A judge ruled Thursday that the Santa Clara Valley Water
District is in violation of the state Constitution as well as the
district’s own governing regulations in a case that could have
far-reaching implications for the county’s 4,000 well owners.
Morgan Hill
A judge ruled Thursday that the Santa Clara Valley Water District is in violation of the state Constitution as well as the district’s own governing regulations in a case that could have far-reaching implications for the county’s 4,000 well owners.
In the case Great Oaks Water Co. vs. the SCVWD filed in Santa Clara Superior Court, Judge Kevin J. Murphy said the district violated Proposition 218, a constitutional amendment approved in 1996. The district illegally collected groundwater extraction fees from Great Oaks in 2005-2006 by skipping voter approval for the process, the judge’s ruling says.
Furthermore, the district violated the Santa Clara Valley Water District Act, the state law that created the organization. Murphy ruled the district improperly used funds collected by the groundwater extraction charges by spending those revenues for purposes not allowed by the District Act.
The decision’s effect on the rest of the district’s customers, including whether and to whom it will owe refunds of fees illegally collected the last five years, could become clearer in the lawsuit’s second phase.
District spokeswoman Susan Siravo said it is too soon to tell if and when the district will change the process by which it sets and collects water rates, but she said it is possible that it will eventually be ordered to make such changes. She added the district’s position remains that it is in compliance with the state law.
Chair of the district’s board of directors Sig Sanchez said he expects the district to appeal the decision. He said he still trusts the district’s legal staff, even though other well owners including the city of Morgan Hill have argued in the past, though not in court, that the extraction fees do not comply with Prop 218.
The ruling not only says that the district has to change its ways, but that it owes people a refund of illegally collected fees, according to lawyers for Great Oaks.
“We think this decision will have a large effect on all 4,000 well owners in Santa Clara County, including the city of Morgan Hill,” said Great Oaks General Counsel Tim Guster.
The second phase of the lawsuit, which will be heard in the coming weeks will decide monetary damages for Great Oaks. Guster said Great Oaks will seek a refund for the groundwater charges it paid in 2005-2006 and each year since.
SCVWD Senior Assistant Counsel Emily Cote said Thursday’s ruling only applies to Great Oaks, though she said the district used the same rate structure for that company as it did similar customers.
In 2005-2006, Great Oaks paid about $5 million to the district in water fees, Guster said.
“We have also challenged the charge each year since (2005-2006),” he said. “They’re doing it again right now, it’s exactly the same process they use every year.”
Great Oaks is a water retailer that sells water pumped from the groundwater basin to about 100,000 residential and commercial customers in South San Jose. It argued in court that the district overcharged them for water extracted from the natural aquifers, and the extraction fees were illegal.
The city of Morgan Hill has complained to the district’s board of directors for several years that its groundwater extraction fees, which the city pays, are illegal, according to city public works Director Jim Ashcraft. In May 2008, City Manager Ed Tewes sent the board a letter stating that position.
“Although the voters amended the California Constitution to regulate property related fees in 1996, it was only in 2006 that the California Supreme Court made clear that water charges are property related fees,” the city’s letter said. Furthermore, Tewes cited another case, Pajaro Valley Water Management Agency v. Amrheim, that said the district cannot set different fees to subsidize lower-paying users.
The judge Thursday cited the Pajaro case, which Tewes attached to his 2008 letter, to support the ruling that the district has not complied with Prop 218.
The district has not made a final determination on a possible appeal, Cote said.
“We are disappointed,” Cote said. “(The decision) does not provide us the detailed guidance we need to understand how to move forward from here. We really felt as though we were complying with the law, and the fact that that wasn’t understood is troubling.”
The judge’s ruling also said the district did not comply with the act by incorrectly calculating the fees it charged for different users. The district sets different rates for an acre foot of water for municipal and commercial users in North County and South County, and agricultural users. The judge ruled that because some of these users are charged more than others, they are unfairly subsidizing the lower rate payers.
“The plaintiff was overcharged because of subsidies made for treated water and discounts given to agricultural users,” Murphy’s ruling says.
South County well owners currently pay the district $275 per acre foot of water for municipal and industrial use; North County pays $520 per acre foot; and agricultural users pay $16.50 per acre foot. An acre foot is about how much water a family of five uses in a year.
In court documents and testimony, the district argued that because Great Oaks used the underground water to sell for business purposes, the fees were not a “property related fee” subject to the terms of Prop 218.
The court ruling said the charges are imposed on property owners regardless of whether the water they pump out of the ground is used for business or personal use. Plus, the judge ruled even if the extracted is used for business purposes, the Pajaro case says the fee charged by the district is still a property related fee, and therefore subject to Prop 218 and voter approval.
The district sets the charges for well owners throughout the county at the beginning of each fiscal year, which starts July 1. This year the staff has recommended to raise the rates for South County to $285 per acre foot, and the board of directors will conduct a public hearing to discuss the rate increase in Morgan Hill May 6.
Siravo noted the board has historically been supportive of the Santa Clara Valley’s agricultural industry, and that’s one reason rates charged to users from that sector are so low.
She also said that management of the groundwater basin is important to public safety. In the 1920s, parts of San Jose sunk about 13 feet due to over-pumping of the basin, she said.
“There needs to be proper management of the groundwater basin, and there are costs associated with that,” Siravo said. The district, she added, has a “long history” of successfully managing the groundwater basin, a practice it began in the early 1960s.
The SCVWD provides drinking water and flood protection for about 1.7 million residents of Santa Clara County. Its budget for the current year is about $411 million, and it employs about 835 people.
