Lucinda Malott v. Summerland Sanitary District
Case No: 18CV01923
Hearing Date: Mon Apr 08, 2019 9:30

Nature of Proceedings: Motion Judgment on Writ of Administrative Mandamus, Memorandum of Points Authorities Declarations

Lucinda Malott etc. v. Summerland Sanitary District (Judge Sterne)

Case No. 18CV01923

Hearing Date: April 8, 2019

HEARING: Petition for Writ of Administrative Mandate

ATTORNEYS:

For Petitioner Lucinda Malott, successor trustee u/d/t dated September 3, 1998, f/b/o the Carol Nantker Family Trust: James H. Smith, Rogers, Sheffield & Campbell, LLP

For Respondent Summerland Sanitary District: William H. Hair, Gregory J. Patterson, Musick, Peeler & Garrett LLP

TENTATIVE RULING:

For the reasons set forth herein, the petition of petitioner Lucinda Malott for issuance of writ of administrative mandate is denied.

Background:

This is a petition for writ of administrative mandate challenging residential sewer service (also known as wastewater) rates adopted by respondent Summerland Sanitary District (District) in its Ordinance 19.

(1) Sewer Service and Rates

District is a special district that provides wastewater services to most of the Town of Summerland. (Administrative Record [AR], exhibit 8, p. 41.) The service area is different from the town boundaries. (Ibid.) In 1991 District’s treatment plant was upgraded to a tertiary treatment facility processing up to 0.3 million gallons per day (MGD) of wastewater. (Ibid.) The collection system consists of nearly nine miles of pipe and three lift (pumping) stations. (Ibid.) Treated wastewater is discharged through a 12 inch-diameter ocean outfall, 740 feet offshore into the Pacific Ocean. (Ibid.)

District charges customers a fixed annual service charge. (AR, exhibit 8, p. 43.) The service charge is assessed on a customer’s property tax bill and is charged per equivalent dwelling unit (EDU). (Ibid.) For example, a single family residential home is a single dwelling unit, a duplex is two dwelling units, and a housing complex with 12 apartment units is 12 dwelling units. (Ibid.) Non-residential property is allocated equivalent dwelling units according to a user classifications. (AR, exhibit 8, table 3-1, p. 43, exhibit 18, pp. 265-266 [Ordinance 19].) Prior to Ordinance 19, the fixed annual service charge was $1,024 per EDU. (AR, exhibit 8, p. 44.)

In July 2017, District retained Raftelis Financial Consultants, Inc. (Raftelis) to conduct a rate study to recommend revisions to the wastewater rates and to provide the basis for the recommended revisions. (AR, exhibits 1, 2.) The result was a Financial Plan and Rate Study, dated December 6, 2017 (Rate Study). (AR, exhibit 8.)

The Rate Study analyzed District’s projected financial needs for fiscal years (FY) 2019 through 2023 and compared those financial needs with projected revenue from current rates. (AR, exhibit 8, pp. 44-51.) The Rate Study concluded that revenue adjustments of 3.5 percent per year were necessary to provide sufficient funding of operating and capital expenses through FY 2023. (Id., p. 49.) The Rate Study addressed the issue of the EDU cost definition by analyzing the relative costs associated with collecting and treating wastewater and allocating those costs among assets to wastewater flow (i.e., quantity), quality of wastewater with respect to biological oxygen demand pollutants (BOD), and quality of wastewater suspended solids pollutants (SS). (Id., pp. 52-55.) The analysis concluded that the proportional allocations were close enough to current allocations given margins of error that current customer EDUs are appropriate to calculate rates. (Id., p. 55.) Applying current allocations to the projected financial needs, the Rate Study calculated annual unit cost of service to be equal to the following proposed rates: $1,060 for FY 2019; $1,098 for FY 2020; $1,137 for FY 2021; $1,177 for FY 2022; and, $1,219 for FY 2023. (Ibid.)

(2) Rate Setting Process

District began the rate setting process at issue in July 2017 when it retained Raftelis. (AR, exhibits 1, 2.) Raftelis met with District staff and identified data required for the Rate Study and proposed a project schedule. (AR, exhibits 2, 3.) Raftelis presented its initial analysis to the District Rate Study Committee on November 2, 2017. (AR, exhibits 4, 5.) The Rate Study Committee reported to the District Board later on November 2. (AR, exhibit 7, pp. 28-29.) The Board determined to have action items regarding the Rate Study placed on the December agenda. (AR, exhibit 7, p. 29.)

