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Press Release...

Capistrano Taxpayers Association to Defend Against
Appeal of Court Decision

September 10, 2013, 12:03 PM, San Juan Capistrano CA - The Capistrano Taxpayers Association (CTA) announced today that it intends to vigorously defend against any appeal by the City of San Juan Capistrano, as Superior Court Judge Munoz ruled correctly for the benefit of City water users that the current tiered water rate schedule and billing recycled water is illegal under the California Constitution Section XIII d.

The City apparently intends to continue billing at illegal rates during the appeal, so we urge water users to pay their full water bill, on time but with a letter notifying the City that you are paying the bill under protest due to the court ruling that tiered and recycled water rates are illegal.

CTA has filed to recover routine costs and will soon be filing to recoup sizable attorney’s fees for its successful efforts on behalf of the CTA and all water users in San Juan Capistrano, given the scope of the ruling before Judge Munoz.

If CTA is vindicated on appeal, the City will face substantial financial exposure for attempting to defend and continue charging consumers for a transparently illegal water rate structure. CTA will vigorously pursue refunds for illegal water charges paid during the appeal period.

To date, the City has not returned the CTA attorney's telephone calls and emails to attempt an informal resolution through a mediation process. This leads CTA to believe that the city is not serious about resolving this issue.

For questions, email us at: info@capotax.org

www.capotax.org


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Press Release...
                                       
                                    Court Strikes Down Tiered Water Rate Billing Structure

August 7, 2013, San Juan Capistrano, CA  - In what will have state-wide repercussions, local watchdog group Capistrano Taxpayers Association (“CTA”) won a court battle challenging the way that the City of San Juan Capistrano (“the City”) punishes water users into conserving water.

The CTA fought the battle on behalf of San Juan residents whose water bills had increased sharply over the past several years.

“This is a huge victory for water consumers who have been gouged by cities using illegal water rate structures. I am pleased that the court upheld Proposition 218 and validated our assertion that cities can’t just charge what they want for such an essential service as water; that water rates must be based on the actual cost of delivering the service, as mandated by Prop 218 ,” said CTA Board member John Perry.

The court also agreed with CTA attorney Ben Benumof that the City cannot charge residential ratepayers for the cost of recycled water if they are not receiving it.

Read the court ruling here:
CTA Court Ruling 8-7-2013

The CTA Board of Directors wishes to thank the many community members who supported the CTA in its fight to force the City to follow the law.

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From the Orange County Register...

Published: Aug. 12, 2013 Updated: 3:56 p.m.
San Juan ruling may set water rate precedent

   Capistrano residents have said that tiered pricing is illegal and violates Proposition 218.

By MEGHANN M. CUNIFF / ORANGE COUNTY REGISTER

It's become an increasingly common way of promoting the conservation of both electricity and water in booming but resource-strapped California: Use more and pay more. A lot more.

But what began as a local dispute over tiered water rates in San Juan Capistrano could have statewide implications for the system used in 10 other water districts and cities in Orange County after a Superior Court judge ruled San Juan's illegal, vindicating a group of citizens who have long told City Hall the same thing.

The City Council met in closed session Thursday to discuss whether to appeal Judge Gregory Munoz' ruling in favor of the Capistrano Taxpayers Association. They have not yet taken action. The case has attracted attention from other water districts, but unless the city appeals and the 4th District Court of Appeals rules, water experts say it could have little impact. But it could be a sign of what's to come.

"It's been sort of a train wreck that's been on the way for quite some time," said Wes Strickland, a Santa Barbara lawyer who specializes in water policy. "When courts really look at the details of it, they do seem to be concerned that the rate structures that have been commonly used for many years are not satisfying the requirements of Prop. 218." (Proposition 218, passed by voters in 1996, requires that government fees be set in accordance to cost.)

Richard Little, who retired last year as director of the Keston Institute for Public Finance and Infrastructure Policy at USC, agreed.

"We've got a problem here that goes well beyond San Juan Capistrano," Little said. "People notice what they pay. That's how you can enforce certain behaviors. And what this is saying is because of Proposition 218, you can't do that."

The cities of Brea, Buena Park, San Clemente and La Palma use tiered systems, as do El Toro Water District, Emerald Bay Service District, Irvine Ranch Water District, Laguna Beach County Water district, Moulton Niguel Water District, Santa Margarita Water District and Trabuco Canyon Water District.

Huntington Beach is considering implementing one, but no formal plan has been proposed.

