A Los Angeles Superior Court judge has tentatively ruled that the city of Long Beach’s practice of transferring surplus revenue from water and sewer utilities to its general fund is unconstitutional.
Passed by voters in June 2018, Measure M authorizes the city to transfer revenue from its water, sewer and gas utilities to the general fund to support public safety and other services. The measure generates about $26 million annually for the city’s general fund.
The practice has been carried out for decades, but in recent years, it has faced challenges in two separate lawsuits from residents.
The Jan. 2 ruling from Judge James Chalfont is the result of a lawsuit against the city from residents Diana Lejins and Angela Kimball, who argued that the city’s practice of raising utility rates to generate more revenue than needed to provide the service was a form of illegal taxation on utilities users.
The judge, in part, agreed, stating that the process violates Proposition 218 in the California Constitution, which places limitations on how local governments may impose fees as an incident of property ownership.
“The city has not met its burden to prove that its general tax—which is blended in utility charges and is not a commodity charge based on actual usage—is not imposed upon ratepayers as an incident of property ownership,” Chalfont wrote.
The judge also said the city lacked the authority to tax water customers outside its jurisdiction.
The city in a statement on Monday noted that the lawsuit does not repeal Measure M, but it does question the voter-approved water and sewer revenue transfer. The gas revenue transfer, which amounts to about half of the revenue under Measure M, is not in question and will continue, officials said, noting that Sacramento has faced a similar challenge and is appealing its case.
The city said it plans to appeal the decision.
Measure M was prompted by lawsuits arguing that state laws prohibit cities from imposing taxes without voter consent.
The city settled on one of those lawsuits in November 2017 and agreed to return $12 million to the city’s water department’s water and sewer line funds and to transfer less revenue annually going forward.
*Editors Note: This article was updated to reflect that the judge found the transferring of surplus revenue from water and sewer utilities to the city’s general fund is unconstitutional.
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