California Ag TODAY: DISPUTED WATER FEE INVALID

In a proposed decision, as reported by California Farm Bureau Federation (CDFA), Sacramento County Superior Court Judge Raymond Cadei says a disputed fee charged to California water rights holders is invalid because insufficient connection exists between the amount charged, the benefits received and the burdens imposed by those who pay the bill. Judge Cadei said the State Water Resources Control Board should not "apply or enforce" the fee, which it has imposed since the 2003-04 fiscal year.

The proposed decision will be the subject of an Oct. 30 hearing at which the judge could affirm or modify it.

CDFA challenged the fee as an unconstitutional tax because those who pay the fee bear a disproportionate burden of funding the water board's Division of Water Rights. Judge Cadei agreed, noting that "no fees are assessed against the holders of approximately 38 percent of all water rights in California," and that the fees pay more than a minimal amount "for activities that benefit the public in general."

As a result, the judge said, the fees "do not provide a fair, reasonable, and substantially proportionate assessment of all costs related to the regulation of the affected payors." Furthermore, Judge Cadei wrote, there is no evidence that the water board considered fairly apportioning the fees before they were imposed.

"The Board apparently simply determined that it would impose the entire cost of operating the Water Rights Division on permit and license holders, solely because the fee statutes only authorized fees to be charged to permit and license holders," the judge wrote.

"Farmers and ranchers are willing to pay their fair share to support programs that benefit them, but not to shoulder the full burden of programs just because that's a convenient way for a government agency to support itself," CFBF President Paul Wenger said. "We're encouraged by the judge's proposed decision and will continue to seek a refund of fees that have been improperly charged to farmers and ranchers."

When the fee was originally imposed, the water board charged the greater of $100 or 3 cents per acre-foot of water entitlement under a water right. In the most recent year, the fee had increased to $150 plus 5 cents for each acre-foot above 10 acre-feet. One person may hold several water rights, each covering only a few acre-feet of water, but must pay $150 for each one, according to CFBF Associate Counsel Carl Borden. A water district may face hundreds of thousands of dollars in fees each year.

In his proposed decision, the judge also said that the water board had erred by charging water contractors in the Central Valley Project for the full amount of the federal project's water permit, rather than the proportion of that water actually made available under CVP contracts, and that the board had charged "arbitrary" fees to other permit holders, such as the Imperial Irrigation District.

Since the water right fee was first imposed, Farm Bureau has urged holders of some 13,000 water rights to pay the bills under protest, by filing a protest form with the board when paying the fee to the Board of Equalization. CFBF also challenged the fee in court, pursuing the case all the way to the state Supreme Court, which in January 2011 directed the lower court to take more evidence and hear additional arguments.

"Farm Bureau has pursued this case for many years because we believe fees should be limited to the amount necessary to provide a service, not as a substitute for taxes," Borden said.

In his proposed decision, Judge Cadei indicated that at the hearing, he wants to hear arguments about whether it should award specific relief, such as for refunds of fees paid.

"While the court's proposed decision is subject to modification at the Oct. 30 hearing, we intend to do what we can to ensure the underlying decision remains as proposed," said Dan Kelly, an attorney with the Sacramento law firm Somach Simmons & Dunn, which represents the plaintiffs. "The court's proposed decision is consistent with the Court of Appeal's decision in this case in 2007, and is entirely consistent with the evidence presented at trial."

The case, California Farm Bureau Federation v. California State Water Resources Control Board, was consolidated with a similar challenge filed by the Northern California Water Association and other plaintiffs.