Filed 5/19/15 (unmodified opn. attached)

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

CAPISTRANO TAXPAYERS ASSOCIATION, INC., Plaintiff and Respondent,

v. CITY OF SAN JUAN CAPISTRANO, Defendant and Appellant. G048969
(Super. Ct . No. 30-2012-00594579)

ORDE R MODIFYING OPINION; NO CHANGE IN JUDGMENT

On May 6, 2015, the defe ndant in this case, City of San Juan Capistrano, called “City Water” in the pub lished opinion, filed a petition for rehearing of the court’s decision of April 20, 2015. On May 11, City Water formally requested withdrawal of the petition for rehearing. The request is now GRANTED. The opinion in this case filed Apr il 20, 2015, is hereby modified in the following particulars:2 1. On page 4, after the word “parce l” in the paragraph at the top, remove the period and add the following to complete th e sentence: “ – at least without a vote of
the electorate.” 2. On page 4, in the paragraph th at begins at the bottom, “In February 2011” should read “in February 2010.” 3. On page 10, in the last full para graph, delete “Water Code” and replace
with “Government Code.” 4. On page 10, beginn ing of footnote 13, delete “Water Code” and replace
with “Government Code.” 5. On page 26, delete the first two sentences in the first complete paragraph on the page (the one that begins with “City Water’s theory”) and substitute these two sentences in its stead: “City Water’s theory of penalty rates relies on article XIII C, section 1, subdivision (e)(5). This subdivisi on defines the word ‘tax’ to exclude fines ‘imposed by’ a local government ‘as a result of a violation of law.’” Footnote 22 and the balance of the paragraph remain the same. 6. On page 27, delete the first sentence of the firs t complete paragraph, and substitute this paragraph in its stead: “The way Proposition 218 opera tes, water rates that exceed the cost of service operate as a tax, similar to the way a ‘carbon tax’ might be imposed on use of energy. But, we should emphasize: Just because such above-cost
rates are a tax does not mean they cannot be imposed – they just have to be submitted to
the relevant electorate and a pproved by the people in a vo te. There is no reason, for example, why a water district or local gove rnment cannot, consistent with Proposition 218, seek the approval of the voters to im pose a tax on water over a given level of usage – as we indicated earlier, that might be a good idea. However, if a local government body chooses to impose tiered rates unilaterall y without a vote, those tiers must be based
on cost of service for the incremental level of usage, not pre-determined budgets. (For3 the moment, of course, we need not decide whether such a proposed tax wo uld constitute a general tax or special tax.)” 7. On page 27, at the sentence that begins “City Water’s Article X, section 2 position,” begin a new paragrap h, but delete the existing sentence (the one that begins “City Water’s Article X, section 2 position” and substitute this sentence (as the new beginning sentence): “Having chosen to bypa ss the electorate, City Water’s Article X, section 2 position kept it from explaining to us why it cannot anchor rates to cost of
service.” The balance of that paragraph remains unchanged.
These modifications do not a ffect the appellate judgment

BEDSWORTH, ACTING P. J.

WE CONCUR:

MOORE, J.

THOMPSON, J.Filed 4/20/15 (unmodified opn.)

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

CAPISTRANO TAXPAYERS ASSOCIATION, INC., Plaintiff and Respondent,

v. CITY OF SAN JUAN CAPISTRANO, Defendant and Appellant. G048969
(Super. Ct . No. 30-2012-00594579)

O P I N I O N

Appeal from a judgment of the Superi or Court of Orange County, Gregory Munoz , Judge. Affirmed in part; reversed in part and remanded. Colantuono & Levin, Colantuono, Highsmith & Whatley, Michael G. Colantuono, Tiana J. Murillo and Jon di Cris tina; Rutan & Tucker, Hans Van Ligten and Joel Kuperberg for Defendant and Appellant. Best, Best & Krieger and Kelly J. Salt for the Association of California Water Agencies, League of California Cities and California State Association of Counties
as Amicus Curiae on behalf of Defendant and Appellant.2 Mills Legal Clinic at Stanford Law School, Environmental Law Clinic and
Deborah A. Sivas for Natural Resources Defe nse Council and Planni ng and Conservation League as Amicus Curiae on beha lf of Defendant and Appellant. AlvaradoSmith, Benjamin T. Be numof and William M. Hensley for Plaintiff and Respondent. Howard Jarvis Taxpayers Foundation, Trevor A. Grimm, Jonathan M. Coupal, Timothy A. Bittle and Ryan Cogdill as Amicus Curiae on beha lf of Plaintiff and Respondent. Foley & Mansfield and Louis C. Klein for Mesa Water District as Amicus Curiae on behalf of Plaintiff and Respondent.
* * *

I. INTRODUCTION
Southern California is a “semi- desert with a desert heart.” 1 Visionary engineers and scientists have done a remarkab le job of making our home habitable, and too many of us south of the Tehachapis never give a thought to its remarkable
reclamation. In his brilliant – if opinionated – classic Cadillac Desert , the late Marc Reisner laments how little appreciation there is of “how difficult it will be just to hang on to the beachhead they have made.” 2 In this case we deal with parties who have an acute appreciation of how tenuous the beachhead is, and ho w desperately we all must fight to protect it. But they disagree about what steps are allowable – or required – to accomplish that task. We are called upon to determine not what is the right – or even the more reasonable – approach to the beachhead’s preservation, but what is the one chosen by the state’s voters. We hope there are future scientists , engineers, and legislators with the wisdom to envision and enact water plans to ke ep our beloved Cadillac Desert habitable.

1 Walter Prescott Webb, “The American West, Perpet ual Mirage,” Harper’s Magazine, May, 1957. 2 Reisner, Cadillac Desert, p. 6.3 But that is not the court’s mandate. Our job – and it is daunting enough – is solely to determine what water plans the voters and legisl ators of the past have put in place, and to
determine whether the trial court’s rulings complied with those plans.
We conclude the trial court erred in holding that Proposition 218 does not allow public water agencies to pass on to their customers the capital costs of improvements to provide additio nal increments of water – su ch as building a recycling plant. Its findings were that future wa ter provided by the improvement is not immediately available to customers. (See Cal. Const., art. XIII D, § 6, subd. (b)(4)) [no fees “may be imposed for a service unless that service is actually used by, or immediately available to, the owner of the property in ques tion”].) But, as app lied to water delivery, the phrase “a service” cannot be read to differentiate between recycled water and traditional, potable water. Water service is already “immediate ly available” to all customers, and continued water service is assured by such capital improvements as water recycling plants. That satisfies the constitutional and stat utory requirements. However, the trial court did not err in ruling that Proposition 218 requires public water agencies to calculate the actual co sts of providing water at various levels of usage. Article XIII D, section 6, subdivis ion (b)(3) of the California Constitution, as interpreted by our Supreme Court in Bighorn-Desert View Water Agency v. Verjil (2006) 39 Cal.4th 205, 226 ( Bighorn ) provides that water rates must reflect the “cost of service attributable” to a given parcel. 3 While tiered, or inclined rate s that go up progressively in relation to usage are perfectly consonant with article XIII D, section 6, subdivision (b)(3)
and Bighorn , the tiers must still corre spond to the actual cost of providing service at a given level of usage. The water agency here did not try to calculate the cost of actually

