by Kimberly Rivers
In a decision dated Dec. 28, 2020, signed by Hon. Matthew P. Guasco of Ventura County Superior Court, the city of Oxnard has been ordered to return $34 million back to the city’s utilities funds. The money was transferred over several years to the city’s general fund in what the court deemed is a process unsupported by how the city calculates costs of those services.
The decision is the result of legal action filed in 2017 by Oxnard resident Aaron Starr, who is frequently embroiled in city controversy when he raises complaints, funds ballot measures, runs for office and files legal action. In this matter he alleged that the city was charging residents a fee for a particular service, like water, then transferring at least a portion of that fee into the city’s general fund. This essentially makes the fee a tax because, as defined by state law, it is no longer tied directly to the costs of those utilities. Taxes must be approved by a vote of the people.
While the court has ordered the city to put all the money transferred to the general fund back into the funds for the various applicable utilities, the court did so “without prejudice” against the fees themselves, saying the city needs to change the way it calculates the fees, called Infrastructure Use Fees (IUFs), and the amount of any transfers to the general fund, because the current method is flawed, resulting in a violation of state law. The court also said that certain “indirect costs” associated with various utilities can be covered by these fees, but the city has to correct the way it calculates those costs.
“The Court’s ruling…explains that the City’s action was not illegal but rather the City implemented the IUF wrongly and improperly, therefore the City must return the $34.5M IUF funds to the utilities,” said Alexander Nguyen, city manager of Oxnard in a written statement issued Dec. 30. “The ruling makes it clear that the City can in fact implement the IUF if done so correctly.”
Fees vs. taxes
The court order cites California Propositions 13, 26, and 218 as prohibiting “municipalities from enacting special taxes in the guise of use fees or surcharges without voter approval.” A use fee may not “exceed the sum required to provide property related services,” and “revenues…from a use fee” can’t be used for anything “other than that for which the fee is imposed.” Use fees cannot be used to fund services like fire, police, street work and other services that are available to all members of the public to the same extent. Use fees must be tied to the cost of services provided to that specific property.
Prop. 218 puts the burden on the municipality to prove “by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the governmental activity,” and that how those costs are allocated “to a payor bear a fair or reasonable relationship to the payor’s burdens on or benefits from the governmental activity.”
Starr alleged the city “violated” these prohibitions, and thus the California Constitution by charging residents a “use fee…for water, waste water, and solid waste disposal services,” which was not directly tied to the cost of individual property service.
The court order states, “Starr argues that the IUFs exceed the reasonable sum associated with providing the respective services to property owners,” and that Oxnard “transferred IUF fees from the utility services budget to City’s general fund,” in higher amounts than it costs the city to subsidize the cost of utility services.
The allegations include transfers of funds that occurred starting in 2014-15 fiscal year through 2017, with some continuing today.
The city argued the transfers were appropriately tied to costs as determined in a 2012 cost-of-services study. The court found that study flawed.
The court found against the city and the order states that the “city has failed to meet its burden of proving that the IUF transfers responsibly represent the cost” of the city providing the various services to property owners.
The order directs the city to stop transferring any more funds from the utility funds to the general fund, “based on the current methodology,” and orders the city to “restore to the respective utility funds all IUF monies transferred to the public safety, government agency and streets and roadway funds” for the applicable years.
The court clarified that the “ruling is without prejudice to [the] City’s establishment of an IUF transfer methodology which reasonably represents the actual cost” to the various city sectors at issue and states there may be indirect costs in those sectors that can be covered by IUFs.
“The court simply finds the city has failed to prove its current method of calculating IUF transfers complies” with state law.
The court did not go so far as to grant Starr’s request that the city be compelled to rescind the IUFs, stating “these claims are not supported by the law or the evidence.”
Full order issued by Ventura County Superior Court: Oxnard IUF Court Order Dec 28 2020