Long Beach will have to pay back its own water department over $30.8 million after the California Supreme Court rejected the city’s appeal of a lower court’s decision in December 2021 that its long standing practice of charging fees to access water and sewer lines was unconstitutional.
The city has charged its own water department fees for decades and transferred some of the excess funds into the city’s general fund to support citywide needs. Long Beach voters codified the practice when they approved Measure M in 2018, which the city thought would make the revenue transfers legal.
However, in December appellate court ruled that the practice was unconstitutional and went against California law that prohibits water agencies from charging customers more than what it costs to provide water to their homes.
The immediate hit to the city could require it to take out judgment bonds, which would affect its budget for decades. The city will have to pay $9 million to the water fund in the next 30 days and the remaining balance of over $21.8 million in the next 180 days.
The loss of revenue is expected to start affecting ongoing budgets starting in October 2023, when the city will have a permanent loss of $9 million from Measure M fees.
“It has been a long road, but our victory proves that you can fight city hall,” Diana Lejins, one of the residents who sued the city over the practice, said in a statement.
How Long Beach will pay for the remainder is not clear. A city statement said it could use judgment bonds, which would tack on interest charges, to cover the gap. While the city had begun transferring funds into an escrow account due to a 2020 court order, it only has $9 million set aside.
It has sepereately put aside $15.7 milllion in reserves that will help soften the blow for this year’s budget and next year’s, but because it had expected about $18 million in transfer fees there is now a smaller $2.3 million hole that will have to be resolved.
It will have to come up with a way to pay the remaining $21.8 million to the water department likely as soon as September, depending on when final court orders are issued.
It’s unclear if Long Beach Water Department customers will be receiving a refund after the city transfers money back to the water department’s accounts.
Long Beach had been riding a wave of good news regarding its fiscal budget. What was originally forecasted as a $36 million deficit that needed to be addressed this year had shrunk to $12 million, according to a presentation given to the City Council earlier this month.
The city had appealed to the Supreme Court because it thought it had a legitimate shot at winning the case given that an appellate court in Northern California had ruled favorably in a similar case involving the city of Sacramento.
Long Beach City Attorney said the city and other agencies really felt it was important for the Supreme Court to give clarity on the issue but with its denial to hear the case this week the city is now out of appeals.
Editors note: An earlier version of this story had incorrect figures for the amount of money the city will owe the Long Beach Water Department. It has been updated.