3 Until Bighorn , there was a question as to whether Proposition 218 applied at all to water rates. In 2000, the appellate court in Howard Jarvis Taxpayers Assn. v. City of Los Angeles (2000) 85 Cal.App.4th 79, 83 ( Jarvis v. Los Angeles ), held that a city’s water rates weren’t subj ect to Proposition 218, reasoning that water rates are mere commodity charges. Bighorn , however, formally disapproved Jarvis v. Los Angeles and held that water rates are subject to article XIII D of the California Constitution. ( Bighorn, supra , 39 Cal.4th at p. 217, fn. 5.)4 providing water at its various tier levels. It merely allocated all its costs among the price tier levels, based not on costs, but on pre-de termined usage budgets. Accordingly, the trial court correctly determin ed the agency had failed to carry the burden imposed on it by another part of Pr oposition 218 (art. XIII D, § 6, subd. (b)(5)) of showing it had complied with the requirement wa ter fees not exceed the cost of service attributable to a parcel. That part of the judgment must be affirmed.
II. FACTS
Sometimes cities are themselves cust omers of a water district, the best example in the case law bein g the City of Palmdale, which successfully invoked Proposition 218 to challenge the rates it was paying to a water district. 4 (See City of
Palmdale v. Palmdale Water Dist. (2011) 198 Cal.App.4th 926 ( Palmdale )). And sometimes cities are, as in the present ca se, their own water district. As Amicus Association of California Water Agencies (ACWA) points out, government water suppliers in California are a diverse lot that includes municipal water districts, irrigation districts, county water district s, and, in some cases, cities themselves. To focus on its specific role in this case as a municipal water supplier – as distinct from its role as the provider of municipal services which consume water such as parks, city landscaping or public golf courses – we will refer to appe llant City of San Juan Capistrano as “City
Water.” In February 2011, City Water ad opted a new water rate structure recommended by a consulting firm. The wa y City Water calculated the new rate structure is well described in City Water’s supplemental brief of November 25, 2014. 5

4 For reader convenience, we will occasionally refer in this opinion in shorthand to “subdivision (b)(1),” “subdivision (b)(3),” “subdivision (b)(4),” and “subdivision (b)(5),” and sometimes even just to “(b)(1)” “(b)(3),” “(b)(4)” or “(b)(5).” Each time those references refer to article XIII D, section 6, subdivision (b) of the California Constitution. Also, all references to an y “article” are to the California Constitution. 5 We requested supplemental briefing prior to oral argument to clarify the nature of the issues and precisely what was in, and not in, the administrative record. We are indebted to able counsel on all sides for giving us their best efforts to answer our questions.5 City Water followed a pattern generally reco mmended by a manual used by public water agencies throughout the wester n United States known as the “M-1” manual. It first ascertained its total costs, including things like debt service on previous infrastructural improvements. It then identifie d components of its costs, su ch as the cost of billing and
the cost of water treatment. Next it identifie d classes of customers, differentiating, for example, between “regular lot” residentia l customers and “large lot” residential customers, and between constr uction customers and agricultural customers. Then, in regard to each class, City Water calculated four possible budgets of water usage, based on historical data of usage patterns: low, reasonable, excessive and very excessive. The four budgets were then used as the basis for four distinct “tiers” of pricing. 6 For residential customers, tier 1, the low budget, was assumed to be exclusively indoor usage, based on Worl d Health Organization (WHO) guidelines concerning the “minimum quantity of water required for survival,” w ith adjustments for things like “low-flush toilets and other high- efficiency appliances.” Ti er 2, the reasonable budget,
included an outdoor allocation based on “typical landscapes,” and assumed “use of native plants and drought-tolerant plants.” The fi nal two tiers were based on budgets of what City Water considers excessive usages of wa ter or overuse volumes. Using these four budgets of consumption levels, City Water allo cated its total costs in such a way that the anticipated revenues from all four tiers would equal its total costs, and thus the four-tier system would be, taken as a whole, revenue neutral, and City Water would not make a profit on its pricing structure. City Water di d not try to calculate the incremental cost of providing water at the level of use represented by each tier, a nd in fact, at oral argument

6 Such rate structures are sometimes called “i nclining” as in the pre-Proposition 218 case, Brydon v. East Bay Mun. Utility Dist. (1994) 24 Cal.App.4th 178, 184 ( Brydon ). Amicus ACWA estimates that over half its members now have some sort of tiered water rate system. As we will say numerous times in this opinion, tiered water rate structures and Proposition 218 are thoroughly comp atible “so long as” – and th at phrase is drawn directly from Palmdale – those rates reasonably reflect the cost of service attributable to each parcel. ( Palmdale, supra , 198 Cal.App.4th at p. 936.)6 in this court, admitted it effe ctively used revenues from the top tiers to subsidize belowcost rates for the bottom tier. Here is the rate structure adopted, as applied to residential customers:

Tier Usage Price 1 Up to 6 ccf 7 $2.47 per ccf
2 7 to 17 ccf 8 $3.29 per ccf
3 18 to 34 ccf 9 $4.94 per ccf
4 Over 34 ccf 10 $9.05 per ccf

City Water obtains water from five separate sources: a municipal groundwater recovery plant, the Metropo litan Water District, five local groundwater wells, recycled water wells, and the nearby Moulton Niguel Water District. With the exception of water obtained from the Metropolita n Water District, City Water admits in its briefing that the record does not contain an y breakdown as to the relative cost of each source of supply.
The breakdown of cost from each of its various sources of water is, in percentage terms:

Source Percent of S upply Cost to Supply Groundwater Recovery Plan t 51.95% Not ascertained

7 Ccf stands for one hundred cubic feet, which translates to 748 gallons. (See Brydon, supra , 24 Cal.App.4th at p. 184.) 8 A precise figure for the usage is complicated by an attempt in the rate structure to distinguish indoor and outdoor use. Technically, tier 2 is tier 1 + 3 extra ccfs, plus an outdoor allocation that is supposed to average out to a total of 17 ccfs, i.e., 8 ccfs are allocated (on average) for outdoor use. 9 Technically, tier 3 is defined as up to 200 percent of tiers 1 and 2, which, given City Water’s projected 17 ccf average, wo rks out to be 34 ccf. 10 While the consultants distinguished between regular and large lot residential customers, the final structure made no distinction between the two.7 Metropolitan Water District 28.54% $1,007 per acre
foot 11
Local Wells 7.79% Not ascertained Recycled Wells 6.11% Not ascertained Moulton Niguel Water District 5.61% Not ascertained

