensure that service is reliable. To pass reserves off as a “cost of providing electric service,” the city assures ratepayers that the reserve funds will be tucked safely into so-called “reserve funds” and only taken out for their assigned purpose, i.e. electric utility capital improvements. Fast forward to 2021. The City is planning to raise rates to generate millions of dollars in excess revenues or profits to fill budget shortfalls in its general fund. But if its passes the rates, it would likely face a Propositions 218/26 lawsuit claiming its electric rates are illegal taxes that have never been approved by voters. It needs to find some other source of so-called non-rate revenue to include in its budget forecast to finance the transfer. The City sees millions of dollars in its reserve accounts “designated” for capital improvements or rates stabilization. It comes up with an idea to draw on those reserves to cover the transfer, even though, years earlier, it assured ratepayers that the reserves would only be spent on capital improvements and other expenses to operate the utility. Unfortunately, courts are allowing cities to get away with it. The way some courts have seen it, ratepayers did not challenge the reserves when they were collected in prior rates, set years ago. In other words, cities can lead you to believe the reserves are a valid cost to provide electric service in year one and then in year 3 use those reserves for general government services unrelated to the provision of electric service. By that time ratepayers are out of luck because the statute of limitations has run. There may be ways to fight this. Stay tuned.

Are Property Related Fees That Exceed Costs Taxes As Defined By Proposition 26?

2023-09-25T08:56:33Z

Articles XIII C and D of California’s constitution address taxes, assessments and fees. They were enacted together in 1996 when the People of this state approved Proposition 218 “The Right to Vote on Taxes Act.” Article XIII D places limitations on and imposes mandatory procedures on local government agencies seeking to impose special assessments on property and fees and charges for certain “property-related” services. Courts have held that services such as ongoing water, sewer, storm drainage and refuse (or trash) services are property related services as defined by article XIII D. Such fees are governed by article XIII C, section 6. Under Section 6(a) requires a local agency seeking to impose a property related fee to a) give notice to include the amount of the fee and how it was calculated, as well as the reason for the fee, and the date and time of a public hearing. It must allow those people who will pay the fee to “protest” or vote against the fee. If a majority protest the fee, it cannot be imposed. Under Section 6(b), a local agency may not impose a fee that exceeds the cost of service and revenues from such fees may not be used for purposes other than providing the service. In addition, the fee imposed must be proportionate to the costs attributable to each parcel. Finally, no fee or charge may be imposed for “general government services” 0 such as police or fire services. Historically, property related fees were not considered taxes subject to article XIII C. But in 2010, the People of this state approved Proposition 26, defining most fees and charges as taxes unless a local agency can prove that the fee meets and exception to the definition of tax. One exception is a “assessments and property-related fees imposed in accordance with the provisions of Article XIII D.” That begs the question: are property-related fees ever considered taxes under article XIII C? At least one appellate court seems to suggest they can be, and another suggested they could be. The answer comes down to the meaning of “in accordance with…” If it means it only excepts from the definition of “tax” property related fees that comply with all procedural and substantive requirements of article XIII D, section 6, then it could be that property related fees that are imposed in violation of Section 6 might to taxes. If it means that any property related fee that a local agency imposed in compliance with the procedures of Section 6 - then it could be that property related fees are not taxes, so long as the local agency obtained approval under section 6. It is a difficult question. It seems that the exception to the definition of tax for assessments and fees that comply with article XIII D would be meaningless if it only applied to such fees the fully comply with article XIII D, since fees that do not exceed costs are already excepted. The Supreme Court has yet to way in. We will have to wait and see how it plays out.

Riverside Judge Strikes Down City Of Canyon Lake’s “Voluntary” EMS Subscription Fees

2023-09-25T08:57:08Z

On June 8, 2021, County of Riverside Superior Court Judge Jackson Lucky ruled in favor of Benink & Slavens, LLP’s client in his challenge to the City of Canyon Lake’s EMS Subscription Fees. In 2020, Canyon Lake began placing an annual $192 charge on residential trash customers’ property tax bills unless customers notified it that they wished to opt-out. The charge is intended to fund EMS services provided by the city. Benink & Slavens, LLP argued that placing the charge on the property tax bills of trash customers violated Proposition 218 (article XIII D of the California Constitution). Specifically, Proposition 218 prohibits the imposition of property-related fees and charges on parcels or upon persons as an incident of property ownership unless certain conditions are met, which Canyon Lake conceded it could not meet. Judge Lucky rejected the city’s chief argument that because customers could opt-out – by sending written notice within a narrow window of time – the fee was not subject to Proposition 218. He ruled, “To the extent the ordinance automatically enrolls residents, the ordinance establishes a fee under article XIII D.” Canyon Lake collected approximately $792,576 from residential trash customers in Fiscal Year 2020-2021. The ruling requires the City to cease the automatic collection of the fee. Businesses – which are not automatically enrolled – may continue to subscribe to the program.

$36.5 Million Recovery Against City Of Oxnard

2023-09-25T08:56:55Z

On March 25, 2021, after three years of extensive litigation, Benink & Slavens LLP obtained a judgment for its client Aaron Starr against the City of Oxnard in Ventura County Superior Court. The lawsuit alleged that Oxnard embedded a surcharge called an Infrastructure Use Fee in its water, sewer, and trash rates that was unrelated to the cost of providing utility service in violation of Proposition 218. The surcharges were diverted to Oxnard’s general fund for general governmental services. The City claimed that the transferred funds were partly funded from non-rate revenue, but the Court agreed with Starr that City’s evidence lacked any legal basis. The Court ordered Oxnard to restore $36.5 million from its general fund to its utility funds – representing nearly seven years of illegal transfers – and to cease the imposition of the surcharge in the future. You can learn more about Proposition 218 here.