The Numbers Are In — The Illegal Water Tax Cost Us $27 Million Since 1997

The City of Fullerton bookkeepers have provided us with a summary of the money illegally added to our water bills over the last 15 years, and boy does it add up. You see, 10% has been added on to our water rates, then immediately siphoned off to pay for non-water related expenses.

Where does the money go, you ask? Well, among other things it  goes to pay for Pat McKinley’s bloated pension, stays at four-star hotels for Don Bankhead and Dick Jones, etc., etc., etc. Feel violated by the scam? You should.

Here’s the shameful tally. Read. Weep.

Year Illegal Franchise Tax
1997  $704,480.50
1998  $1,281,107.00
1999  $1,364,716.00
2000  $1,456,399.00
2001  $1,435,202.00
2002  $1,558,578.00
2003  $1,576,091.00
2004  $1,775,133.00
2005  $1,771,294.00
2006  $2,065,417.00
2007  $2,287,693.00
2008  $2,278,041.00
2009  $2,388,515.00
2010  $2,479,930.00
2011  $2,532,595.00
 Total  $26,955,191.50

Howard Jarvis Will Challenge Fullerton’s Illegal Water Tax

It looks like our city may be in for another lawsuit. Check out this letter that was sent from the Howard Jarvis Taxpayers Association just before Turkey Day (emphasis mine):

Mr. Joe Felz, City Manager
City of Fullerton
303 W Commonwealth Avenue
Fullerton,CA 92832

Re:  Water Department “In Lieu Fees”

Jack Dean, a friend of the Howard Jarvis Taxpayers Association, has brought to our attention that the City of Fullerton pads the rates charged to water customers in order to transfer funds from the Water Fund to the General Fund.  These transfers appear in the City’s Budget under Water Fund expenses and General Fund revenue as a 10% in-lieu franchise fee.  We believe the fee and revenue transfers are illegal.

If a private company provided water service to the residents of Fullerton, the City could charge the private company a negotiated franchise fee for occupying public rights of way with its pipelines.  That is not the case in Fullerton, however, as the City operates its own municipal water utility.  The rates the City may charge are governed by the California Constitution, which limits rates to just the amount required to provide service, and prohibits transferring rate revenue for use elsewhere.

California Constitution article XIII D § 6(b) states in relevant part: “(1) Revenues derived from the fee or charge shall not exceed the funds required to provide the property related service. (2) Revenues derived from the fee or charge shall not be used for any purpose other than that for which the fee or charge was imposed.”

We successfully litigated this issue several years ago in lawsuits against the cities of Roseville and Fresno.  The courts in those two cases ruled that a city’s utility enterprise can reimburse the General Fund for actual, documented expenditures incurred on behalf of the utility, such as the utility’s use of the City Attorney’s services, or the utility’s share of a common insurance fund.  However, the utility cannot serve as a supplemental source of revenue for the General Fund.  As the court in the Roseville case said:

“[T]he in-lieu fee violates section 6(b) of Proposition 218 in a more direct way. Roseville concedes that ‘[r]evenue from the in [-]lieu franchise fee is placed in [Roseville’s] general fund to pay for general governmental services. It has not been pledged, formally or informally[,] for any specific purpose.’ This concession runs afoul of section 6(b)(2) that ‘[r]evenues derived from the fee or charge shall not be used for any purpose other than that for which the fee or charge was imposed.’ It also contravenes section 6(b)(5) that ‘[n]o fee or charge may be imposed for general governmental services.’”Howard Jarvis Taxpayers Assn. v. City of Roseville (2002) 97 Cal.App.4th 637, 650.

By this letter we are formally requesting the City of Fullerton to stop charging the 10% in-lieu franchise fee, and to adjust its customers’ water rates accordingly.

If the City believes its 10% in-lieu franchise fee is legally defensible, then please consider this letter a request under the California Public Records Act for copies of the study(s) and/or accounting(s) that itemize General Fund costs on behalf of the Water Fund totaling exactly 10% each year.

Your response by December 10, 2011, would be appreciated.


Timothy A. Bittle
Director of Legal Affairs

The tax became a big issue back in July, when a guy named Jack Dean from the Fullerton Association of Concerned Taxpayers pointed out the illegality of this water tax to the council (during an attempt to double water rates.)

Well, it’s been four months now, and Fullerton residents are STILL PAYING that illegal tax on every water bill.

Of course Bankhead, Jones and McKinley are waiting for the city attorney to find a way to squeeze that tax through a legal loophole, instead of rescinding it and refunding the money they’ve been helping the city steal from taxpayers since Prop 218 passed fifteen years ago.

How about a refund?