Various percentages of City Water’s ove rhead – or fixed costs in the record – were allocated in percentages to some of the sources of water, so the price per tier reflected a percentage of fixed cost s and costs of some sources.
This chart reflects those allocations:

Tier Price Percentage Allocation 1 $2.47 $1.78 to fixed costs, .62 to wells 2 $3.29 $1.78 to fixed, 1.46 to wells 3 $4.94 $1.53 to fixed, .69 to wells, .17 to the Metropolitan Water District, and 2.50 to the groundwater recovery plant 4 $9.05 0 to fixed, 0 to wells, .53 to groundwater recovery plant, 2.53 to recycled, 3.32 to the Metropolitan Water District, and 2.64 to Penalty Set Aside
There is no issue in this case as to the process of the adoption of the new rates, such as whether they should have be en voted on first under the article XIII C part

11 In 2010, City Water was paying $719 per acre fo ot for water from the Metropolitan Water District, and that cost was projected to increas e incrementally each year until it reached $1,007 per acre foot by 2014. One acre foot equals 435.6 ccf.8 of Proposition 218. For purposes of this a ppeal it is enough to say City Water adopted
them. 12 In August 2012, the Capistrano Taxpa yers Association (CTA) filed this action, challenging City Water’s new rates as violative of Propos ition 218, specifically article XIII D, section 6, subdivision (b)(3 )’s limit on fees to the “cost of service attributable to the parcel.” After a review of the administrative record and hearing, the trial court found the rates weren’t compliant with article XIII D, noting it “could not find any specific financial cost data in the A/R to support the substantial rate increases” in the progressively more expensive tiers. In partic ular the trial judge found a lack of support for the inequality be tween the tiers.
The statement of decision also conclu ded that the imposition of charges for recycling within the rate structure violated the “immediately available” provision in article XIII D, section 6, subdivision (b)(4), because recycled water is not used by residential parcels. (City Water concedes th at when the recycling plant comes on line, it will supply water to some, but not all, of its customers. Residences , for example, are not typically plumbed to receive non-potable recycled water.) City Water has timely appealed from the declaratory judgme nt, challenging both determinations.
III. DISCUSSION
A. Capital Costs and Proposition 218 We first review the constitutional text. Article XIII D, section 6, subdivision (b)(4) provides: “N o fee or charge may be imposed for a service unless that service is actually used by, or immediately available to, the owner of the property in question. Fees or charges based on potential or future use of a service are not permitted.

12 With a minor qualification that, given our disposition, it need not be addressed in too much detail. A minor issue in the briefing is whether City Water should ha ve made its consultants’ report available for taxpayer scrutiny prior to the public hearing contemplated in article XIII D, section 6, subdivision (c). Since City Water is not able to show its price structure correlates with the actual cost of providing servi ce at the various incremental levels even with the consultants’ report, we need not get bogged down in this issue.9 Standby charges, whether characterized as char ges or assessments, shall be classified as assessments and shall not be imposed without compliance with Section 4.” The trial court ruled City Water had violated this provision by “charging certain ratepayers for recycled water that they do not actually use and that is not immediately available to them.” The trial j udge specifically found, in his statement of decision, that “City [Water] imposed a fee on all ratepayers for recycled water services and delivery of recycled water services, desp ite the fact that not all ratepayers used recycled water or have it immediately available to them or would ever be able to use it.” But the trial court assumed that providing recycled water is a fundamentally different kind of service from providing trad itional potable water. We think not. When each kind of water is provided by a single local agency that provides water to different kinds of users, some of whom can make us e of recycled water (for example, cities irrigating park land) while others, such as private residences, can only make use of traditional potable water, providing eac h kind of water is providing the same service. Both are getting water that meets their need s. Non-potable water for some customers frees up potable water for ot hers. And since water serv ice is already immediately available to all customers of City Water, ther e is no contravention of subdivision (b)(4) in including charges to construct and provide recycled water to so me customers. On this point, Griffith v. Pajaro Valley Water Management Agency (2013) 220 Cal.App.4th 586 ( Griffith ) is instructive. Griffith involved an augmentation fee on parcels that had their own wells. An obj ection to the augmentation fee by the well owners was that the fee included a charge fo r delivered water, even though some of the properties were outside the area and not ac tually receiving delivered water. The Griffith court said that even if some parcel owners weren’t receiving delivered water, revenues from the augmentation fee still benefited thos e parcels, since they funded “activities required to prepare or implement the gro undwater management program for the common benefit of all water users.” ( Id . at p. 602.) In Griffith the augmentation fee was thus10 intended to fund aggressive capital investme nts to increase the general supply of water, including some customers receiving delivered wa ter when other customers didn’t. It was undeniable that by funding delivered water to some customers water was freed up for all customers. (See Griffith, supra , 220 Cal.App.4th at p. 602; accord, Paland v. Brooktrails Township Community Services Dist. Bd. of Directors (2009) 179 Cal.App.4th 1358 [customer in rural area who periodically went inactive still had water immediately available to him].) In the present case, there is a Gove rnment Code defin ition of water which shows water to be part of a holistic distribu tion system that does not distinguish between potable and non-potable water: “‘Water’ means any system of public improvements intended to provide for the production, storage, supply, treatment, or distribution of water from any source.” (Gov. Code, § 53750, subd. (m).) A recycling plant, like other capital im provements to increase water supply, obviously entails a longer time frame than a residential customer’s normal one-month billing cycle. As shown in Morgan v. Imperial Irrigation District (2014) 223 Cal.App.4th 892, the time frame fo r the calculation of the true cost of water can be, given capital improvements, quite long. (See id . p. 900 [costs amortized over a six-year period].) And, as pointed out by amici Ho ward Jarvis Taxpayers Association, Water Code section 53756 contemplates time frames for water rates th at can be as much as five
years. 13 There is no need, then, to conclude that rates to pay for a recycling plant have to be figured on a month-to-month basis. The upshot is that with in a five-year period, a water agency might develop a capital-intensive means of prod uction of what is effectively new water, such as

