HomeMy WebLinkAbout14 Proposition 26 Agenda Item # 14
...........
RUCKEE DONNER
HI i Ic
PUb1*1C Ut", ty D*str' t
WORKSHOP
To: Board of Directors
From: Steven Poncelet
Date: February 16, 2011
Subject: Discussion of California Proposition 26, the Supermajority Vote to
Pass New Taxes and Fees Act
1. WHY THIS MATTER IS BEFORE THE BOARD
This item is before the Board as setting electric rates and defining utility programs is
within the purview of the Board. The passage of Proposition 26, "Supermajority Vote
to Pass New Taxes and Fees", may impact how the Board sets rates and defines
programs in the future.
2. HISTORY
The Board establishes new electric rates and customer programs. Historically, the
requirements that the Board needed to follow in setting new electric rates and
establishing new customer programs has been the 'Rule of Reasonableness' which is
a very deferential standard. California Proposition 13 (1978) established that fees
cannot exceed estimated reasonable costs or they require voter approval. Prop 13
further went on to say that costs must be equitably allocated among the users but
case law has never applied to electricity rates. California Proposition 218 established
similar requirements for water rates but Proposition 218 specifically exempts electrical
service charges.
3. NEW INFORMATION
The voters of California passed Proposition 26 in November of 2010. Proposition 26
defines tax for purposes of constitutional restrictions on taxes to mean "any levy,
charge, or exaction of any kind imposed by a local government." Proposition 26 lists
seven exceptions to this requirement, otherwise the implication is that non-exempted
fees and levies requires voter approval (2/3 majority). The seven exceptions include:
fees based on cost of service or product; fees subject to Proposition 218; fees
imposed as a condition of development; fines and penalties; charges for use of or
entrance to real property; and regulatory fees (significantly constrained).
For the application of the Proposition 26 exceptions to electricity rates, the cost of
service or product exception appears to be the best fit and the following excepts from
voter approval requirements appear to apply: "imposed for a specific government
service or product"; "provided directly to the payor"; "that is not provided to those not
charged"; and "which does not exceed the reasonable costs to the local government
of providing the service or product." The meaning of "costs of providing the service"
requires that the estimated costs are reasonable and that the costs are equitably
allocated among the users of the service. The other Proposition 26 exception that
may apply is the regulatory fees; if the District is required to levy a fee by law, it would
be exempt from Proposition 26 requirements.
The next steps in the implementation of Proposition 26 is to see how this broadly
worded measure is interpreted in the Courts. This process has already started with
the recently announced law suite against Redding Electric Utility (a municipality) which
is being sued over 'payments in-lieu of taxes' that they transfer to the City of Redding.
Although this law suit does not directly impact the District (or any PUD since we do not
make General Fund transfers), the Courts interpretation of Proposition 26 could,
eventually, impact how the Board sets electric rates and, in particular, tiered rates or
differential rates (low-income/senior rates or commercial vs. residential). The true
impacts of Proposition 26 will likely take multiple years to become evident and the
District, NCPA, and may others will be following developments to ensure that the
District remains in compliance.
4. FISCAL IMPACT
The fiscal impacts of Proposition 26 on the District are yet to be determined. There
are no fiscal impacts associated with this workshop item.
5. RECOMMENDATION
Receive this report and provide omment and direction.
Steven Poncelet Michael D. Holley
Public Information & Conservation Manager General Manager