News and Analysis: Water Project Goes to Trial

It has been over nine months since voters in Davis approved Measure I, which authorized the city to move forward with the Woodland-Davis surface water project.  On Monday, Yolo County Judge Dan Maguire heard about an hour and a half of oral argument between the attorneys for the plaintiffs Jonathan Morse and Michael Harrington, and Davis City Attorney Harriet Steiner along with Kimberly Hood.

The trial was scheduled to begin on Monday morning, but ended up being pushed back to 3 pm because of a criminal trial that Judge Maguire had heard earlier in the day.  Judge Maguire took the matter under submission and will return in the next few weeks with a tentative ruling and ultimately a decision that will either allow the city to move forward with their water project or force them to go back to the drawing board.

There were several key arguments put forward during the oral arguments.  The plaintiffs’ argument here is that the Bartle Wells rates are fatally flawed because they charge different single family residence customers different fixed rates based on the size of the water meter, which they argue is a random assignment based on meter size and not based on usage.

As they argued in their brief, “It would appear that the size of the water meter installed on the single family residence properties was based on some random selection during initial water meter installation and not on a deliberate choice by the City or the rate payer based on the load intended to be placed on the system.”

Harriet Steiner countered with data showing that, in fact, people with smaller meter sizes use less water than people with larger meter sizes.

However, John Morse for the plaintiffs disagreed. He argued that this data was in fact difficult to determine because we could not separate out single family usage from other classes of rate users.

The plaintiffs would argue that the meter size, in effect, forces low end users, most of which they claim are seniors, to subsidize the costs for water use by larger users.    As Michael Harrington argued, “That’s just not fair, not proportional.”

But one of the key questions here is what exactly is the proportionality requirement under the law.  As Judge Maguire noted, there are three potential levels of generality in which we could (a) compare costs user by user, (b) compare costs parcel by parcel, or (c) compare costs class by class.

While the plaintiffs did not specify their level of comparison, it seems that they were comparing costs parcel by parcel.  They were not trying to make the Bob Dunning argument, that large families were hurt disproportionally by tiered rates, but instead arguing that, at the parcel level, the use of meters as fixed rate devices produces a disproportionate impact on the users, particularly at the low end of usage.

Mr. Morse argued that the effective per CCF rates for the low and high end users, which were at times double or triple those of high end users, took this out of the realm of reasonableness.

On the other hand, the city very clearly argued that, in their view, this was a class by class comparison.  Ms. Steiner argued that this is what the case law states.

Judge Maguire, however, noted that the case law actually seems at odds with the actual language of Prop 218, which defines proportionality: “The amount of a fee or charge imposed upon any parcel or person as an incident of property ownership shall not exceed the proportional cost of the service attributable to the parcel.”

Ms. Steiner argues that the system charges the same across user classes and noted that the city builds to capacity, to peak usage during the summer, so that when a customer turns on the water, they are guaranteed that water will flow.  The meter is therefore not based on the usage of CCF but rather on the ability to use the water.

The city argues in its response brief says, “The City is not, as Plaintiffs contend, required to, nor reasonably able to set, a rate for each individual customer based on the customer’s then current use pattern. Indeed, by setting water rates that account for peak demand and peak use, the City is harmonizing its dual constitutional obligations to promote water conservation (Article X, §2) while not charging users more than their proportional cost of service under Proposition 218.”

The city, both sides agreed, had the burden of proof under Prop 218 to show that their rates were justified.  The city argues that they have 11,000 pages of cost analysis and consumption data that support the new water rates and satisfy the city’s burden of proof.

The plaintiffs argue that, while the city provides the argument regarding 11,000 pages of cost analysis, it “cites no authority for the proposition that the quantity of the record can make up for the absence of substantive proof to justify its position.”

In effect, Mr. Morse argued that basically the city dumped a huge amount of documents on them, without specifying which documents constituted proof that the rates are justified.

The city in their briefs argue, “Bartle Wells performed this cost of service analysis for the City, analyzing revenue requirements and revising those revenue projections as the Project evolved during the year the WAC met between December 2011 and December 2012.”

