Downey, Michael L.

English

University of Denver

Water Law Review Volume 14 Issue 2 Article 28 1-1-2011 Cal. Farm Bureau Fed'n v. State Water Res. Control Bd., 51 Cal. 4th 421 (2011) Michael L. Downey Follow this and additional works at: https://digitalcommons.du.edu/wlr Custom Citation Michael L. Downey, Court Report, Cal. Farm Bureau Fed'n v. State Water Res. Control Bd., 51 Cal. 4th 421 (2011), 14 U. Denv. Water L. Rev. 450 (2011). This Court Report is brought to you for free and open access by the University of Denver Sturm College of Law at Digital Commons @ DU. It has been accepted for inclusion in Water Law Review by an authorized editor of Digital Commons @ DU. For more information, please contact jennifer.cox@du.edu,dig-commons@du.edu. WATER LAW REVIEWCal. Farm Bureau Fed'n v. State Water Res. Control Bd., 51 Cal. 4th421 (2011) (holding that revenue collected from water rights serviceswas a fee and not a tax and that the state agency did not violate theConstitutional Supremacy Clause by collecting fees from federalcontractors).Under Proposition 13, passed in 1978, any tax increases inCalifornia required a two-thirds vote of the state legislature. UntilProposition 26 passed in 2010, fees were not subject to the two-thirdsrequirement. With tax increases a virtual political impossibility, andCalifornia facing a chronic budget crisis, the legislature turned to feesto offset losses in revenue to the general fund. In 2003, by a simplemajority vote, the legislature passed a law ("2003 law") cutting fundingto the State Water Resources Control Board ("SWRCB") andinstructing SWRCB to replace the revenue through the imposition offees on all water rights holders subject to its jurisdiction.California had a hybrid water rights system of both riparian rightsand prior appropriation. California law grandfathered all existingriparian rights, pueblo rights, and other appropriative rights inexistence in 1914. These represent about thirty-eight percent of statewaters and were not subject to SWRCB jurisdiction. Most rightsacquired after 1914 were subject to the doctrine of prior appropriationand to SWRCB jurisdiction. The federal government and NativeAmericans hold much of the remaining twenty-two percent of statewaters outside of SWRCB jurisdiction because of sovereign immunity.Thus, only about forty percent of the waters in the state were subject toSWRCB jurisdiction and, therefore, the 2003 law fees.Under the 2003 law, SWRCB would assess an annual fee on waterrights holders and charge additional fees for water rights applications,change of use applications, and registration of stock ponds, to name afew. The fee amounts were set based on the operational needs ofSWRCB. SWRCB would no longer receive revenue from the generalfund. In 2003, the SWRCB budgeted 4.4 million dollars for itsoperational needs. It determined that it would be unsuccessful incollecting fees from a significant numbers of parties (approximatelyforty percent), so it adjusted its revenue target to 7 million dollars tooffset the likely losses from those parties who fail to pay. Furthermore,knowing that it could not levy a direct fee on the federal government,SWRCB assessed fees on private parties contracting with the federalgovernment.California Farm Bureau Federation ("Farm Bureau") and multipleother parties challenged these new fees. These parties representedpersons who contracted with the federal Bureau of Reclamation("Reclamation") for use of water from the Central Valley Project,which diverts water for flood control, hydroelectricity, storage, andwildlife protection. At trial, Farm Bureau argued: (1) the fees were anillegal tax because it did not receive a two-thirds vote in the legislature;(2) the fees were unconstitutional, as applied, because only fortypercent of water rights holders were responsible for 100 percent of the450 Volume 14COURT REPORTScosts of the water rights program; (3) a fee on water rights amounts toan illegal tax on real property; (4) the Supremacy Clause of the U.S.Constitution gave sovereign immunity to the federal government fromtaxation (and imposition of fees) by states, and this sovereignimmunity extends to private parties who contract with the federalgovernment; and 5) the fees were unconstitutional as applied becausecontractors were responsible for the fees on all federal water despiteonly receiving a small proportion of that water.Both the Superior Court of Sacramento County ("trial court") andthe Third Appellate District of the Court of Appeals ("court ofappeals") held that the fees were not a tax because the amountreasonably related to agency operating costs and was, therefore,constitutional. However, the court of appeals ruled that the fees onfederal contractors were unconstitutional because they violated thesovereign immunity doctrine. The parties appealed the decision to theCalifornia Supreme Court ("court").The court noted that while it is not always clear what the differencebetween a fee and a tax is, there are some important distinctions. Ingeneral, taxes are for revenue collection, while fees cover the cost ofproviding a specific benefit or service, or regulatory enforcement. Inaddition, taxes are compulsory, whereas fees are optional and there isno requirement to purchase the service. There may be an actualbenefit to the payers, but that was not a requirement. The amount ofthe fee must reasonably relate to the cost of the program for which thefee is charged. However, the relationship does not have to be exact -a fee that produces a surplus in revenue may still be valid so long asthe government does not divert the revenue to the general fund.The court held that the state legislature did not intend to impose atax. In this case, SWRCB held all fee revenue in the Water RightsFund, completely separate from the general fund. SWRCB used thatrevenue in the Water Rights Fund to completely support its operationsand administrative costs. Therefore, the court held that the fees werenot an illegal tax.Farm Bureau's second argument challenged the constitutionalityof the fees as applied. While SWRCB provided a benefit to all waterrights holders, only forty percent were subject to its jurisdiction and itsfees. Since SWRCB met 100 percent of its budget needs through fees,those forty percent of water rights holders ended up paying for 100percent of the program costs. Hence, Farm