At the December 14, 2017, Board meeting, the District Board received a presentation of the Rate Study and the recommendations, which the Board approved. (AR, exhibit 11, p. 173.) The Board authorized distribution of a Proposition 218 notice of hearing (Notice) and public hearing on the rate increase for February 8, 2018. (Ibid.) The Notice includes the following:

“The Board of Directors, with input from District management and outside financial consultants have determined that it is necessary to adjust the service charge by 3.5% for next fiscal year and 3.5% annual for each ensuing 4-years. These modest sewer service charge rate increases will ensure the current level of service, as well as moving forward with treatment plant and infrastructure replacement projects.

“The rates proposed herein were developed through a Comprehensive Wastewater Financial Plan and Rate Study designed to meet all legal requirements and fairly and equitably recover the required revenue from all consumer classes. The Rate Study is for review at [website for District].

“The District’s current annual charge per equivalent dwelling unit is $1,024. The table below shows the rate adjustments proposed. These rates would become effective on July 1st of each year through June 2023. [Table follows showing rates per EDU and percentage increases through FY 2022/23.]” (AR, exhibit 12, p. 175.)

The Notice also includes a statement of procedures for filing a written protest. The second page of the Notice is a chart showing the fees in FY 2018-2022 for each of the user classifications, including a statement of equivalent units (i.e., EDUs) for each user classification. (AR, exhibit 12, p. 176.)

The Notice was mailed on December 20, 2017, to all record owners of parcels subject to the charges. (AR, exhibit 17, p. 261.) The Notice was also published in a newspaper of general circulation. (Ibid.)

At the public hearing on February 8, 2018, no member of the public appeared to testify, to protest, or to otherwise offer comments or evidence as to the proposed increase. (AR, exhibit 17, p. 261.) One written protest, not by the petitioner here, had been received by the time of the public hearing. (Id. & exhibit 15, p. 244.) The written protest asked three sets of questions and was read at the hearing. (AR, exhibit 16, p. 246.) Staff at the hearing reported that the author of the protest had been contacted and answers to the questions provided. (AR, exhibit 16, p. 247.) There was thus no majority objection to the rate increase. (AR, exhibit 17, p. 262.) District thereafter certified the results of the protest procedure and adopted Ordinance 19. (Id. & exhibit 18.)

(3) Petitioner in this Action

Petitioner Lucinda Malott is the successor trustee of the Carol Nantker Family Trust (Trust). (Malott decl., ¶ 2.) Real property located at 160 Evans Avenue, County of Santa Barbara, (the Property) is owned by the Trust. (Malott decl., ¶ 3 & exhibit 2.) The Property is improved with a 30 unit apartment building. (Malott decl., ¶ 4.) Each of the 30 units on the Property is approximately 550 square feet, with one bedroom and one bathroom. (Malott decl., ¶ 5.) Each unit is occupied by one or up to a maximum of two individuals. (Malott decl., ¶ 6.) Based on the 30 units, petitioner is billed by District based on 30 EDUs for the Property. (Malott decl. ¶ 7.)

Neither Malott nor any other person on behalf of the Trust or the Property filed a written protest to the rate increase or appeared at the public hearing for the rate increase. (See AR, exhibits 15, p. 244, 16, pp. 246-247, 17, pp. 261-262.)

On April 17, 2018, Malott filed her original petition for writ of administrative mandamus. By this petition, Malott seeks to invalidate Ordinance 19.

On May 17, 208, District filed its response to the petition, admitting and denying various allegations and generally denying that Ordinance 19 is invalid.

Analysis:

(1) Legal Framework

This petition asserts that Ordinance 19 is invalid because it violates procedural and substantive requirements of California Constitution, article XIII D (Proposition 218).

The parties agree that the sewer service charge at issue here is a property-related fee subject to article XIII D. (Petition, ¶ 17; Answer, ¶ 17.)

“Procedures for New or Increased Fees and Charges. An agency shall follow the procedures pursuant to this section in imposing or increasing any fee or charge as defined pursuant to this article, including, but not limited to, the following:

“(1) The parcels upon which a fee or charge is proposed for imposition shall be identified. The amount of the fee or charge proposed to be imposed upon each parcel shall be calculated. The agency shall provide written notice by mail of the proposed fee or charge to the record owner of each identified parcel upon which the fee or charge is proposed for imposition, the amount of the fee or charge proposed to be imposed upon each, the basis upon which the amount of the proposed fee or charge was calculated, the reason for the fee or charge, together with the date, time, and location of a public hearing on the proposed fee or charge.

