65B - PROPOSED WATER AND SEWER RATE ADJ

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WATER RATE STUDY City of Santa Ana, CA considered property related services while water charge were not defined as property - related until the 2006 California Supreme Court decision in Bighorn- Desert View Water Agency v. Verjil. After this decision, water charges are now considered as property - related fees and any new or increased water charges must comply with the substantive and procedural requirements of Proposition 218. The substantive requirements include: • Revenues derived from the fee or charge cannot exceed the funds required to provide the property related service. • Revenues derived from the fee or charge cannot be used for any other purpose other than for which the fee or charge was imposed for. • A property - related fee or charge cannot exceed the proportional cost of service attributable to the parcel. Proposition 26 California voters approved Proposition 26 in November 2010. Included in the language of proposition, which amended California Constitution Article XIII C, Section 1, is a definition of "tax ". Essentially, as defined by Proposition 26, a tax is any "levy, charge, or exaction of any kind imposed by a local government' with specifically outlined exceptions. These exceptions are: • A charge imposed for a specific benefit conferred or a privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege, and • A charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product. Proposition 26 establishes that the "...local government bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payo's burdens on, or benefits received from, the governmental activity." Government Code Section §54999.7 Under this section, rate - setting activities by public agencies are directed to follow cost -of- service principles and states that fees for "...for public utility service, other than electricity or gas, shall not exceed the reasonable cost of providing the utility service." It also provides that these fees will be "established in consideration of service characteristics, demand patterns, and other relevant factors." Generally Accepted Rate - Setting Standards The American Water Works Association (AWWA) and Water Environmental Federation (WEF) are the industry organizations tasked with providing guidance on the operation and management of water and wastewater utilities. AWWA and WEF have established a general set of principles used to guide the development of water and wastewater rates. These principles were developed to provide a consistent approach and minimum standards to rate - setting procedures. It is important to note that both AWWA and WEF observe that there is no prescribed single approach for establishing cost -based rates. Rather, 16 M \• • NOVEMBER 2014