Sacramento County Ct .App. 3 C050289 Super. Ct. Nos. 03CS1776 & 04CS00473
The opinion of the court was delivered by: Corrigan, J.
The California Constitution provides that any act to increase taxes
must be passed by a two-thirds vote of the Legislature.*fn1
On the other hand, statutes that create or raise
regulatory fees need only the assent of a simple majority.*fn2
In 2003, the Legislature passed amendments to the Water
Code*fn3 by a 53 percent majority. Current section 1525
was enacted as part of these amendments. The threshold issue here is
whether section 1525, subdivision (a) imposes a tax or a fee. We hold
that the amendments and section 1525 do not explicitly impose a tax
and, therefore, are not facially unconstitutional. However, because
the record is unclear as to whether the fees were reasonably
apportioned in terms of the regulatory activity's costs and the fees
assessed, we direct the Court of Appeal to remand the matter to the
trial court to make these findings.
A second issue is whether the Water Code amendments, or their implementing regulations, violate the supremacy clause of the United States Constitution by over-assessing the beneficial interests of those who hold contractual rights to delivery of water from the federally administered Central Valley Project (hereafter, the federal contractors). We conclude that the statutes are not facially unconstitutional. We further determine that the constitutionality of the implementing regulations depends on whether they fairly assess and apportion the federal contractors' beneficial interests. However, because of conflicting factual assertions and an unclear record concerning the extent and value of those interests, we also direct remand to the trial court for findings on this issue.
I. FACTUAL AND PROCEDURAL BACKGROUND*fn4
The State Water Resources Control Board (SWRCB or Board) is
responsible for the "orderly and efficient administration of . . .
water resources" and exercises "adjudicatory and regulatory functions
of the state." (§ 174.) The water in California belongs to the
people, but the right to use water may be acquired as provided by law.
(§§ 102, 1201.) The SWRCB's Division of Water Rights (Water Rights
Division or Division)*fn5 administers the water rights
program, but its authority is limited. The SWRCB regulates all
appropriative water rights acquired since 1914. An appropriative
right is the right to take water from a watercourse that does not run
adjacent to a landowner's property. Since 1914, all appropriative
rights have been acquired through a system of permits and licenses*fn6
that the SWRCB or its predecessor state entities have
issued. Before 1914, appropriative rights were acquired under common
law principles or earlier statutes. The Water Rights Division has no
permitting or licensing authority over riparian*fn7
or pueblo*fn8 rights, or over appropriative rights
acquired before 1914. The SWRCB does have authority to prevent
illegal diversions and to prevent waste or unreasonable use of water,
regardless of the basis under which the right is held. (§ 275.)
Riparian, pueblo, and pre-1914 appropriative rights account for 38
percent of currently held water rights.
Rights regulated under SWRCB licenses and permits include about 40 percent of state water subject to water rights. The federal government holds the remaining 22 percent of water rights. The United States Bureau of Reclamation (Bureau of Reclamation or Bureau) holds the permits and licenses to, and operates, the Central Valley Project (CVP or Project.) The Project diverts and stores water from numerous sources.*fn9 The Bureau contracts out the responsibility to control, distribute, and use water under the permits it holds. However, these federal contracts involve use of less than 6 percent of the water over which the Bureau holds rights. The remaining water is diverted and stored by the Bureau for hydroelectric, wildlife and other purposes.
Historically, the operation of the Water Rights Division was supported by the state's general fund (General Fund), with only 0.5 percent of costs covered by fees. In 2003, the Legislative Analyst recommended that the Division's operating costs be shifted from the General Fund and covered instead by user fees imposed on permit and license holders.*fn10 The SWRCB strongly opposed the recommendation. The SWRCB pointed out that its authority to impose fees did not extend to those holding water rights that were not based on its permits and licenses. While riparian, pueblo, and pre-1914 rights (collectively, RPP rights) are protected by conditions in new (post-1914) permits and through the Water Rights Division's enforcement of activity, the Division did not have authority to impose fees on those RPP rights holders. As noted, the RPP holders comprise 38 percent of water rights holders in California. The SWRCB argued that while permit and license holders should pay their share, proportional fees on them could not cover the total cost of the Division's operation. Additionally, as explained in greater detail below, the federal Bureau of Reclamation and Indian tribes resist paying fees, relying on the principle of sovereign immunity.
These difficulties notwithstanding, the Legislature adopted the Legislative Analyst's recommendation and passed Senate Bill No. 1049 (2003-2004 Reg. Sess.), repealing certain sections of the Water Code and enacting sections 1525-1560. Together, these statutes are designed to make the Water Rights Division entirely fee supported.
We begin with a summary of the relevant statutes.
Section 1525 sets forth the parties and entities subject to the new fees.*fn11 Section 1525, subdivision (a) requires the SWRCB to adopt a schedule of annual fees to be paid by each permit or license holder. This group does not include riparian, pueblo, or pre-1914 rights holders. Subdivision (b) of section 1525 requires the SWRCB to establish the schedule for a one-time application fee for permits to appropriate water, for approval of leases, and for petitions relating to those applications.
