The Court of Appeal affirmed rulings that a water district's groundwater replenishment charges were unconstitutional "taxes" because the District failed to prove the cost-allocation requirement of Proposition 26's "specific-government-service" exception. Howard Jarvis Taxpayers Association v. Coachella Valley Water District, 116 Cal.App.5th 520 (2025).
The Coachella Valley Water District provides potable water and relies primarily on groundwater, making conservation and replenishment necessary. The District has statutory authority to levy and collect "water replenishment assessments" to replenish groundwater supplies. The District imposed replenishment charges associated with three "areas of benefit" (AOBs). Although domestic customers did not see a replenishment line item, they paid replenishment charges indirectly through the District's enterprise fund structure. Howard Jarvis challenged the replenishment charges.
The court treated the replenishment charges as "exactions" imposed by a local government. The dispositive issue was whether the charges satisfied an exception to the constitutional definition of "tax." The District relied on the Proposition 26 exception for "a charge imposed for a specific government service or product provided directly to the payor" that does not exceed reasonable costs. The court explained that this exception entails both an "aggregate cost" requirement and an "allocation" requirement, under which the District must prove the manner of cost allocation bears a fair or reasonable relationship to the payor's burdens or benefits.
Although the court found that projected revenues and expenses satisfied the aggregate-cost requirement, it concluded the District failed the allocation requirement. The court focused on the significant rate disparity between the West and East AOBs and found the District's central justification for that disparity—an alleged barrier significantly impeding groundwater flow between the areas—was not reasonably supported by the record. The District thus did not meet its burden to show cost allocation was fairly or reasonably related to burdens/benefits, and the replenishment charges were unconstitutional taxes.
The court affirmed the judgment awarding refunds measured by the difference between what each AOB paid and what they would have paid under district-wide allocation, plus prejudgment interest, and permanently enjoining continued collection of the rates imposed during the years at issue.
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