13 Water Code section 53756 provides in relevant part: “An agency providing water, wastewater, sewer, or refuse collection serv ice may adopt a schedule of fees or charges authorizing automatic adjustments that pass through increases in wh olesale charges for water, sewage treatment, or wastewater treatme nt or adjustments for inflation, if it complies with all of the following: “(a) It adopts the schedule of fees or ch arges for a property-related service for a period not to exceed five years pursuant to Section 53755.” (Italics added.)11 recycling or desalinization, and pass on the co sts of developing that new water to those customers whose marginal or incremental ex tra usage requires such new water to be produced. As amicus Mesa Water District po ints out, Water Code section 31020 gives local water agencies power to do acts to “furnish suffici ent water for any present or future beneficial use.” (Wat. Code, § 31020, italic s added.) The trial court thus erred in concluding the inclusion of charges to fu nd a recycling operation was, by itself, a violation of subdivision (b)(4). However, the record is insufficient to allow us to determine at this level whether residential ratepayers who only use 6 ccf or less – what City Water considers the super-conservers – are being required to pa y for recycling facilitie s that would not be necessary but for above-average consump tion. Proposition 2 18 protects lower-thanaverage users from having to pay rates that are above the cost of service for them because those rates include capital investments thei r levels of consumption do not make necessary. We note, in this regard, that in Palmdale, supra, one of the reasons the court there found the tiered pricing structure to violate subdivision (b)(3) was the perverse effect of affirmatively penalizing c onservation by some users. (See Palmdale, supra , 198 Cal.App.4th at pp. 9 37-938; see accord, Brydon, supra, 24 Cal.App.4th at p. 202 [“To the
extent that certain customers over-utilize the resource, they co ntribute disproportionately to the necessity for conservation, and the requirement that the District acquire new sources for the supply of domestic water.”].) There is a case with an analogous lacuna, the Supreme Court case of California Farm Bureau Federation v. State Water Resources Control Bd. (2011) 51 Cal.4th 421 ( Farm Bureau ). In Farm Bureau , the record was also un clear as to the issue of apportionment between a regulator y activity’s fees and its costs. ( Id . at p. 428.) Accordingly, the high court dir ected the matter to be remande d to the trial court for such necessary findings.12 That seems to us the appropriate way to complete the reco rd in our case. Following the example of Farm Bureau , we remand the matter for further findings on whether charges to develop City Water’s nascent recycling operation have been improperly allocated to users whose levels of consumption are so low that they cannot be said to be responsible for th e need for that recycling.
B. Tiered Pricing and Cost of Service
1. Basic Analysis We begin, as we did with the capita l cost issue, with the text of the Constitution. In addition to subdivision (b)(3), the main provision at issue in this case, we also quote subdivision (b)(1), because it throws light on s ubdivision (b)(3). Subdivision (b) describes “Requirements fo r Existing, New or Increased Fees and Charges,” and provides that, “A fee or charge shall not be extended, imposed, or increased by any agency unle ss it meets all of the followi ng requirements: [¶] (1) Revenues derived from the fee or charge shall not exceed the funds required to provide the property related service . [¶] . . . [¶] (3) The amount of a fee or charge imposed upon any parcel or person as an in cident of property ownership shall not exceed the proportional cost of the servic e attributable to the parcel .” (Italics added.)
In addition to these two substantive limits on fees, article XIII D, section 6, subdivision (b)(5) puts an impor tant procedural limit on a court’s analysis in regard to the burden of proof: “In any lega l action contesting the validity of a fee or charge, the burden shall be on the agency to demonstrate compliance with this article.” The trial court found City Water had failed to carry its burden of proof under subdivision (b)(5) of showing its 2010 tiered water fees were proporti onal to the cost of se rvice attributable to each customer’s parcel as re quired by subdivision (b)(3). As respondent CTA quickly ascertain ed, the difference between Tier 1 and Tier 2 is a tidy 1/3 extra, the difference be tween Tier 2 and 3 is a similarly exact 1/2 extra, and the difference between Tier 3 and Tier 4 is precisely 5/6ths extra. This13 fractional precision suggested to us that City Water did not attempt to correlate its rates
with cost of service. Such mathematic al tidiness is rare in multi-decimal point
calculations. This conclusion was confirmed at oral argument in this court, when City Water acknowledged it had not tried to correlate the incremental cost of providing service
at the various incremental tier levels to the prices of water at those levels. In voluminous briefing by City Water and its am ici allies, two somewhat overlapping core thoughts emerge: First, they contend that when it comes to water, local agencies do not have to – or should not have to – calculate the cost of water service at various incremental levels of usage because th e task is simply too complex and thus not required by our Constitution. The second core thought is th at even if agencies are required to calculate the actual costs of water service at various tiered levels of usage, such a calculation is necessarily , as City Water’s briefing cont ends, a legislative or quasilegislative, discretionary matter, largely insula ted from judicial review. We cannot agree
with either assertion. The appropriate way of examining the text of Proposition 218 has already been spelled out by the Supreme Court in Silicon Valley Taxpayers’ Assn., Inc. v. Santa Clara County Open Space Authority (2008) 44 Cal.4th 431, 448 ( Silicon Valley ): “We ‘“‘must enforce the provisions of our Constitution and “may not lightly disregard or blink at . . . a clear constitutional mandate.’”’” [C itation.] In so doing, we are obligated to
construe constitutional amendments in a mann er that effectuates the voters’ purpose in adopting the law

. [Citation.] [¶] Proposition 218 speci fically states that ‘[t]he provisions
of this act shall be liberally construed to effectuat e its purposes of limiting local government revenue and enha ncing taxpayer consent .’ (Ballot Pamp., supra , text of Prop. 218, § 5, p. 1 09; Historical Notes, supra, at p. 85.) Also, as discussed above, the ballot materials explained to the voters th at Proposition 218 was designed to “constrain local governments’ ability to impose assess ments; place extensive requirements on local governments charging assessments; shift th e burden of demonstr ating assessments’14 legality to local government; make it easier for taxpayers to win lawsuits; and limit the methods by which local governments exac t revenue from taxp ayers without their

