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Judge Tosses Castaic Lake Water Agency’s “Special Tax” on Valley Water Users

Posted: July 11, 2014 6:52 p.m.
Updated: July 11, 2014 6:52 p.m.

Newhall, Calif. (July 11, 2014) -- Los Angeles County Superior Court Judge James C. Chalfant ruled Thursday that Castaic Lake Water Agency (CLWA) must rescind an illegal “special tax” imposed on Valley water users last July.

Newhall County Water District (NCWD) challenged the tax in court after warning CLWA it violated state law and concluding it would almost double imported water costs for NCWD's 45,000 customers. If left in place, CLWA’s special tax had the potential to cost NCWD’s customers approximately $1 million – or $75 per customer – every year.

“This is an outstanding victory for our customers,” said B.J. Atkins, NCWD’s Board President. “Simply put, this was an unfair tax and we are pleased the courts have required CLWA to return to a more equitable, lawful way of doing business.”

Under the rate scheme in question, CLWA – the region’s sole water importer and wholesaler – attempted to charge the Valley’s four water retailers a “fixed rate” for imported water. However, this fixed rate was charged regardless of the amount of imported water needed or used by customers of the retailers, which include NCWD, Valencia Water Co., Santa Clarita Water Division and LA County Waterworks, District 36.

Judge Chalfant determined CLWA’s approach had “no reasonable relationship” to the services it provided to its retail customers and deemed it a special tax on groundwater supplies. As a tax, CLWA’s new rate violated Proposition 26 – a voter-approved provision of the State Constitution which requires a vote of the people to enact special taxes and certain kinds of fees. CLWA was ordered to rescind the tax and revert to the previous structure until new, lawful rates are adopted.

“[CLWA’s new rates] are special taxes not approved by the voters and must be put aside,” concluded Judge Chalfant.

The tax was approved by the CLWA Board of Directors in a 10-1 vote in January 2013 and went into effect July 1 of that year.

“This tax made no sense,” explained Atkins. “In any business, customers expect to pay for the cost of services they use – nothing more, nothing less. Despite our warnings, the CLWA Board ignored this basic principle. But I am pleased with the judge’s decision and hope it leads to more commonsense and fairness in how CLWA charges for water.”

As part of the ruling, the Judge determined CLWA must also refund approximately $61,000 in taxes paid by the District and its customers.

“Any savings generated as a result of the ruling will be passed through to the District’s customers,” said Steve Cole, NCWD’s General Manager.

Michael Colantuono, NCWD’s outside counsel for the case, commented: “Judge Chalfant plainly worked hard on this case, and his 18-page, tightly reasoned ruling is persuasive and will almost certainly survive appellate review if Castaic continues to litigate.”

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