Laurie Frymire, Huntington Beach spokeswoman, said in an email that the city is evaluating how such a system could comply with Proposition 218.

"The city is aware of the challenges of creating such a rate structure in light of proposition 218 and the evolving law," Frymire wrote. "As the courts clarify 218, the city will continue to evaluate the efficacy of the program."

Kelly Winsor, assistant to the general manager for Moulton Niguel, said the district's tiered system comply with Proposition 218 and district officials have no plans to change it.

Jim Reardon, a Capistrano school board member and aerospace executive who brought the lawsuit with other San Juan residents, called tiered systems a form of "social engineering" and said the issue is a question of whether citizens want utilities districts minding their business.

"Should you be punished because you have a bigger home or a bigger property?" Reardon said.

A grand jury convened to study water issues in Orange County said in April that, essentially, you should be. A 36-page report issued by the grand jury recommends more cities implement tiered rate systems, calling them "one of the best practices in the search for new methods of conservation."

Munoz's ruling didn't declare all tiered systems illegal. It simply said San Juan Capistrano's is illegal because it's not based on the cost of service. The fix seems simple: provide better support for the higher costs in the tiers by connecting them to costs. But the essence of a tiered system has nothing to do with costs.

"Of course it's social engineering," Little said. "It's trying to achieve a social outcome - which is water conservation - and the best way to do that is send pricing signals. It's not that it costs three times as much to deliver the third tier of water because you happen to live on a big lot. It's all about trying to get you to change your behavior."

Strickland said he doesn't expect any city or district other than San Juan Capistrano to change rates because of Munoz's ruling. An appellate court ruling or action from a resident that cited the San Juan case would be more likely to prompt action.

"I'm sure the agencies will not take any drastic action to shift how their thinking about water rates until they have to," he said. "But that day may be coming at this point."

Contact the writer:
mcuniff@ocregister.com or 949-492-5122. Twitter: @meghanncuniff.

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                                                        CTA HAS ITS DAY IN COURT

                                                                     By John Perry, Board member, Capistrano Taxpayers Association

On Friday July 29, 2013 the Capistrano Taxpayers Association (CTA) and the City of San Juan Capistrano squared-off in the Superior Courtroom of the Honorable Gregory Munoz to decide the case of CTA vs. the City of San Juan Capistrano. Ben Benumof from San Clemente represented the CTA and Michael Colantuono was the lead attorney hired by the City to defend the lawsuit.

Benumof presented his opening statement covering the elements of Proposition 218 passed by the voters in 1996 limiting the ability of cities to increase fees. Benumof summarized the CTA assertions that the City’s "tiered" rate structure was not based upon an increased cost of service as required by Prop 218 but actually was an arbitrary mathematical progression. Benumof then asserted that the City requires all rate payers to subsidize the cost of recycled water in violation of Prop 218 because the domestic homes are not capable of using recycled water and therefore cannot be charged for the service. An additional cause of action concerned the water rate increase of February 2010 which included an $18 million bond to expand the Groundwater Recovery Plant and to install recycled water pipelines. The bond sale was later cancelled but the city kept the $1.3 million per year in debt service in the water budget and continues to collect the principle and interest on what's become known as "the Phantom Bond" because it doesn't exist.

Colantuono then presented the City’s response using a 50 page Power Point presentation. The City’s position is that Proposition 218 gives the City wide latitude to determine how best to develop the rate structure, and is allowed by legislative statute to have conservation rates that become more expensive as the water use increases. He went on to say that even if the court disallowed tiers 3 and 4 as not being cost based, the City has the right to penalize water users for exceeding allocations. Colantuono claimed that all water users should pay the cost of recycled water because the city and users "benefit from its use". Finally the issue of the “Phantom Bond” was justified because the money to repay the bonds was spent on other water items, according to Colantuono.

Judge Munoz asked if the City provided the CTA with access to the “water model” used to build the rate structure which was part of a report compiled for the City by water consultants Black and Veatch. Although it was acknowledged that the CTA did indeed request the formula used by the City to determine the water rates, Mr. Colantuono replied that the rate model was not provided to the CTA as requested because the model was an "intellectual property" of Black and Veatch and therefore could not be disclosed to the public.

Judge Munoz indicated he would take the evidence presented into consideration and provide has decision at a later date. It is expected that a decision will be made within thirty days.