consent .” ( Silicon Valley, supra , 44 Cal.4th at p. 448, italics added.) If the phrase “proportional cost of service attributable to the parcel” (italics added) is to mean anything, it has to be that article XIII D, section 6, subdivision (b)(3) assumes that there really is an ascertainable cost of servi ce that can be attributed to a specific – hence that little word “the” – parcel. Otherwise, the cost of service language would be meaningless. Why use the phrase “cost of service to the parcel” if a local agency doesn’t actually have to ascertain a co st of service to that particular parcel? The presence of subdivision (b)(1) of section 6, article XIII D, just a few lines above subdivision (b)(3), confirms our conclusion. Constitutional provisions, particularly when enacted in the same measur e, should be construed together and read as a whole. ( Bighorn, supra, 39 Cal.4th at p. 228.) The “proportional cost of service” language from subdivision (b)(3) is part of a general subdivision (b), and there is an
additional reference to costs in subdivision (b)(1). Subdivi sion (b)(1) provides that the
total revenue from fees “shall not exc eed the funds requ ired to provide the property related service.” (Italics added.)
It seems to us that to comply with the Constitution, City Water had to do more than merely balance its to tal costs of service with its total revenues – that’s already
covered in subdivision (b)(1). To comply with subdivision (b)(3), C ity Water also had to correlate its tiered prices with the actual cost of providing water at those tiered levels. Since City Water didn’t try to calculate the actual costs of service for the various tiers, the trial court’s ruling on tiere d pricing must be upheld simply on the basis of the
constitutional text. We find precedent for our conclusion in the Palmdale case. There, a water
district obtained its water from two basic s ources: 60 percent from a reservoir and the state water project, and the 40 percent balanc e from the district’s own area groundwater15 wells. Most (about 72 percent) of the water went to single family residences, with irrigation users accounting for 5 pe rcent of the distribution. ( Palmdale, supra , 198 Cal.App.4th at p. 928.) For the previous five years, the district had spent considerable money to upgrade its water treatment plan t ($56 million) but revenues suffered from a “decline in water sales,” so its reserves were depleted. The di strict wanted to issue more debt for “future capital projects.” ( Id . at pp. 928-929.) Relying on consultants, the water district adopted a new, five-tiered rate struct ure, which progressively increased rates (for the top four tiers) for three ba sic categories of customers: residences, businesses, and irrigation projects. The tiered budgets for i rrigation users were more stringent than for residential and commercial customers. ( Id . at p. 930.) The way the tiers operated, all three classes of customers got a tier 1 budget , but irrigation customers had less leeway to increase usage without progressing to another tie r. Thus, for example, the tier 2 rates for
residential customers did not ki ck in until 125 percent of th e budget, but tier 2 rates for irrigation customers kicked in at 110 percent of the budget. The tiered rate structure was itself based on a monthly allocated water budget. ( Ibid .) Two irrigation users – the city itself and its redevelopment agency – sought
to invalidate the new rates. The trial c ourt had the advantage of the newly-decided Supreme Court opinion in Silicon Valley , which had clarified the standard of review for Proposition 218 cases. There, the high co urt made it clear that in Proposition 218 challenges to agency action, th e agency had to bear the burd en of proof of demonstrating compliance with Proposition 218, and both tria l and reviewing courts are to apply an independent review standard, not th e traditional, deferential standards usually applicable in challenges to governmental action. ( Silicon Valley, supra , 44 Cal.4th at p. 448.) More directly, said Silicon Valley , it is not enough that the agency have su bstantial evidence to support its action. That substantial evidence must itself be able to withstand independent review. (See id . at pp. 441, 448-449 [explaining why su bstantial evidence to support the16 agency action standard was too deferentia l in light of Pro position 218’s liberal construction in favor of taxpayer feature].) With this in mind, the Palmdale court held the district had failed to carry its burden of showing compliance with Proposition 218. ( Palmdale, supra , 198 Cal.App.4th at pp. 937-938.) The core of the Palmdale court’s reasoning was twofold. First, there was discrimination against irriga tion-only customers, giving an unfair price advantage to those customers in other classes who were inclined to inefficiently use – or, for that matter, waste – outdoor water. (The opinion noted the perfect exemplar of water waste: hosing off a parking lot.) Thus an i rrigation user, such as a city providing playing fields, playgrounds and parks, was dispropor tionately impacted by the inequality in classes of users. ( Palmdale, supra , 198 Cal.App.4th at p. 937.) Second, the discrimination was gratuitous. The district’s own consulta nts had proposed a “cost of service” option that they considered Propos ition 218 compliant, but the district did not choose it because it preferred a “fixed” option providing better “‘rate stability.’” In fact the choice had the perverse effect of entailing a “‘ weaker signal for water conservation’”
for “‘small customers who conserve water.’” ( Palmdale, supra , 198 Cal.App.4th at pp. 937-939, italics added.) 14 We recognize that Palmdale was primarily focused on inequality between classes of users, as distinct from classes of water rate tiers. But, just as in Palmdale
where the district never atte mpted to justify the inequality “in the cost of providing
water” to its various classes of customers at each tiered level ( Palmdale, supra , 198 Cal.App.4th at p. 937), so City Water has ne ver attempted to justify its price points as
based on costs of service for those tiers . Rather, City Water mere ly used what it thought was its legislative, discretiona ry power to attribute percen tages of total costs to the various tiers. While an interesting convers ation might be had about whether this was

14 As described by the court, the fixed cost option was really a “fixed variable” option, with fixed charges being 60 percent of total costs, the balance being variable. ( Palmdale, supra , 198 Cal.App.4th at p. 929.)17 reasonable or wise, we can find no room for arguing its constitutionality. It does not comply with the mandat e of the voters as we understand it.
2. City Water’s Arguments

a. Article X, section 2 In supplemental briefing prior to oral argument, this court pitched a batting practice fastball question to City Water, intende d to give the agency its best chance of showing that the prices for its various usage tiers, particularly the higher tiers (e.g., $4.94 for all usage over 17 ccf to 34 ccf, and $9.04 for usage over 34 ccf) corresponded with its actual costs of delivering water in those incr ements. We were hoping that, maybe, we had missed something in the record that woul d demonstrate the actual cost of delivering water for usage over 34 ccf per month really is $9.04 per ccf, and City Water would hit our question into the upper deck. What we got back was a rejection of the very idea behind the question. As would later be confirmed at oral argument, City Water’s answer wa s that there does not
have to be a correlation between tiered water prices and the cost of service. Its position is that the “cost-of-service principle of Propositi on 218” must be “balance[d]” against “the conservation mandate of article X, section 2.” In short, City Water justifies the lack of a correlation between the marginal amounts of wa ter usage represented by its various tiers and the actual cost of supplying that water by saying the lack of correlation is excused by the subsidy for low usage represented by tier 1, on the theory that subsidized tier 1 rates
are somehow required by Article X, section 2. While we agree that low-cost water rates do not, in and of themselves , offend subdivision (b)(3) (see Morgan, supra , 223 Cal.App.4th at p. 899), we ca nnot adopt City Water’s constitu tional extrapolation of that point.18 We quote the complete text of ar ticle X, section 2 in the margin. 15 Article X, section 2 was enacted in 1928 in reacti on to a specific Supreme Court case decided two years earlier, Herminghaus v. South. California Edison Co. (1926) 200 Cal. 81 ( Herminghaus ). The Herminghaus decision, as Justice Shenk wrote in his dissent there, allowed downstream riparian land owners – basically farmers owning land adjacent to a river – to claim 99 percent of the flow of th e San Joaquin River even though they were actually using less than 1 percent of that flow. 16 To compound th at anomaly, the downstream riparian land owners ’ claims came at the expense of the efforts of an electric utility company to genera te electricity for general, benefi cial use by building reservoirs at various points upstream on the river. (See id . at p. 109.) In the process of upholding the downstream landowners’ “riparian rights” over the rights of the electric company to use the water to make electricity, the Herminghaus majority invalidated legislation aimed at preserving water in the state for a reasonable beneficial use, thereby countenancing what Justice Shenk perceived to be a plain waste of good water. ( Herminghaus, supra , 200 Cal. at p. 123 (dis. opn. of Shenk, J .).) As our Supreme Court would describe Herminghaus about half a century late r: “we held not only th at riparian rights took priority over appropriations authorized by the Water Board, a point which had always

