United States of America
A group of California water rights holders challenged the constitutionality of a statutory and regulatory scheme that authorized the State Water Resources Control Board to collect annual fees from water rights holders. Plaintiffs Northern California Water Association and Central Valley Water Project Association argued that Water Code 1525 imposes an unconstitutional “new ad valorem tax[ ] on real property” since Proposition 13 prohibits this particular category of new taxes, regardless of legislative approval. (Cal. Const., art. XIII A, § 3.). Under the amended Water Code, fees are to be paid by the permit and license holders regulated by the SWRCB. These permit and license holders represent those who acquired appropriative rights after 1913 to take water from watercourses that do not run adjacent to their properties. This group controls only about 40% of the water in California that is subject to water rights. Other water rights are held by groups whose water rights the SWRCB has no authority to regulate (those who acquired appropriative rights in 1913 or earlier, those who hold riparian/pueblo rights, and the federal government). For these reasons, water permit/license holders and federal contractors felt the fees were not sufficiently linked to the regulatory costs they themselves generated and thus constituted a tax. Several plaintiffs groups representing various water rights holders challenged the imposition of these fees as unconstitutional. They alleged that the statutory scheme adopted by the Legislature and the emergency regulations adopted to implement the scheme were unconstitutional both on their face and as applied. They sought declaratory and injunctive relief and a writ of mandate. In 2005, the trial court denied the plaintiffs' writ of mandate, ruling that the money collected constituted valid regulatory fees, rather than taxes. It also rejected plaintiffs other constitutional claims in their entirety. The 3rd District Court of Appeal reversed in part, holding that Water Code section 1525 was constitutional on its face, but unconstitutional as applied to the SWRCBs implementing regulations. The Court of Appeal found the regulations were not proportional to their benefits, and hence were taxes rather than fees. It thus invalidated the regulations that establish the amount of annual fees that water right permit and license holders pay each year, as well as the regulations that establish water rights fees for federal contractors, holding that that the SWRCB limited as to how much of the fees it could pass on to contractors. In addition, the Court of Appeal remanded the case to the trial court with instructions that it “(1) stay further proceedings before the SWRCB and/or BOE until the SWRCB adopts new fee schedule formulas and a procedure for calculating refunds if any; (2) order the SWRCB to adopt valid fee schedule formulas within 180 days of the finality of this opinion; (3) order the SWRCB to determine the amount of annual fees improperly assessed under regulations 1066 and 1073 for the 2003-2004 fiscal year and establish a procedure for calculating refunds, if any, due within 180 days of the finality of this opinion; and (4) order the Board of Equalization, through the SWRCB, to refund any annual fees unlawfully collected to fee payers who filed timely petitions for reconsideration with the SWRCB.