Click to read the trial brief:
CTA Trial Brief

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               WATER RATE LAWSUIT FILED BY CAPISTRANO TAXPAYERS ASSOCIATION
                              WILL PROCEED.  COURT DATE SCHEDULED JUNE 29, 2013

The Capistrano Taxpayers Association (CTA) won a victory in its battle with the City to overturn water rates adopted by the City Council in February 2010. The City attempted to have the case dismissed on procedural grounds (statute of limitations) however, the Court overruled the City’s objection. Superior Court Judge Gregory Munoz will allow the CTA lawsuit to proceed to trial beginning June 29, 2013.

A Brief was filed in OC Superior Court by CTA Attorney Benjamin Benumof, which can be viewed here:
CTA Trial Brief

Additional evidence filed with the court can be viewed here: CTA Water Lawsuit - Evidence


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Press Release...

                                    CTA WINS ROUND ONE IN WATER RATE FIGHT

January 29, 2013, San Juan Capistrano CA - The Capistrano Taxpayers Association (CTA) won a victory in its battle with the City to overturn water rates adopted by the City Council in February 2010. The City attempted to have the case dismissed on procedural grounds (statute of limitations) however, the Court overruled the City’s objection. Superior Court Judge Gregory Munoz will allow the CTA lawsuit to proceed to trial beginning June 17, 2013.

The CTA lawsuit asks the Court for the following findings; 

1.”The CTA requests…the Court [declare] the water rates illegal under Proposition 218.” Proposition 218 allows Cities to impose taxes or fees based on the actual cost of delivering the service to customers. If the fees are not cost-based, the fees are in reality a tax. Taxes must be approved by voters in an election.

The CTA claims that the Tiered water billing is not cost-based, because Tiers 2 through 4 are actually penalties meant to punish water users for exceeding the amount of water allocated to them by the City. Since these fees are not cost-based, the fees are an illegal tax.

2. “Unlawful Enforcement of Water Rate Structure; the CTA seeks [to prohibit] the City from continuing to implement or apply its water rate policy and practice of collecting funds to pay the debt service on the ‘Phantom Bond’.”

3. “The CTA petitions the Court [to compel] the City to comply with its mandatory duties and [to prohibit, prevent and correct] the City’s abuses of discretion.

CTA also seeks to compel the City to abandon its illegal water rate structure and to stop collecting the debt service for the ‘Phantom Bond’ ”. The City needed to sell $18 million in bonds to pay for a planned water plant expansion however, the bonds were never sold because the City did not have sufficient reserves and was therefore not credit-worthy. Despite the failure to issue the bonds, the City has collected $1.3 million per year (for three years) from the ratepayers to repay the non-existent bonds. Since the City did not incur the cost of selling the bonds, the fee increase is actually an illegal tax.

4. “Waste Of / Injury To Taxpayer Funds; Civil Code allows taxpayers to [restrain and prevent] any illegal waste of or injury to ‘public funds.’ The CTA requests the Court to [compel] the City to stop collection of funds to pay debt service on the “Phantom Bond” and to refund all funds to the ratepayers… illegally collected from the imposition of the rate increase in February 2010.” This asks the Court to compel the City to refund ratepayers for any illegally collected taxes and fees, as outlined above.

The CTA requests that residents join the effort to lower water rates by donating to the legal fund to help defray expenses. Please mail donations to:

                                                                                             Capistrano Taxpayers Association 
                                                                                                            P.O. Box 1452
                                                                                               San Juan Capistrano, CA 92675

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                        CAPISTRANO TAXPAYERS ASSOCIATION FILES LEGAL ACTION
                                                 AGAINST CITY OVER WATER RATES

After offers to discuss remedies were ignored by the City, attorneys representing the Capistrano Taxpayers Association (CTA)* filed a lawsuit against the City on August 29. According to attorney Ben Benumof of Wilcox / Benumof in San Clemente, the legal action, called a “writ of mandate” asks the court for several findings, as outlined below.

Tiered Water Rates

The first is to find the tiered water rate schedule imposed by the City Council to be unconstitutional under the provisions of Proposition 218, which limits the fees Cities may impose. Under Proposition 218, the City must show it has based all fees for property-related services on the actual cost of the service. The CTA believes the tiered rate structure for Tiers 2 through 4 punish the water users for failure to meet City-imposed water allocations. The writ of mandate asks the court to invalidate the tiered structure unless the City can prove the structure is actually based on cost of service.

The "Phantom Bond"

Under the complaint, the CTA also charges that the City increased water fees to provide funding for a planned $18 million municipal bond sale. Water rates were increased in February 2010, by $1.3 million per year for 30 years, to repay the planned bonds. However, the City was unable to sell the bonds because of their lack of reserves so the bond sale was cancelled. But the City kept the $1.3 million per year in the rate structure to be used for other utility costs. Thus, ratepayers have been charged $1.3 million per year to pay for a bond that doesn’t exist (hence the term “The Phantom Bond”).