15 “It is hereby declared that because of the cond itions prevailing in this State the general welfare requires that the water resources of the State be put to bene ficial use to the fullest exte nt of which they are capable, and that the waste or unreasonable use or unreasonable method of use of water be prevented, and that the conservation of such waters is to be ex ercised with a view to the reasonable and beneficial use thereof in the interest of the people and for the public welfare. The right to wate r or to the use or flow of water in or from any natural stream or water course in this State is and shall be limited to such water as shall be reasonably required for the beneficial use to be served, and such right does not and shall not extend to the waste or unreasonable use or unreasonable method of use or unreasonable method of diversion of water. Riparian rights in a stream or water course attach to, but to no more than so much of the flow thereof as may be required or used consistently with this section, for the purposes for which such lands are, or ma y be made adaptable, in view of such reasonable and beneficial uses; provided, however, that nothing herein contained shall be construed as depriving any riparian owner of the reasonable use of water of the stream to which the owner’s land is riparian under reasonable methods of diversion and use, or as depriving any appropriator of wa ter to which the appropriator is lawfully entitled. This section shall be self-executing, and the Legislature may al so enact laws in the furtherance of the policy in this section contained.” 16 “In order to have the beneficial use of less than one per cent of the maximum flow of the San Joaquin River on their riparian lands the plaintiffs are contending for the right to use the balance in such a way that, so far as they are concerned, over ninety-nine per cent of that flow is wasted. This is a highly unreasonable use or method of the use of water.” ( Herminghaus, supra , 200 Cal. at p. 123 (dis. opn. of Shenk, J.).)19 been clear, but that as between the riparian and the appropriator, the former’s use of water was not limited by the doctrine of reasonable use.” ( National Audubon Society v. Superior Court (1983) 33 Cal.3d 419, 442 ( Audubon-Mono Lake ).)
The voters overturned Herminghaus in the 1928 election by adopting article X, section 2, then denoted ar ticle XIV, section 3. (See Gin S. Chow v. City of Santa
Barbara (1933) 217 Cal. 673, 699 ( Gin Chow ).) In the 1976 Constitutional revision, old article XIV, section 3, was recodified verbatim as article X, section 2. (See Gray, “In Search of Bigfoot”: The Comm on Law Origins of Article X, Section 2 of the California
Constitution (1989) 17 Hastings Const. L. Q. 225 (hereinafter “ Origins of Article X,
Section 2 ”). 17 The purpose of article X, section 2 was described in Gin Chow , the first case to reach the Supreme Court in the wake of the adoption of what is now article X, section 2, in 1928. Justice Shenk, having be en vindicated by the voters on the point of a perceived need to prevent the waste of wate r by letting it flow to the sea, summarized the new amendment in terms emphasizing beneficial use: “The purpose of the amendment was stated to be ‘to prevent the waste of waters of the state resulting from an interpretation of our law wh ich permits them to flow unused, unrestrained and undiminished to the sea’, and is an effort ‘on the part of the state, in the interest of the people of the state, to conserve our waters’ without interference with the beneficial uses to which such waters may be put by the ow ners of water rights, including riparian owners. That such purpose is reflected in the language of the amendment is beyond question. Its language is plain and unambiguou s. In the main it is an endeavor on the part of the people of the stat e, through its fundamental law, to conserve a great natural resource, and thereby render available for benefi cial use that portion of the waters of our rivers and streams which, under the old ripari an doctrine, was of no substantial benefit to

17 Professor Gray’s article is an ex ceptionally valuable source on the origins of article X, section 2.20 the riparian owner and the cons ervation of which will result in no material injury to his riparian right, and without wh ich conservation such waters would be wasted and forever lost.” ( Gin Chow, supra , 217 Cal. at p. 700.) The emphasis in the actual language of article X, section 2 is thus on a policy that favors the beneficial use of wa ter as against the waste of water for nonbeneficial uses. That is what one would expect, consistent with both Justice Shenk’s
dissent in Herminghaus and his majority opinion in Gin Chow . (See Gray, supra , Origins of Article X, Section 2 , 17 Hastings Const. L. Q. at p. 263 [noting emphasis in text on beneficial use].) The word “conservation” is used in the introductory sentence of the provision in the context of promoting be neficial uses: “the conservation of such
waters is to be exercised with a view to the reasonab le and beneficial use thereof in the interest of the people and for the public welfare.” (Gray, supra, Origins v. Article X,
Section 2, p. 225, italics added.) But nothing in article X, section 2, requires water rates to exceed the true cost of supplying that water, and in fact prici ng water at its true cost is compatible with
the article’s theme of conservation with a vi ew toward reasonable and beneficial use. (See Palmdale, supra , 198 Cal.App.4th at pp. 936-937 [reconciling article X, section 2 with Proposition 218]; accord, Brydon, supra, 24 Cal.App.4th at p. 197 [noting that
incremental rate structures create an incentiv e to reduce water use].) Thus it is hard for us to see how article X, section 2, can be read to trump subdivis ion (b)(3). We would note here that in times of drought – which l ooks increasingly like the foreseeable future – providing water can become very pricey indeed. 18 And, we emphasize, there is nothing at all in subdivision (b)(3) or elsewhere in Proposition 218 that pr events water agencies

