ITEM:		ADMINISTRATIVE COMMITTEE
8.	CONSIDER AUTHORIZING STAFF TO PROCEED WITH NOTIFICATION AND ORDINANCE TO RE-AUTHORIZE A WATER USER FEE TO FUND AQUIFER STORAGE AND RECOVERY PROJECT AND RELATED WATER SUPPLY PROJECTS
Meeting Date:			May 13, 2008	Budgeted:	No
From:			Darby Fuerst,	Program/	N/A
			General Manager	Line Item No.:
Prepared By:			Rick Dickhaut	Cost Estimate:	$14,000
General Counsel Approval: N/A
Committee Recommendation: The Administrative Committee considered this item on May 13, 2008 and recommended _____________.
CEQA Compliance: Notice of Exemption Proposed

SUMMARY: As discussed in the background section of this staff note, General Counsel David Laredo has recommended that the District consider re-authorization of the 1.2% User Fee adopted in 2005 to fund the completion of the Phase 1 Aquifer Storage and Recovery (ASR) Project. The process would consist of a majority protest proceeding at least forty-five days after mailing a Notice of Public Hearing to all California American Water (CAW) customers, informing them that the Board will consider an ordinance to re-authorize the Water User Fee adopted in 2005. The required notice may be given via an insert in CAW’s water bills or by a separate mailing to CAW’s customers. At least forty-five days after the mailing of the notice, the District could then proceed with the first and second readings of the ordinance to re-authorize the User Fee. The ordinance could be adopted at second reading unless a majority protest is received.

RECOMMENDATION: District staff recommends the Board initiate the process required for re-authorization of the 1.2% 2005 User Fee increase. The Administrative Committee considered this item on May 13, 2008 and voted _ to _ to recommend _________________________.

IMPACTS ON STAFF AND RESOURCES: No funding for this effort is included in the Fiscal Year 2007-08 budget. In addition to time spent by District staff and General Counsel, additional costs would be incurred to print and mail the Notice of Public Hearing. It is estimated that cost for printing would approximate $3,500 and the cost for a mailing house to distribute the Notice, including postage, would be about $10,500. District staff conferred with CAW staff regarding the possibility of distributing the notice via an insert with their billings, but has not yet received a definite response. Although this method of distribution would take longer because the Notice would need to be mailed with all of their different billing cycles over the period of a month, the mailing costs could be reduced or eliminated. The unbudgeted costs for this effort could be charged to the Contingency Account in the Fiscal Year 2007-08 budget.

BACKGROUND: The District has collected a User Fee since 1983. On June 20, 2005, the Board of Directors approved the District’s 2005-06 budget which included a 1.2% increase in the User Fee (to 8.325%) to fund completion of the Phase 1 ASR Project. At its July 18, 2005 meeting, the Board of Directors approved the first reading of Ordinance 123 and the Notice of Exemption to be filed after the second reading. Ordinance 123 was approved at second reading on August 15, 2005 and the Notice of Exemption was subsequently filed with the Monterey County Clerk. The User Fee increase went into effect on October 14, 2005. At the time Ordinance 123 was adopted, it was widely interpreted that Proposition 218, approved by the California electorate on November 5, 1996, did not apply to water related charges because they did not meet the definition of “property related fees”.

However, since enactment of Ordinance 123, the California Supreme Court in Bighorn-Desert View Water Agency v. Verjil, 39 Cal.4th 205, determined that Proposition 218 does apply to fees imposed upon consumption of utility services such as water related charges. Bighorn reversed a long-standing practice followed by water agencies. Previously the Supreme Court held such utility fees to not be “property related” and subject to Proposition 218 as they could be avoided by means such as not taking water. To comply with the requirements of Proposition 218, General Counsel David Laredo has recommended that the District consider re-authorization of the 2005 User Fee increase. This shall require notice and majority protest proceedings in accord with Article XIII D of the California Constitution. An election, however, is not required because a specific exemption applies to water services. As noted, though, revenues from the water user fee are also governed by the rules of § 6(b). These generally require that rates not exceed the cost of providing the service and that rate proceeds be used only to provide the service.

This matter is brought to you at this time as substantial questions posed by the Bighorn decision have now been answered by enactment of the Prop. 218 Omnibus Implementation Act (A.B. 1260 of 2007) which, effective in 2008, amended Government Code § 53750 to clarify the type and manner in which notice is to be given to water utility users.

The Proposition 218 process only applies to the portion of the User Fee adopted in 2005 to fund the completion of the Phase 1 Aquifer Storage and Recovery (ASR) Project; this amounts to a 1.2% charge on the CAW water bill. The remainder portion of the User Fee pre-dated enactment of Proposition 218 is not affected by the recommended process. The Board may choose either to direct staff to initiate the process required for re-authorization of the 1.2% 2005 User Fee increase, or in the alternative, the Board may direct staff to return with an ordinance to reduce the User Fee in like amount.

EXHIBITS: None

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