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California Court of Appeal Addresses Proposition 218 and a Municipal Referendum Seeking to Alter Water Rates to Facilitate Water Infrastructure

The Third District Court of Appeal has held that Proposition 218 does not preclude placing a referendum on the ballot regarding legislatively imposed fees. [Wilde v. City of Dunsmuir, ___Cal.App.5th___, Case No. C082664 (3rd Dist. Nov. 15, 2018).]


Factual Background

In March 2016, the Dunsmuir (City) City Council passed Resolution 2016-02 by which it raised water rates. Resolution 2016-02 set forth a five-year plan for a $15 million upgrade to the City’s water storage and delivery infrastructure. Consistent with the requirements of Proposition 218, the City provided notice of the public hearing on water rate adjustments and protest ballots with which residents could file an objection. The City received only 40 protest votes at a time when 800 were required for a successful protest, and Resolution 2016-02 went into effect.

After the resolution’s adoption, petitioner Leslie Wilde (Wilde) gathered 145 voter signatures calling for a referendum to repeal the resolution. These signatures were verified. Nonetheless, the City’s attorney informed Wilde the City refused to place the referendum on the ballot, stating:


  • The setting of Prop. 218 rates is an administrative act not subject to the referendum process. Also, Proposition 218 provides for initiatives ([Cal.Const. art.] XIII C, sec. 3), but not referenda.

Wilde filed a petition for writ of mandate to place her referendum on the ballot. In July 2016, the trial court denied the writ petition, agreeing with the City that the setting of new water rates constituted an administrative act that was not subject to referendum.

While Wilde’s writ petition was pending in Superior Court, she gathered a sufficient number of signatures for an initiative to amend the City’s water and sewer rate structure. The City placed Wilde’s initiative on the November 8, 2016 ballot as Measure W. Measure W would have implemented a different water and sewer rate structure than that adopted by Resolution 2016-02. Measure W was rejected by the voters.


Legal Background

The powers of initiative and referendum are considered rights reserved by the people, and courts:


  • . . .apply a liberal construction to this power…If doubts can reasonably be resolved in favor of the use of this reserve power, courts will preserve it. Associated Home Builders etc., Inc. v. City of Livermore(1976) 18 Cal.3d 582, 591. . . .The powers of referendum and initiative apply only to legislative acts by a local governing body. Arnel Development Co. v. City of Costa Mesa(1980) 28 Cal.3d 511, 516, fn. 6.

However, acts of a local governmental entity may be administrative in nature when they merely carry out previously determined policies rather than constituting new legislative policy.

In November 1996 the electorate adopted Proposition 218, which added Articles XIII C and XIII D to the California Constitution, which among other things imposed a two-thirds vote requirement for the passage of a special assessment (special taxes had already required a two-thirds vote under Proposition 13). Article XIII C, § 3 states that:


  • . . .the initiative power shall not be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge.


The Court of Appeal’s Decision

The court first addressed whether the lawsuit was moot in light of the fact that the City electorate had rejected Wilde’s initiative, holding that it was not, as the initiative and proposed referendum concerned different things. Wilde’s initiative sought to replace the City’s water rates with a different set of water rates, whereas her proposed referendum sought to repeal the City’s water rate resolution. As such, the voters’ rejection of the initiative did mean that the voters would necessarily reject the referendum. Slip Op. at p. 6.

The court next discussed whether Proposition 218 in some manner restricted or precluded the use of a referendum, holding that it did not. The court noted that article XIII C, § 3 of the California Constitution, added by Proposition 218, “confirms voter initiative rights and contains no negative language that limits any power of the voters.” Given this, the court held that “Section 3 cannot be read to repeal California voters’ referendum power to challenge local resolutions and ordinances.” While a referendum cannot be used to challenge a tax measure, here the parties agreed the water service charge was a fee, and therefore a referendum was permitted. Slip Op. at p. 13.

Next, the court examined whether the water rate resolution prescribed a new policy or simply administratively carried out previously determined legislative policies. Looking to the uncontested factual recitals in the resolution, the court found that:


  • . . .[t]he new water rates are the product of a newly formulated set of policies that implemented a new set of choices: to replace a 105-year-old water storage tank as well as selected old water mains. In addition to these decisions to replace infrastructure, the 2015 Dunsmuir Water Master Plan also represents policy choices about how to allocate the new infrastructure costs. Slip Op. at p. 16.

Further, the resolution adjusted the allocation of rates and departed from continued maintenance of old facilities, which the court found to be new policy. Slip Op. at p. 17.

Finally, the rejected the contention that the proposed referendum was improper because it would undermine “essential government services,” as it would not affect the “ordinary working or budgeting of the City,” but rather would challenge “policy choices” regarding the City’s water infrastructure and rates. Slip Op. at pp. 20-21.


Conclusion and Implications

This case is significant because it makes it clear the Proposition 218 did notlimit the referendum power, and provides guidance for interpreting whether a local government action is legislative or administrative in nature. The court’s published opinion is available online at:

(Alex DeGood)