“(2) The agency shall conduct a public hearing upon the proposed fee or charge not less than 45 days after mailing the notice of the proposed fee or charge to the record owners of each identified parcel upon which the fee or charge is proposed for imposition. At the public hearing, the agency shall consider all protests against the proposed fee or charge. If written protests against the proposed fee or charge are presented by a majority of owners of the identified parcels, the agency shall not impose the fee or charge.” (Cal. Const., art. XIII D, § 6, subd. (a).)

“Requirements for Existing, New or Increased Fees and Charges. A fee or charge shall not be extended, imposed, or increased by any agency unless it meets all of the following requirements: [¶] … [¶] (3) The amount of a fee or charge imposed upon any parcel or person as an incident of property ownership shall not exceed the proportional cost of the service attributable to the parcel.” (Cal. Const., art. XIII D, § 6, subd. (b)(3).)

“In any legal action contesting the validity of a fee or charge, the burden shall be on the agency to demonstrate compliance with this article.” (Cal. Const., art. XIII D, § 6, subd. (b)(5).)

As discussed below, Malott asserts that Ordinance 19 violates Proposition 218 because the notice of the public hearing is insufficient and because the charge per EDU exceeds the proportional costs of service for a 30 unit apartment building.

“[I]n Proposition 218 challenges to agency action, the agency had to bear the burden of proof of demonstrating compliance with Proposition 218, and both trial and reviewing courts are to apply an independent review standard, not the traditional, deferential standards usually applicable in challenges to governmental action.” (Capistrano Taxpayers Assn., Inc. v. City of San Juan Capistrano (2015) 235 Cal.App.4th 1493, 1507, italics omitted; accord, Silicon Valley Taxpayers’ Assn., Inc. v. Santa Clara County Open Space Authority (2008) 44 Cal.4th 431, 448.)

(2) Request for Judicial Notice and Record Issues

In support of her petition, Malott requests that the court take judicial notice of: (Request for Judicial Notice [RJN], exhibit A) the Montecito Sanitary District’s Resolution No. 2016-897; (exhibit B) the City of Santa Barbara’s Resolution No. 10-041; and, (exhibit C) the Goleta Sanitary District’s Ordinance No. 90. Each of these resolutions set forth the respective agency’s sewer service rates and unit bases for charging such rates. The court will grant these requests for judicial notice. (Evid. Code, § 452, subd. (b).)

Malott attaches two declarations to the memorandum in support of the petition. The court addressed the issue of the propriety of these declarations in ruling on District’s motion to strike on October 29, 2018. In so ruling, the court determined that the Malott declaration may be used to provide limited background information necessary to assert her standing and to provide a specific example of the type of property to which the affected rates apply, but not to contradict any evidence in the administrative record. The court granted the motion to strike the declaration of Lynn Takaichi, petitioner’s expert. The Takaichi declaration was offered directly to challenge the correctness of the District’s decision and the evidence relied upon by the District. While granting the motion, the court made the following observation: “This ruling does not imply that the court cannot consider Takaichi’s underlying analysis as argument if, and to the extent, it is based upon the administrative record. To the extent that petitioner is correct that Takaichi’s opinion is intended to be helpful in understanding the administrative record, the helpfulness would be in drawing inferences and conclusions from the administrative record. In this context, that is essentially the function of the briefs on the merits: To apply the relevant law (here, the substantive constitutional requirements) to the facts (here, the information in the administrative record). (In this regard, the court reminds the parties of the importance of precise citation to the administrative record.)” (Order, filed Oct. 29, 2018, p. 3.)

The court’s purpose in making this observation was simply to point out that appropriate argument from the administrative record in a memorandum in support (including the identification of omissions from the administrative record) does not become inappropriate merely because the same argument was first raised in an improper extra-record expert declaration. Petitioner has attached the Takaichi declaration with the apparent intention of using the Takaichi declaration as a separate (and secondary) source for argument. As such, the Takaichi declaration merely repeats the arguments set forth in the memorandum where the declaration is cited. The court has reviewed the Takaichi declaration but does not find the attachment of the Takaichi declaration (as opposed to argument in the briefs) particularly helpful for this very limited purpose. To avoid any misunderstanding, the court emphasizes that it has not considered any part of the Takaichi declaration for any evidentiary purpose.