Mr. Morse argued that he has not seen the evidence in the city’s arguments that supports the cost of service analysis, and believes that the city has put an undue burden on the plaintiffs to attempt to wade through that material.

Finally, the issue of the Palmdale decision came up.  Harriet Steiner argued that the problem in Palmdale is that the city failed to carry the burden of proving that their rates met the requirements under Prop 218.  She argued that it wasn’t an argument against the rates themselves, but rather the fact that they just couldn’t sustain those rates

“I think Palmdale is a failure of proof, and our record has that proof,” she told Judge Maguire.

However, Michael Harrington disagreed with that analysis.  He argued that Palmdale was not just a failure of proof.  Instead, Palmdale created one big class of water users, to irrigate for their grass and other uses, and they could not show that creating a third rate class was appropriate in this case.

ANALYSIS: Is the city’s surface water project in jeopardy?

Perhaps it was the time constraints, but neither side put forward their best arguments during the oral arguments of the trial.  However, given the volumes of arguments and documents submitted to the court, that likely will not be a tremendous problem.

Given the limited time in front of Judge Maguire, it is difficult to get a read on whether the judge is likely to strike down the rates.  The plaintiffs noted to me that there are many rate structures exactly the like the Bartle Wells system and they believe that these are all problematic.

That is a dangerous argument because it suggests that, if the rates go down in Davis, they may well go down across the state.  That may be as much a reason as any for the judge not to strike down the rates.

The gamesmanship here is interesting.  The plaintiffs are, at the very least, attempting to change the entire rate system.  They believe that if the plaintiffs prevail, the city will not risk appealing the decision as that could delay the implementation of the water project by a year.  Instead, they will rescind the rates and put forth a different rate structure.

On the other hand, if the city prevails, the plaintiffs appear set to appeal to the 3^rd District Court of Appeals and force the city to spend another year defending their rates, in so doing raising their bond costs and delaying the project.

At the same time, the plaintiffs are taking a calculated risk.  Their strongest move is to take on Bartle Wells and only Bartle Wells.

It is easy to show how disproportionate the Bartle Wells rates are within user classes.  The low end users end up taking on a huge percentage of their costs in fixed rates based on meter size and therefore end up paying far larger amounts per unit than high end users.  We have illustrated this point on a consistent basis.

CBFR fixes this problem by making the fixed rates cost based on past usage rather than just unit size.

This argument is made by the plaintiffs when they argue, “ALL five of the CC members, and the City’s water staff and consultants, knew about the Bartle Wells glaring lack of proportionality” but implemented a compromise, supporting “the first 2 years of the rate structure because they were afraid of the political backlash if they implemented the CBFR rate structure without a ‘warning’ period to the public.”

They argue that there is a “fundamental proportionality problem of the small or low water uses paying up to 60 TIMES more per ccf than the larger users.”

While this is true, they fail to push their cases against Bartle Wells to the next step by showing how CBFR actually fixes most of those problems.  The city council last December took a huge chance, trying to avoid columnist Bob Dunning’s attack on the project (which failed to work) by taking away the fairness argument of past usage for future costs, and also the concern by many that the public would not understand the principles behind CBFR.

In the end, it would seem that Bartle Wells could be in trouble on this basis, even as the city attempts to argue that the Prop 218 requirements are only proportionality class by class, rather than parcel by parcel.

It is hard to know where Judge Maguire will come down on this issue when he acknowledges, or seems to, that the case law is on the side of the city, but the plain language of the proposition contradicts the case law.

This probably explains why the plaintiffs expect a better result by going to the appellate court and not relying on the trial court’s ruling.

There are huge stakes in all of this.  While we do not expect this to threaten the surface water project in the long run, it could tie it up in court for several years as the rate issues are resolved.  That will ultimately fix whatever rate problems exist, but at the cost of much higher bond rates for the city and ultimately increased costs for the ratepayers.

—David M. Greenwald reporting

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