Municipal water agencies deny that the sole purpose of tiered pricing — in which users pay more per gallon as they use more gallons — is to encourage conservation, but such rate structures just happen to provide fair and sensible incentives for Californians to use their most precious public resource wisely and with respect for its scarcity. That's especially important during a time of drought. Tiered pricing is an imperfect but useful tool that attempts to reconcile the state's irreconcilable philosophies about what water is, who owns it, and how much it ought to cost.
But tiered pricing may run counter to another California phenomenon: the tax revolt. San Juan Capistrano water ratepayers won a lawsuit challenging their city's tiered pricing structure after a court ruled that it violated Proposition 218, a 1996 tax-limiting ballot measure that has been interpreted to bar government from charging more for a service than the cost of delivering it. The ruling was upheld on appeal in 2015 and the city opted to pay refunds to its guzzlers rather than take the case to the state Supreme Court. Tiered pricing nevertheless has remained the norm around the state because most agencies say they can do a much better job than San Juan Capistrano did of justifying their rates.
Now homeowners in the San Mateo County city of Hillsborough have sued over not just their tiered rates but any fines imposed for alleged waste. Hillsborough buys its water from San Francisco at a set per-unit rate, so the plaintiffs — as reported in the San Francisco Chronicle — argue that they should likewise pay no more than a single rate per gallon, no matter how many gallons they use. And they argue that the penalties for overuse are actually excessive fees for service, and are therefore improper taxes under Proposition 218.
The lawsuit is in its early stages and may well be resolved before it has a chance to make its way through the court system, letting municipal water managers breathe a sigh of relief and press on with their tiered pricing on the argument that those systems adequately reflect the real cost of delivering water.
In a way, though, that would be a shame. California needs some resolution from the Supreme Court on the question of whether a pricing structure that discourages excessive household and landscape water use really does amount to an improper tax under Proposition 218.
The ballot measure applies to government services, like trash collection and police protection. Water delivery is certainly a service. But the water itself is a tangible good and as such it's at least a little like other goods whose prices are set by the market.
Consider petroleum, for example. It is a natural resource like water, yet Californians lack the constitutional rights in it that they have in the state's water, and as a purely private commodity it is not subject to Proposition 218. When fuel supplies shrink, prices rise accordingly — for the first gallon as well as the last. Government doesn't mandate lower prices for the first few gallons, nor does it require premiums as the tank fills, in order to provide buyers an incentive to conserve. If there is a shortage, the rich can drive more and the poor, perhaps, not at all.
Free market advocates argue that such a system could work for water. After all, privatization of the water supply would erase the Proposition 218 problem.
But we can't leave municipal water ratepayers solely to the market as we do with drivers and gasoline. Water is less like petroleum, which is valuable but optional, than it is like air — indispensable for human life, health and safety.
Without some measure of thoughtful regulation — and tiered pricing is the best method that comes to mind — some less-affluent Californians would be forced to do without water while owners of big lawns in Hillsborough, San Juan Capistrano and anywhere else in the state would have no incentive to avoid exhausting the supply.
The irony inherent in the Proposition 218 challenge to tiered rates is that it would make government, which is uniquely charged under the state constitution with managing water as a scarce resource, also uniquely unable to give users incentives to conserve. At some point, something — whether it is Proposition 218, the constitution's protection of water as a public resource, or the water supply itself — has got to give.