(3) Exhaustion of Administrative Remedies

As a procedural matter, District asserts that Malott’s challenge should be denied for failure to exhaust administrative remedies. In Plantier v. Ramona Municipal Water District (2017) 12 Cal.App.5th 856 (Plantier), review granted Sept. 13, 2017, S243360, the plaintiff asserted a very similar claim to the claim here, namely, that the defendant district set sewer service rates on an EDU basis without regard to a property’s actual wastewater use and hence not in compliance with Proposition 218’s proportionality requirement. (Id. at pp. 859-862.) Unlike the claim here, the claim in Plantier was a class action. (Id. at pp. 861-862 & fn. 6.) The trial court bifurcated trial and decided both that Proposition 218 includes an exhaustion of administrative remedies requirement and that plaintiffs had failed to exhaust those remedies by failing to participate in the public hearing process. (Id. at pp. 863-866.) The Court of Appeal reversed, holding that the plaintiffs were not required to exhaust administrative remedies. (Id. at pp. 867-868, 874-875.)

As the above citation to Plantier indicates, the California Supreme Court granted review to address the specific issue of whether participation in the public hearing is required before challenging the propriety of a proposed property-related fee or charge under Proposition 218. The Supreme Court heard oral argument in the Plantier case on March 5, 2019, and an opinion is now due. In deference to the Court of Appeal’s decision in Plantier and the impending decision of the Supreme Court, the court will assume without deciding that exhaustion by participation in the public hearing is not required and analyze the merits of the claims as discussed below. If the Supreme Court determines that exhaustion by participation in the public hearing is required, the petition here would be denied on that alternative basis because of petitioner’s failure to participate in the public hearing.

(4) Sufficiency of Notice and Administrative Procedural Issues

As quoted above, article XIII D, section 6, subdivision (a)(1), requires a written notice of the amount of the proposed fee or charge, the basis upon which the amount was calculated, the reason for the fee or charge, and the date, time, and place of the public hearing. Malott argues that the notice is insufficient because it failed to set forth the basis on which the amount of the proposed increase was calculated.

In Morgan v. Imperial Irrigation District (2014) 223 Cal.App.4th 892 (Morgan), the rate change notice identified the proposed rates as the rates recommended by the District’s finance department based on a cost of service study. (Id. at p. 901.) The notice included a description of the cost of service study and a web site that would allow customers to review the study. (Ibid.) The Morgan court found that the notice was sufficient where the rates as adopted were based upon the cost of service study as noticed. (Id. at p. 919.)

As quoted above, the notice here clearly states that the rates were calculated based upon the Rate Study, which was available in full on the District’s web site at the web location stated in the notice. The notice provides all of the information that was found sufficient in Morgan. While Malott makes the assertion that the notice is insufficient because it does not state the basis upon which the rates were calculated, Malott does not indicate what additional information could or should have been provided in the notice. The notice is constitutionally sufficient. To the extent that Malott asserts that the notice is insufficient because the stated basis is substantively insufficient, that argument is addressed below.

In its moving papers, Malott asserts that the administrative record shows that the District Board did not discuss Ordinance 19 at the public meeting prior to its adoption. Malott fails to provide any citation to authority that discussion by the District Board was in any way required prior to the adoption of Ordinance 19. Especially given the total absence of public participation at the hearing, the most reasonable inference is that the members of the District Board had read and considered the written information presented and decided their respective votes without the need for intra-Board discussion. In any event, by failing to provide legal authority that the conduct was improper, the court has no basis further to address this assertion. (See Rules of Court, rule 3.1113(a); Salehi v. Surfside III Condominium Owners’ Association (2011) 200 Cal.App.4th 1146, 1161-1162 [arguments not supported forfeited on appeal].)

(5) Proportionality of the Rates

The predominant argument made by Malott is that the residential sewer rates do not meet the substantive constitutional proportionality requirement because the residential rates are based upon a single variable, the EDU, and are not further refined by customer class. In making this argument, Malott points to customer classes that are used by the District for commercial customers. It is important to note that Malott is not a commercial customer and does not challenge the commercial customer classifications. Malott’s challenge is limited to whether the residential rates meet the constitutional proportionality requirement in comparing single family residences (such as a single family house on a parcel) and multi-unit buildings (such as Malott’s apartment building).