18 It was recently noted that Santa Barbara is dus ting off a desalinization plant built in the 1990’s to provide additional water for the city in the current drought. (See Covarrubias, Santa Barbara Working to Reactive Mothballed Desalinization Plant(March 3, 2015, L.A. Times < http://www.latimes.com/local/california/la-mesanta-barbara-desal-20150303-sto ry.html> (as of March 30, 2015) [noting, among other things, that desalination can be expensive].)21 from passing on the incrementa lly higher costs of expens ive water to incrementally higher users. That would seem like a good idea. But subdivision (b)(3) does require they figure out the true cost of water, not simply draw lines based on wate r budgets. Thus in
Palmdale , the appellate court perceived no conf lict between Proposition 218 and article X, section 2, so long as article X, section 2 is not read to allow water rates that exceed the
cost of service. Said Palmdale : “California Constitution, artic le X, section 2 is not at
odds with Article XIII D so long as, for examp le, conservation is attained in a manner that ‘shall not exceed the propo rtional cost of the servic e attributable to the parcel .’ (Art. XIII D, § 6, subd. (b)(3).)” ( Palmdale, supra , 198 Cal.App.4th at pp. 936-937, italics added.) And as its history, and the demonstrated concern of the voters in 1928 demonstrates, article X, secti on 2 certainly does not require above-cost water rates. In fact, if push came to shove and ar ticle X, section 2, really were in irreconcilable conflict with article XIII D, sec tion 6, subdivision (b)(3), we might have to read article XIII D, section 6, subdivi sion (b)(3) to have carved out an exception to article X, section 2, since Proposition 218 is bot h more recent, and more specific. ( Greene v. Marin County Flood Control & Water Conservation Dist. (2010) 49 Cal.4th 277, 290 [“As a means of avoiding conflict, a recent, sp ecific provision is deemed to carve out an exception to and thereby limit an older, general provision.”]; Izazaga v. Superior Court (1991) 54 Cal.3d 356, 371 [same].) Fortunately, that problem has not arisen . We perceive article X, section 2 and article XIIID, section 6, subdivision (b)(3) to work together to promote increased supplies of water – after all, the main reason article X, section 2 was enacted in the first place was to ensure the capture and beneficial use , of water and prevent its wasteful draining into the ocean. As a pre-Proposition 218 case, Brydon, supra, 24 Cal.App.4th 178 observed, one of the benefits of tiered rates is that it is reasonable to assume people will not waste wate r as its price goes up. (See id . at p. 197 [noting that
incremental rate structures create an incent ive to reduce water use].) Our courts have22 made it clear they interpret the Constitution to allow tiered pricing; but the voters have made it clear they want it done in a particular way.
b. Brydon and Griffith We believe the precedent most on point is Palmdale , and we read Palmdale to support the trial court’s conclusion City Water did not comply with the subdivision (b)(3) requirement that rates be proportional to cost of servic e. The two cases City Water relies on primarily for its opposite conclusion, Brydon and Griffith , do not support a
different result. Brydon was a pre-Proposition 218 case upholding a tiered water rate structure as against challenges based on 197 8’s Proposition 13, rational basis, and equal protection challenges. Similar to the case at hand, the water district promulgated an “inclining block rate structure.” ( Brydon, supra , 24 Cal.App.4th at p. 182; see p. 184 [details of four-tier structure].) Propos ition 218 had not yet be en enacted, so the opponents of the block rate structure did not have the “proportional cost of the service attributable to the parcel” language in subdiv ision (b)(3) to use to challenge the rate structure. They relied, rathe r, on the theory that Proposition 13 made the rate structure a “special tax,” requiring a vote. As a back up they made traditional rational basis and equal protection arguments. They claimed the rate structure was “arbitrary, capricious and not rationally related to an y legitimate or administrative objective” and, further, that the structure unreasonably discriminated agai nst customers in the hotter areas of the district. ( Brydon, supra, at p. 182

. ) The Brydon court rejected both the Proposition 13 and rational basis/equal protection arguments.
But Brydon – though it might still be read as evidence that tiered pricing
not otherwise connected to cost of servi ce would survive a rational basis or equal protection challenge – simply has no applica tion to post-Proposition 218 cases. In fact,
the construction of Pr oposition 13 applied by Brydon was based on ca ses Proposition 21823 was designed to overturn. 19 The best example of such reliance was Brydon’s declination
to follow Beaumont Investors v. Beaumont-Cherry Valley Water Dist. (1985) 165 Cal.App.3d 227 ( Beaumont ) on the issue of th e burden of proof. Beaumont had held it was the agency that ha d the burden of proof to show compliance with Proposition 13. Brydon , however, said the burden was on the taxpaye rs to show lack of compliance. In coming to its conclusion, Brydon invoked Knox v. City of Orland (1992) 4 Cal.4th 132.
Knox , said Brydon , had “cast substantial doubt” on the “propriety of shifting the burden of proof to the agency.” ( Brydon, supra , 24 Cal.App.4th at p. 19 1.) But, more than a decade later, our Supreme Court in Silicon Valley recognized that Knox itself was one of the targets of Proposition 218. (See Silicon Valley, supra , 44 Cal.4th at p. 445. 20 ) In the
wake of Knox’s fate (see in particular subdivisi on (b)(5) [changing burden of proof]), it seems safe to say that Brydon itself was part of the general ca se law which the enactors of Proposition 218 wanted replaced w ith stricter controls on local government discretion.
As the Silicon Valley court observed, Proposition 218 effected a paradigm shift. Proposition 218 was passe d by the voters in order to curtail discretionary models of local agency fee determination. (See Silicon Valley, supra , 44 Cal.4th at p. 446 [“As further evidence that the voters sought to curt ail local agency discre tion in raising funds

19 Two examples of early, post-Proposition 13 cases that took a strict constructionist view of the provision are Los Angeles County Transportation Com. v. Richmond (1982) 31 Cal.3d 197 ( Los Angeles County v. Richmond ) [strictly construing Proposition 13’s voting requirements to avoid finding a transportation commission was a “special district”]; City and County of San Francisco v. Farrell (1982) 32 Cal.3d 47, 54 [strictly construing words “special tax” used in section 4 of Proposition 13 as ambiguous to avoi d finding municipal payroll and gross receipts tax was a “special tax”].) Brydon expressly relied on Los Angeles County v. Richmond . (See Brydon, supra , 24 Cal.App.4th at p. 190.) Proposition 218 effectiv ely reversed these cases with a liberal construction provision. (See Silicon Valley, supra , 44 Cal.4th at p. 448.) 20 Here is the relevant passage from Silicon Valley : “As the dissent below points out, a provision in Proposition 218 shifting the burden of demonstratio n was included in reaction to our opinion in Knox . The drafters of Proposition 218 were clearly aware of Knox and the deferential standard it applied based on Dawson [ v. Town of Los Altos Hills (1976)] 16 Cal.3d 676.”24 . . . .”].) 21 Allocation of water rates might inde ed have been a purely discretionary, legislative task when Brydon was decided, but not after passage of Proposition 218. The other key case in which City Wa ter’s analysis of this point is Griffith

. There, the fee itself varied according to th e location of the property, e.g., whether the parcels with wells were coastal and metered, non-coastal and metered, or residential and non-metered. Objectors to the fee asserted certain tiers in the fee, based on the geographic differences in the parcels covered by the fee, were not proportional to the cost they were paying. One objector in particular complained the fee was improperly established by working backwards from the ove rall amount of the project, subtracting other revenues, the balance being the augm entation charge, which was then apportioned among the users. ( Griffith, supra, 220 Cal.App.4th at p. 600

. ) This objector argued that the proportional cost of service had to be calculated prior to setting the rate for the charge.The court noted the M-1 industry manual recommends such a workbackwards-from-total-cost methodology in setti ng rates, and held that the objectors did not attempt to explain why such an approa ch “offends Proposition 218 proportionality.” ( Griffith, supra , 220 Cal.App.4th at p. 600.) The be st the objectors could do was to point
to what Silicon Valley had said about assessments , namely, agencies cannot start with “‘an amount taxpayers are likely to pay’” and then determine their annual spending budget from that. ( Ibid ., quoting Silicon Valley, supra , 44 Cal.4th at p. 457.) The