The CTA believes this action by the City violates the provisions of Proposition 218 because the City did not sell the bonds and did not incur the costs of debt repayment but instead used and is still using the money to fund other utility costs. The CTA asks the court to set aside the money in an escrow account to fund the bond whenever it is issued.

Waste of Taxpayer Funds

The final cause of action asks the court to compel the City to buy water for City residents from the least expensive available source. To do otherwise is an obvious waste of taxpayer money.

Since 2004, the City has operated the Ground Water Recover Facility (GWRP) that pumps water from underground and filters it to remove all of the contamination. The resulting purified water furnishes a portion of the City’s drinking water supply. The City also purchases drinking water from the Metropolitan Water District (MWD) to supplement the water supply. The MWD gets their water from Northern California and from the Colorado River.

It costs the City about $1400 per acre foot to produce its own drinking water (this amount varies; in August the cost per acre foot was as high as $2400) while the MWD charges about $860 per acre foot for its water. The City council maintains that it must have a “diverse” water supply to protect the public during an emergency, so it continues to spend taxpayer monies to maintain and expand this redundant source of water. The MWD has supplied water to California Cities for over 100 years in times of war, earthquakes, and other natural emergencies. The CTA believes the City is wasting taxpayer money and risking financial disaster by generating multi-million dollar deficits while raising water rates by over 105% since the GWRP has been in operation.

The CTA requests that residents join the effort to bring lower water rates to the City by donating to the CTA legal fund to helpdefray the cost of litigation. With your help and support, our goal is to force the City to be fiscally responsible in the expenditure of our tax dollars. Please mail donations to:
 
                                                                                            Capistrano Taxpayers Association
                                                                                                           P.O. Box 1452
                                                                                            San Juan Capistrano, CA 92693-1452

* The CTA is a local 501(c)4 nonprofit public interest corporation formed in response to community concerns about issues such as the rising cost of water, water rate increases, the increase of debt obligations, and various other City-imposed fee increases passed by the City council.

See copy of complaint here:
http://tinyurl.com/8lc3nj3 

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Press Release...

                    CTA Serves City with 'Notice of Intent' over Tiered Water Billing System

Thursday, August 2, 2012, San Juan Capistrano CA
 - Today the Capistrano Taxpayers Association ("CTA") represented by attorney Ben Benumof of Wilcox/Benumof in San Clemente, hand delivered to the City Clerk of San Juan Capistrano a Notice of Intent letter.

The letter represents the first procedural step in filing a lawsuit in OC Superior Court against the City over the tiered water billing system, which the CTA believes is in violation of Proposition 218.

The letter sets forth the CTA's position that the water billing system is not a cost-based one, but rather an arbitrary and punitive one, and is therefore not in conformance with Proposition 218.

The CTA also informed the City of their belief that monies are being illegally collected from the ratepayers for a bond that was never issued. The bond, which the CTA has dubbed "The Phantom Bond", was supposed to have been used to fund the expansion of the City's Ground Water Recovery Plant ("GWRP") however, while the plant was never expanded the monies for the Phantom Bond are continuing to be collected from the ratepayers.

Included in the letter was notification of the CTA's position that the cost of recycled water is being improperly subsidized by the domestic water users (the residential ratepayers).

In the letter, the CTA maintains that since it opened in 2004, the GWRP has failed to meet its design output due to design flaws, MtBE contamination and mismanagement. As a result, water rates have increased by more than 105% and the GWRP accumulated a multi-million dollar operating deficit in 2010. The CTA believes this has driven up rates, making the cost of water nearly twice what it would cost to buy it from the local water authority, the Metropolitan Water District.

The CTA is asking the City to take the following actions to avoid a lawsuit being filed:

- Abandon the tiered water rate structure

- Stop collection of funds for the "Phantom Bond"

- Base the recycled and agricultural water rates on cost, as required by Prop 218; and

- Purchase water from the least costly available source "to eliminate taxpayer waste and injury".

Click on the following link to read a copy of the letter:

Notice of Intent

On August 6, Attorney Ben Benumof representing the CTA, delivered the following letter to the City in a final attempt to avoid a costly lawsuit through negotiation.

Click on the following link to read a copy of the letter:

Letter to City - Final Request for Documentation