The proportionality requirement of Proposition 218 has been discussed by cases in various contexts. A useful discussion is found in Griffith v. Pajaro Valley Water Management Agency (2013) 220 Cal.App.4th 586 (Griffith), disapproved on another point in City of San Buenaventura v. United Water Conservation Dist. (2017) 3 Cal.5th 1191, 1209, fn. 6 (San Buenaventura). In Griffith, the court addressed an argument that groundwater augmentation charges violated the proportionality requirement of article XIII D, section 6, subdivision (b)(3):

“[The plaintiff] acknowledges that defendant apportioned the augmentation charge among different categories of users (metered wells, unmetered wells, and wells within the delivered water zone). But he argues that City of Palmdale v. Palmdale Water District (2011) 198 Cal.App.4th 926 … (Palmdale), holds that Proposition 218 proportionality compels a parcel-by-parcel proportionality analysis. We disagree with [the plaintiff].

“In Palmdale, the court reversed a judgment that had upheld tiered categories of water rates. It held that the water district had failed to carry its burden to justify disparate treatment of the customer classes. The case did not hold that parcel-by-parcel analysis was required. It held that the water district charged categories disproportionately ‘without a corresponding showing in the record that such impact is justified under [Proposition 218].’ [Citation.]

“Apportionment is not a determination that lends itself to precise calculation. [Citation.] In the context of determining the validity of a fee imposed upon water appropriators by the State Water Resources Control Board, the Supreme Court has recently held that ‘The question of proportionality is not measured on an individual basis. Rather, it is measured collectively, considering all rate payors.’ [Citation.]

“Given that Proposition 218 prescribes no particular method for apportioning a fee or charge other than that the amount shall not exceed the proportional cost of the service attributable to the parcel, defendant’s method of grouping similar users together for the same augmentation rate and charging the users according to usage is a reasonable way to apportion the cost of service. That there may be other methods favored by plaintiffs does not render defendant’s method unconstitutional. Proposition 218 does not require a more finely calibrated apportionment.” (Griffith, supra, 220 Cal.App.4th at p. 601.)

(Note: In San Buenaventura, the California Supreme Court held that groundwater augmentation fees were not fees or charges imposed upon a parcel as an incident of property ownership and hence not subject to Proposition 218. (San Buenaventura, supra, 3 Cal.5th at p. 1209.) San Buenaventura disapproved Griffith because the basis for Griffith’s analysis of groundwater augmentation fees was that Proposition 218 applied. (Id. at p. 1209, fn. 6.) The San Buenaventura court determined that the similar, but different standards of article XIII C applied instead. (Id. at pp. 1209-1214.) Because Griffith was disapproved insofar as it is inconsistent with San Buenaventura (id. at p. 1206, fn. 6), Griffith’s proportionality analysis under Proposition 218 remains as persuasive authority.)

Here, the fundamental issue is the level of calibration of proportionality that is constitutionally required and consequently the nature of evidence necessary for District to adopt rates based upon its selected level of calibration. The nature of this problem is discussed in the pre-Proposition 218 case of Boynton v. City of Lakeport Municipal Sewer District #1 (1972) 28 Cal.App.3d 91 (Boynton). In Boynton, the City of Lakeport (Lakeport) passed a resolution in 1967 setting regular monthly sewer fees for domestic users at $2.15 per month and for commercial users at 60 percent of the user’s monthly water bill. (Id. at p. 93.) In 1968, Lakeport changed its method of calculating sewer fees by adopting a resolution that established a minimum monthly charge of $3.00 and set additional charges according to the category in which a particular commercial enterprise was placed. (Id. at pp. 93-94.) Commercial establishments were classified according to the user of the property, such as trailer courts, hotels and motels, and restaurants. (Id. at p. 94.) Each category was assigned a number of units, generally using the number of available restrooms, kitchens, or people served. (Ibid.) The units were billed at $1.00 per unit per month. (Ibid.)

The plaintiff property owners in Boynton challenged the constitutionality of the method of the sewer rates. (Boynton, supra, 28 Cal.App.3d at p. 93.) The parties stipulated that no findings were adopted to support any of the unit charges. (Id. at p. 94.) It was also stipulated that no evidence existed justifying a different rate or charge because of the kind or nature of the sewage. (Ibid.) All of the users of the sewer facilities were also users of the municipal water supply on a metered basis as the sole source of water from which sewage might be generated. (Ibid.) The plaintiffs prepared an exhibit comparing water usage and sewer service charges showing that users in some categories are charged more per unit of sewage based on water use than users in other categories. (Ibid.)