Section 1525, subdivision (c) provides that the SWRCB "shall set the fee schedule authorized by this section so that the total amount of fees collected pursuant to this section equals that amount necessary to recover costs" of the Division's activities. Subdivision (c) sets out "recoverable costs" in substantial detail but the costs recoverable are "not limited to" those activities identified. (§ 1525, subd. (c).) Subdivision (d)(3) similarly requires the SWRCB to "set the amount of total revenue collected each year through the fees authorized by this section at an amount equal to the revenue levels set forth in the annual Budget Act for this activity." (§ 1525, subd. (d)(3).)
In other words, the statute requires that the total budgeted cost of the Division's operations be recovered from the fees. The SWRCB is to review and revise the fees each year as necessary, to ensure they conform with the revenue levels set in the annual budget act (Budget Act). If the revenue collected during the preceding year is either greater or less than the revenue levels set forth in the Budget Act, the SWRCB may adjust the annual fees to compensate for the disparity. (§ 1525, subd. (d)(3).) The SWRCB is also authorized to adopt "emergency regulations" to implement the fee schedule. (§ 1525, subd. (d)(1).)
Section 1537 generally covers collection. While the Board sets the fees, the money is actually collected by the Board of Equalization (BOE). The BOE collects and refunds annual fees collected under the Fee Collection Procedures Law, part of the Revenue and Taxation Code, as limited by subdivision (b)(2) through (4) of section 1537. The BOE has no role in reviewing refund claims under section 1537 or the emergency regulations.
Section 1540 concerns the allocation of annual fees to federal contractors. Section 1560 sets out the options that may be pursued when the federal Bureau of Reclamation or an Indian tribe declines to pay a fee by relying on sovereign immunity.*fn12 As relevant here, the federal government and Indian tribes are the entities eligible to assert sovereign immunity.
Sections 1550, 1551, and 1552
Sections 1550 and 1551 establish the Water Rights Fund, into which the BOE must deposit fees collected on behalf of the SWRCB. The Water Rights Fund is separate from the General Fund. Money in the Water Rights Fund may be used only for purposes set out in section 1552, which includes SWRCB expenditures necessary to carry out the work of the Water Rights Division, BOE expenditures in connection with collecting the SWRCB fees, and the payment of refunds. (§ 1552.)
B. The Emergency Regulations
To implement section 1525's fee requirement, the SWRCB adopted California Code of Regulations, title 23, sections 1066 and 1073 (regulation 1066 and regulation 1073). These regulations set formulas to calculate annual fees for permit and license holders, and for the federal contractors. Fees for issuance, supervision, and modification of permits and licenses, i.e., the revenue-producing activities now required to cover the entire cost of the Division's operations, were to be paid by the permit and license holders regulated by the SWRCB. No money would come from the General Fund. The Court of Appeal explained the difficulty the SWRCB had in setting the fees: "First, the SWRCB had to raise $4.4 million immediately to cover the cost of the water rights program in the second half of the 2003-2004 fiscal year. Second, the funding source had to be 'relatively stable.' Third, because of time constraints, SWRCB had to rely on its existing data base in calculating the amount of fees to be assessed. Fourth, although it cost SWRCB between $17,000 and $20,000 to process an application to appropriate water, SWRCB expected people would not seek SWRCB services if the one-time service fees were too high. Fifth, because most persons and entities subject to the annual fee held permits or licenses for less than 10 acre-feet of water,[*fn13 ] a minimum fee was necessary to cover the cost of sending out the fee bills. Sixth, SWRCB anticipated that 40 percent of the water right permit and license holders would refuse to pay annual fees. Seventh, the SWRCB did not have permitting authority over certain holders of water rights (specifically the holders of riparian, pueblo and pre-1914 appropriative rights) amounting to approximately 38 percent of the water diverted in the state."
C. Annual Fee Formula for Post-1914 Permit and License Holders
Regulation 1066 applies to post-1914 permit and license holders. Regulation 1066, subdivision (a)*fn14 set the minimum annual fee as the greater of $100, or $.03 for each acre-foot based on the total annual amount of diversion authorized by the permit or license.
To determine the annual fees, the Board started with the $4.4 million budget amount and assumed it would be unable to collect 40 percent of billings from water right holders who claimed sovereign immunity or who refused to pay their bills. It divided the $4.4 million mandated by the Legislature by 0.6 to account for the estimated 40 percent non-collection rate. This increased its targeted revenue to approximately $7 million.
D. Annual Fee Formula for Federal Contractors
Regulation 1073, which implemented the provisions of Water Code sections 1540 and 1560, addressed rights held by the Bureau of Reclamation, but contracted out to federal contractors. Regulation 1073, subdivision (b)(2) applied a formula to calculate the annual fee imposed on those contractors "[i]f the [Bureau of Reclamation] decline[d] or [was] likely to decline to pay the fee or expense . . . for the [Central Valley Project]." In general, regulation 1073 assessed annual fees against contractors based on a prorated portion of the total amount of annual fees associated with all Bureau permits and licenses, rather than the portion available under the terms of their contracts.
In January 2004, the BOE sent fee notices to the section 1525 permit and license holders and to the federal contractors. The Budget Act set a target of $4.4 million in fee revenue because the balance for the first half of 2003-2004 was paid from General Fund revenue. $7.4 million in water rights fees was collected for fiscal year 2003-2004. The imposition of water rights ...