Effects of Sewer-Fee Ruling Discussed : Legislators Likely to Act in Dispute Over Hookups for Public Projects

Residential water customers will be forced to pay the sewer hookup costs for new public projects in their communities unless the Legislature reacts swiftly to a recent state Supreme Court ruling in a San Marcos sewer fee dispute, state lawmakers were told at a special hearing Tuesday.

State Sen. Marian Bergeson (R-Newport Beach) and Assemblyman Dominic Cortese (D-San Jose), chairmen of the Senate and Assembly Local Government committees, both predicted after the five-hour hearing that emergency legislation to soften the impact of the July ruling will be a near certainty when legislators reconvene in December.

The Supreme Court’s ruling came after a years-long fee dispute between the San Marcos Unified School District and the San Marcos Water District. Invalidating so-called “capacity fees” that the school district paid to the water district for 10 years, the court ruled that such assessments amount to a tax from which public agencies are exempt under state law.

Although the ruling was sent back to the appellate court to determine if it should apply retroactively, it said essentially that special hook-up and growth charges levied for years for new schools, colleges, jails and prisons had been collected illegally.

The overall affect of the ruling, which shocked government officials throughout the state, is still uncertain. But it was clear that it would be felt far beyond the boundaries of the school district and the 6,000-customer water district.

For example, the ruling would have given the state Department of Corrections the upper hand in its last-minute negotiations with the Otay Water District for a sewer hookup to the new Richard J. Donovan Correctional Facility on Otay Mesa.

But in late August, Assemblyman Steve Peace (D-Chula Vista) tacked amendments onto a bill that requires state prison officials to pay about $1 million for its sewer trunk line.

Peace, who represents the area, said it “would have been an incredible outrage” if Otay Mesa residents had been stuck with the bill for the sewer line to the prison, which is to open later this year.

Water agency officials said local customers will be subject to drastically higher water and sewer charges whenever major public facilities are constructed in their area if the Supreme Court ruling stands. Residents near a jail expansion project in Los Angeles will get one-time assessments ranging from $105 to $200 if the ruling stands, legislators were told.

“Can you imagine trying to explain to a person on a fixed income why he should pay for a school district’s (sewer) capacity, a college’s capacity or a prison’s capacity?” asked Vern Peltzer, the attorney who represented the San Marcos Water District in the court case.

“There are no funds to give free service to public agencies,” Peltzer added during Tuesday’s hearing. “ . . . This (the water district) is a nonprofit institution.”

Peltzer said the school district has already asked for $100,000 in refunds for fees it paid between 1971 and 1981, and he said the Palomar Community College District will probably seek about $300,000 in rebates if the courts and Legislature allow the ruling to apply retroactively.

Water officials said the burden on San Marcos residents will be “10 times . . . as great” if the law has not been changed when San Diego State University’s planned 25,000-student North County campus opens.

William Rucker, general manager of the San Marcos Water District, who did not attend Tuesday’s hearing, said officials have not ruled out an appeal to federal courts. But, he added, “I think the answer is in the Legislature.”

So far, Peace’s amendments regarding the new prison have been the Legislature’s only response to the ruling.

Sen. Bill Greene (D-Los Angeles) proposed another amendment shortly before adjournment to allow water agencies to collect the fees for a year, while the Legislature wrestled with the problem. But lobbyists for school districts fought and killed those provisions on the Assembly floor.

School officials, who generally applauded the Supreme Court ruling, said water agencies were overstating the impact of the case. They said water agencies will overcharge and take advantage of school officials if legislators give them too much legal leeway.

Lynn McDougal, the attorney for the San Marcos School District, told legislators the Supreme Court ruling was fair and equitable and urged them not to try to reverse it.

Reacting to Peltzer’s testimony, McDougal said: “I’m really surprised to learn that all seven members of the Supreme Court utterly misunderstood the issue, utterly misread the law and utterly disregarded the constitution.”

Bruce Richardson, associate general counsel for the California State University system, said communities generally welcome colleges in their area.

“We urge you to do nothing” to change the ruling, Richardson said.

But several legislators agreed that legislation is needed.

“And, I believe we can handle it in an equitable way,” Cortese said.

Both Cortese and Bergeson said they would support bills that are flexible enough to allow capacity fees to be negotiated locally. Both said that the Legislature should ensure that years of contractual arrangements between local water agencies and public entities are left intact.

The San Marcos case started “as a friendly suit at the trial court level” in 1983, Rucker said in an interview. It got little attention outside San Marcos before the state Supreme Court’s ruling in July.

In 1981, San Marcos school officials refused to pay “capacity fees” to the water district, claiming that the charges amounted to a tax from which the school system should be exempt.

Before that, school officials for 10 years had been paying the fees, based on the enrollment and the size of the staff at San Marcos schools. Rucker said both sides agreed in 1983 to let a judge settle the dispute.

Both the Superior Court and the 4th District Court of Appeal had ruled in the water district’s favor. But the Supreme Court ruled that the capacity fee is, indeed, a special assessment that the school district could only be required to pay if authorized by the Legislature.