The cities of Signal Hill, Cerritos and Downey have been ordered by a California Appellate Court to pay more than $15 million in water bills they withheld from the Water Replenishment District of Southern California (WRD) while in ongoing litigation, but the cities hope to get the money back in a refund.
From April 2011 to October 2013, the cities stopped paying replenishment assessment (RA) payments to WRD, a regional water agency that charges water-rights holders or “pumpers” for replenishing groundwater used by residents and local businesses. The cities, which withheld RA payments in reserve accounts, won in trial court that WRD illegally raised rates without following procedural requirements of a state law known as Proposition 218. The law requires that property owners be notified of any rate changes and given a protest hearing.
A Los Angeles Superior Court judge ruled twice in favor of the cities that WRD didn’t follow the law, but a final judgment that would determine how much money the cities are entitled to in damages has yet to be heard.
In response to cities withholding payments, WRD sought a preliminary injunction to force them to pay, threatening to stop pumping water. In April 2012, however, a trial court denied WRD’s request.
Patty Quilizapa, an attorney representing the cities, said in an email that the California Supreme Court opined that “payment of an invalid tax by a public agency” amounts to a “gift of public funds,” a legal argument that she said is also supported by the California Constitution.
After WRD appealed, however, a California Appellate Court panel overturned the previous court decision, ruling on Oct. 30 that the cities would have to follow the “pay first, litigate later” doctrine, which requires that any party disputing charges imposed by a public taxing entity must first pay the bills and then seek a refund later so as to not interrupt operations.
“The money paid to WRD by the cities will make up for replenishment that could not be accomplished while the cities continued to pump groundwater without paying for it,” said WRD General Manager Robb Whitaker in an email.
Quilizapa said the cities won’t challenge the ruling in court since they will be adding the RA payments to their refund claim.
“Since the Court of Appeal ruled that the cities must pay and pursue a refund, that is what they will do,” she said in an email. “If the Court of Appeal had ruled that the cities must pay and never see their money again, it would have made more sense to attempt an appeal to the Supreme Court. The cities are attempting to pursue the most cost-efficient way to obtain the relief they are entitled to under the law.”
WRD tried to request that the cities pay interest as penalties on top of the withheld RA payments, but that request was denied by the court, Quilizapa said. “What this means is that the cities are ordered to pay what they would have been paying over the last few years– nothing more– and to pursue the refund,” she said.
Whitaker confirmed that WRD is owed a total of more than $19.1 million in withheld payments, not including interest at the time of the ruling. He said that, as of Monday, Dec. 23, WRD had received a total of $5,286,007. WRD has also spent roughly $2 million on litigation costs fighting the cities in court, Whitaker said.
Quilizapa said the total amount in withheld RA payments for Signal Hill, Cerritos and Downey is a little more than $15 million, which will now be added to the cities’ refund claim.
On Dec. 12, the Cerritos City Council unanimously approved paying WRD more than $5.6 million, which includes past-due RA payments of $4.9 million and associated penalties of $748,022. According to a staff report, the payments were not included in the Fiscal Year 2013-14 budget since costs were “unforeseen.” The City, however, plans to include the amount in its refund claim.
Signal Hill withheld $1,160,205.72, which was scheduled to be paid to WRD on Nov. 26, Quilizapa said. Signal Hill City Manager Ken Farfsing said the money was set aside in a reserve account and the City Council authorized the payment in an executive order in closed session. Farfsing added, “There’s no intent to appeal.”
The City of Downey, which owes about $9 million, has issued a check that is currently being processed, said John Oskoui, Downey’s assistant city manager and public works director. He said the City will not appeal and will seek a refund instead.
Whitaker said, however, that he disagrees with a statement issued in a press release by the cities that the recent court ruling “affirms” that WRD is required to return money it had “overcharged” the cities in past years.
“Despite the statements from the litigant cities to the contrary, the appellate court did not affirm that WRD owes the cities anything,” he said in an email. “The court opinion held that the cities must pay for their pumping while they continue to litigate… There was simply no statement by the court that WRD will owe the cities anything.”
Whitaker said WRD is holding steadfast to its claim that the cities aren’t entitled to a refund.
“I don’t see why the litigant cities should get a refund of the replenishment assessment for water they’ve pumped and served to their residents because of a technicality due to a change in the law,” he said. “And we are not even sure if that change in the law applies to us since we can’t appeal the lower court ruling until the cities’ damages case is heard.
On the other hand, Quilizapa said that every court, including the Court of Appeal, has confirmed that the cities have a right to a refund. The question, she said, is “how much?” For now, with the withheld RA payments added, the total refund amount (for 2006 through 2013) the cities will be requesting is more than $37 million, Quilizapa said.
“Proposition 218 requires a protest hearing of the pumpers and the Court has now twice ruled WRD completely ignored that and other requirements,” she said. “… Therefore, to the extent it did so in violation of Proposition 218 in any year, it had no authority to collect any part of the RA.”
Quilizapa said the cities also argue they are entitled to “the difference between what they paid and the amount they should have paid,” since studies have concluded the Central Basin pumpers are overcharged to subsidize West Coast Basin pumpers. This overcharge is approximately 40 percent, which would result in a nearly $14 million refund claim, she said.
WRD officials, however, deny the claim that rates are unproportional and don’t support a uniform RA-rate structure.
“WRD has always refused to charge an RA that is proportional to the replenishment costs of each basin,” Quilizapa said. “After the Court rulings, they undertook a 2013 Cost of Service Study that simply concluded a uniform RA in both basins is proportional.”
Quilizapa said the cities’ litigation is aimed at “ensuring accountability and transparency” at WRD. By requiring that the water agency follow Proposition 218, cities will be able to protest RAs that Quilizapa said “are not justified by the actual replenishment needs of the basin.” She said RA payments make up on average about 40 percent of the water bills that are paid by residents and businesses.
“The objective is to reduce our residents’ water costs through an open and transparent process,” she said. “Other water districts, such as Pajaro Valley Water Management Agency and Santa Clara Valley Water District, have complied with the law and adopted proportional pumping fees. It is time for WRD to do the same.”
RA payments owed to WRD
(now part of refund claim):
Signal Hill: $1,160,205.72