City of San Diego Sued for Violating Taxpayer-Protective Prop. 218

In November, 2012, the San Diego City Council approved a project for the installation of so-called “smart water meters” based on the City’s desire for better water management and conservation.   Two years ago, the City estimated the cost of the project at $60 million.

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To pay for it, the City’s utility department recommended the City’s water enterprise apply for a $42 million state loan representing 70% of the project cost.  The utility department recommended an allocation for the remaining $18 million, or 30% of the cost, to come from the City’s separate and distinct sewer enterprise.

10 months later in December 2016, the utility department reported to the City’s Independent Rate Oversight Committee that instead of the sewer enterprise’s original allocation of 30% of the project cost, it would now bear 50% of the cost, a difference of some $12 million at the time.  The reason given to the oversight committee was that water customer usage is used for sewer billing.

In its December 19, 2016 annual report, the rate oversight committee found that even if the City’s 50-50 logic about sewer billing applied, sewer bills are calculated from only two out of eight bi-monthly water bills, compared to six out of eight that are used for water billing.  As the independent oversight committee put it, “[B]y logic and proportionality, not more that 25 percent (and likely less) [of the project cost] should be assigned to sewer customers.”

The California Constitution (Proposition 218) mandates that funds from sewer revenues cannot be used for any purpose other than the conveyance and delivery of wastewater and sewer services.  In other words, any costs paid by the sewer enterprise must represent only the cost of providing sewer service, and not water service.

Any smart meter project costs allocated to the sewer enterprise must be proportionate to the burden borne by, or benefits conveyed upon, each sewer enterprise’s customer.  Simply put, this was an unconstitutional grab for at least $16 million of excess sewer enterprise funds.

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