Bureau argued that thefees were unreasonable because they were disproportionate to thebenefit they provided to those forty percent. According to FarmBureau, an unreasonable fee was actually a tax. SWRCB counteredthat the fee was appropriate because about ninety-five percent of theprogram costs related to providing services for those forty percent thatwere subject to the fees.The court held that the amount of the fees must reasonably relateto the cost of the activity regulated - but that was a matter of fact forthe trial court to decide. Therefore, the court remanded that questionIssue 2 451WA TER LA WREVIEWfor the trial court to determine.The third argument by Farm Bureau was that imposing fees onwater rights amounted to a tax on real property and was, therefore,unconstitutional. The court rejected the argument, stating that waterrights were not real property and the right is usufructuary only.California owned the water itself for the benefit of its citizens.In the fourth argument, the Farm Bureau claimed that theSupremacy Clause of the U.S. Constitution prevented states fromimposing taxes or fees on the federal government and that theprohibition extended to private parties who contracted with thefederal government. Under the 2003 law, SWRCB could collect feesfrom any party who contracted with Reclamation for use of a waterright that would otherwise be subject to fees. Essentially, this meansthat SWRCB was transferring the fee burden for each federal waterright from Reclamation to the private contractors who used thoserights. The court held that the fees were appropriate, so long as theirapplication was limited to the extent of the use right that the privatecontractor possessed. Therefore, the fees did not violate theSupremacy Clause.Finally, the court addressed the argument that the fees, as applied,violated the Supremacy Clause because private contractors wereresponsible for 100 percent of the fees imposed on Reclamation'swater rights. Reclamation held 116 million acre feet in water rightsfrom the Central Valley Project but only delivered 6.6 million of thatfor use by private contractors. However, the private contractors wereresponsible for the full amount of the fees assessed on the 116 millionacre feet. Thus, according to Farm Bureau, the fee assessment washighly disproportionate. In order for a fee on contractors to bereasonable, it must be limited to the beneficial interest that party hasin the property. SWRCB countered by stating that while the assessedfederal rights far exceeded the actual delivery, other factors affectedthat amount, such as evaporative losses, diversions for storage, andwater releases for wildlife. In addition, SWRCB said that its fees wereappropriate because the cost was discounted fifty percent to reflect thefact that Reclamation diverted about half of the water forhydroelectricity. According to SWRCB, the fee amount should takeinto consideration the benefit derived from the use of a whole federalwater project and not just the actual amount successfully delivered.SWRCB reasoned, therefore, that the fees appropriately consideredthe total amount of Reclamation's water rights minus the amountdiverted for hydroelectricity.The court agreed with SWRCB but noted that the trial court hadnot made a factual determination as to how much of the waterReclamation consumes during delivery to the contractors. The courtremanded back to the trial court to determine whether SWRCB madea fair determination of the beneficial interest of the contractors.Therefore, the court affirmed in part and reversed in part,remanding to the trial court to make the appropriate factual452 Volume 14COURT REPORTSdeterminations.Michael L. DowneyCOLORADOCherokee Metro. Dist. v. Upper Black Squirrel Creek DesignatedGround Water Mgmt. Dist., 2011 WL 382377 (Colo. Feb. 7, 2011)(holding that a district's failure to comply with a stipulated decree'sfiling deadline to perfect its conditional groundwater rights resulted inabandonment of those rights).Cherokee Metropolitan District ("Cherokee") and Upper BlackSquirrel Creek Ground Water Management District ("UBS") enteredinto a stipulation on January 25, 1999, concerning Cherokee's use oftwo sets of wells in the Upper Black Squirrel Creek Designated GroundWater Basin ("the Basin"). The water court incorporated thestipulation into a conditional water rights diligence decree("stipulated decree") in March of 1999. The stipulated decreerequired Cherokee to file an application to perfect its conditionalgroundwater rights in the Basin within a two-year period after divertingand applying the water to a beneficial use.Cherokee first applied water from well 14 to a beneficial use inDecember of 2000 and applied water from wells 15 and 16 tobeneficial use in April of 2002. Cherokee did not file an application tomake absolute its conditional rights to these wells, which had beenapplied to beneficial use, until February of 2005. Cherokee appliedwater from well 17 to beneficial use on April 28, 2006. The partiesdisputed whether Cherokee filed to make a portion of well 17 absoluteon April 30, 2008, when Cherokee filed its motion to amend itsapplication, or on May 30, 2008, when Cherokee filed the amendedapplication.UBS and the Bookers ("the Objectors") filed a motion to dismissCherokee's application to make portions of wells 14-17 absolute in theDistrict Court, Water Division 2. The water court orderedabandonment of the conditional portions of wells 14-17 and awardedattorney fees. Cherokee then appealed to the Colorado SupremeCourt ("the court").The court held that the Objectors' motion to dismiss was notsubject to the three-year statute of limitations that governs contractsbecause the Objectors filed the motion in response to Cherokee'sfailure to comply with a stipulated water court decree. The court alsoheld that Cherokee stipulated away a sexennial schedule of filingdeadlines, notice prior to cancellation, and the ability to file within thesame month of diversion when it entered the stipulated decree.The court further held that Cherokee did not comply with the two-Issue 2 453

Cal. Farm Bureau Fed\u27n v. State Water Res. Control Bd., 51 Cal. 4th 421 (2011)

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Cal. Farm Bureau Fed\u27n v. State Water Res. Control Bd., 51 Cal. 4th 421 (2011)

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