21 Here and there in City Water’s briefing there are references to a discretionary, legislative power in regard to local municipal water agenci es conferred by article XI, section 9, which was a 1970 amendment to the Constitution, though one can trace it back to the Constitution of 1879. Basically , article XI, section 9, gives cities the right to go into the water supply business. We quote its text, unamended since 1970: “(a) A municipal corporation may establish, purchase, and operate public work s to furnish its inhabitants with light, water, power, heat, transportation, or means of communication. It may fu rnish those services outside its boundaries, except within another municipal corporation which furnishes the same service and does not consent. [¶] (b) Persons or corporations may establish and operate works for supplying those services upon conditions and under regulations that the city may prescribe under its organic law.” Article XI, section 9 obviously does not require municipal corporations to establish fees in excess of their costs, so there is no incompatibility between it and the later enacted Proposition 218.25 Griffith court distinguished the language from Silicon Valley , however, by saying the case before it did not entail any what-the -market-will-bear methodology. ( Griffith, supra , 220 Cal.App.4th at p. 600.) The objectors had also relied on Palmdale for the proposition that “Proposition 218 proportionality compels a parcel-by-parcel proportionality analysis.” ( Griffith, supra , 220 Cal.App.4th at p. 601.) The Griffith court rejected that point by stating “[A]pportionment is not a determination that lends itself to precise calculation,” for which it cited a pre-Propositio n 13, pre-Proposition 218 case, White v. County of San Diego (1980) 26 Cal.3d 897, 903, without any explanation. ( Griffith, supra , 220 Cal.App.4th at p. 601.) When read in context, Griffith does not excuse water agencies from ascertaining the true costs of supplying water to various tiers of usage. Its comments on proportionality necessarily relate only to variations in prop erty location, such as what side of a water basin a parcel might fa ll into. That explains its citation to White , which itself was not only pre-Proposition 218, bu t pre-Proposition 13. Moreover, while the Griffith court may have noted that the M-1 manual generally recommends a workbackwards approach, we certainly do not read Griffith for the proposition that a mere manual used by utilities thro ughout the Western United St ates can trump the plain language of the California state Constituti on. The M-1 manual might show working backwards is reasonable, but it cannot excuse utilities from ascertain ing cost of service
now that the voters and the Constitution have chosen cost of service.
To the extent Griffith does apply to this case, whic h is on the (b)(4) issue, we find it helpful and have followed it. Bu t trying to apply it to the (b)(1) and (b)(3) issues is fatally flawed.

c. Penalty Rates A final justification City Water gives for not tying tier prices to cost of service is to say it doesn’t make any difference because the high er tiers can be justified as26 penalties not within the purview of Proposition 218 at all. (In the context of article X, section 2, City Water euphemistically refers to its higher tiered rates as conservation rates as if such a designation would bring them w ithin article X, section 2 and exempt them from subdivision (b)(3), but as we have explaine d, article X, section 2, does not require what article XIII D, section 6, subdivision (b )(3) forbids) and de signating something a
“conservation rate” is no more determin ative than calling it an “apple pie” or
“motherhood” rate. City Water’s theory of penalty rates relies on the procedural first part of Proposition 218, specifically article XIII C, se ction 1, subdivision (e)(5). This part of Proposition 218 defines the word “tax” to ex clude fines “imposed by” a local government
“as a result of a violation of law.” 22 That is hardly a revelation, of course. We may take as a given that Proposition 218 was neve r meant to apply to parking tickets. But City Water’s penalty rate theory is inconsistent with the Constitution. It would open up a loophole in article XIII D, section 6, subdivis ion (b)(3) so large it would virtually repeal it. All an agency supplying any service would need to do to circumvent article XIII D, section 6, subdivis ion (b)(3), would be to establish a low legal base use for that service, pass an ordinance to the effect that any usage above the base amount is illegal, and then decree that th e penalty for such illegal usage equals the incrementally increased rate fo r that service. Such a meth odology could easily yield rates
that have no relation at all to the actual cost of providing the service at the penalty levels. And it would make a mockery of the Constitution.
IV. CONCLUSION
All of which leads us to the conclu sion City Water’s pricing violates the constitutional requirement that fees “not ex ceed the proportional cost of the service

22 The relevant text from article XIII C, section 1, subdivision (e)(5) is: “(e) As used in this article, “tax” means any levy, charge, or exaction of any kind imposed by a local government, except the following: [¶] . . . [¶] (5) A fine, penalty, or other monetary charge imposed by the judicial branch of government or a local government, as a result of a violation of law.”27 attributable to the parcel.” This is not to say City Water must calculate a rate for 225 Elm
Street and then calculate another for the hou se across the street at 226. Neither the voters nor the Constitution say anything we can find that wo uld prohibit tiered pricing. But the tiers must be based on usage, not budgets. City Water’s Article X, section 2 position kept it from explaining to us why it cannot anchor rates to usage. Nothing in our record tells us why, for example, they coul d not figure out the costs of given usage levels that require City Water to tap more expensive su pplies, and then bill users in those tiers accordingly. Such com putations would seem to satisfy Proposition 218, and City Water has not shown in this re cord it would be impossible to comply with the Constitutional mandate in this way or so me other. As the court pointed out in Howard Jarvis Taxpayers Ass'n v. City of Fresno (2005) 127 Cal.App.4th 914, 923, the calculations required by Propos ition 218 may be “complex,” but “such a process is now required by the California Constitution.”
Water rate fees to fund the costs of capital-intensive operations to produce more or new water, such as the recycling plan t at issue in this case, do not contravene article XIII, section 6, subd ivision (b)(4) of the Constituti on. While that provision precludes fees for a service not immediately av ailable, both recycled water and traditional potable water are part of the same service – water service. And water service most assuredly is immediately available to City Water’s customers now. But, because the record is unclear whether low usage cu stomers might be paying for a recycling operation made necessa ry only because of high usage customers,
we must reverse the trial court’s judgment that the rates here are necessarily inconsistent with subdivision (b)(4), and remand the matter for further proceedings with a view to ascertaining the portion of the co st of funding the recycling op eration attributable to those customers whose additional, incremen tal usage requires its development. By the same token, we see nothing in article XIII, section 6, subdivision (b)(3) of the California Constitution that is in compatible with wate r agencies passing on28 the true, marginal cost of water to those co nsumers whose extra use of water forces water agencies to incur higher cost s to supply that extra wate r. Precedent and common sense both support such an approach. However, we do hold that above-cos t-of-service pricing
for tiers of water service is not allowed by Proposition 218 a nd in this case, City Water did not carry its burden of provi ng its higher tiers reflected its costs of service. In fact it has practically admitted those tiers don’t refl ect cost of service, as shown by their tidy percentage increments and City Water’s refu sal to defend the calculations. And so, on the subdivision (b)(3) issue, we af firm the trial court’s judgment. Given the procedural posture the case now finds itself in, the issue of who is the prevailing party is premature. That qu estion should be first de alt with by the trial court only after all proceedings as to City Water’s rate struct ure are final. Accordingly, we do not make an appellate cost order now, but reserve that matter for future adjudication in the trial court. (See Neufeld v. Balboa Ins. Co. (2000) 84 Cal.App.4th 759, 766 [deferring question of appellate cost s in case being remanded until litigation was final].)

BEDSWORTH, ACTING P. J.

WE CONCUR:

MOORE, J.

THOMPSON, J.