The Boynton court applied the general principles then applicable: “ ‘[T]he charges must be reasonable, fair and equitable, must be fixed by ordinances which are not arbitrary, and must be uniform and without discrimination against particular property owners.’ [Citations.] The assessment must be proportional and not in excess of the benefits received.” (Boynton, supra, 28 Cal.App.3d at pp. 94-95.) The plaintiff argued that the classifications made by Lakeport were not in accordance with their effect upon the system and that the amount of water metered is proportionate to the burdens on the sewer system. (Id. at p. 95.) Lakeport relied upon the then-existing presumption that the rates were reasonable, fair, and lawful. (Ibid.) The Boynton court resolve the issue as follows:

“The burden placed on a sewer system by users is not susceptible of mathematical calculation. Consequently, even under the method suggested by [the plaintiffs], inequities will result. The amount of water consumed would bear a high correlation with the amount of sewage-bearing water discharged. The correlation would not be exact, however, for it does not take into account water which does not exit via the sewer system. Those residences, commercial and industrial establishments which use quantities of water for the upkeep of gardens, lawns, swimming pools, would be subject to this inaccuracy if the amount of water intake is the only measure of burden on the sewer system. Even the amount of sewage-bearing water discharged into the sewer will not correlate exactly with the burden on the sewer system since the amount or strength of the sewage in the water may vary, even if all sewage is domestic sewage. In examining [the plaintiffs’] figures, it is seen that categories consisting of multiple dwelling units generally pay a higher sewer rate per gallon of water consumed than do laundries, stores, offices and public buildings. This disparity is explainable by a difference in strength of sewage as reflected by the different types of fixtures.

“In fixing rates according to number and type of fixtures and number of people using the fixture, [the resolution] apparently has also taken into consideration the fact that the entire sewer system must be maintained in size and strength to accommodate the potential maximum use of all facilities permitted. This also is relevant to the burden on the system.

“We have concluded that the classifications of [the resolution] upon which sewer rates are made are reasonably related to the burden imposed upon the sewer system. While other methods, including the use of water metered rates, could be used in fixing sewer rates, the method here used was not unreasonable or discriminatory.” (Boynton, supra, 28 Cal.App.3d at pp. 95-96.)

The Boynton court, although applying a different standard than exists here, realized that there was an intractable problem in determining the proportionality of burdens on sewer services where the amount of sewer services is not directly measured for each parcel. All allocation methods necessarily involve approximations with actual variations from parcel to parcel and user to user. Malott argues that multi-unit buildings such as her apartment building does not use as much sewer service as a comparable number of detached single family residences. (Note: The factual basis for this argument runs afoul of the completeness of the administrative record. The completeness problem is discussed below.) Following the same reasoning in Boynton, Malott’s argument is equally applicable to variations within single family residences: a large family living in a large house is likely to place higher demands on sewer services than a single person living alone in a small cottage. Indeed, two identical single-family residences may place materially different demands on sewer services depending upon the number and characteristics of the respective residents. The constitutional question presented here is the extent the District must differentiate among users and to what extent must the District support the differentiation or lack of differentiation by the evidence supporting the adopted rates.

The District has a single, uniform rate equal to one EDU for each residential unit, whether that residential unit is a detached dwelling or an apartment in an apartment building. The concept for the use of an EDU as the base measure for rates is that each EDU represents the sewer use by an average residential unit. (AR, exhibit 8, p. 53.) Because the EDU is not differentiated among types of residential units (e.g., house or apartment), the EDU represents an average among all such types. The Rate Study provides as detailed explanation as to how the District’s operating and capital costs are apportioned to a single EDU. Malott does not challenge the sufficiency of the Rate Study to support apportionment of costs to an EDU. Exercising its independent review, the court finds that the Rate Study supports the allocation of costs to an EDU.

Malott challenges the rates based upon the absence of an explicit discussion of the residential rate as a single uniform EDU rather than as a group of rates differentiated by residential user classes. In support of this challenge, Malott points out that other agencies have set sewer rates that are differentiated based on residential user classes, including rates set by the Montecito Sanitary District, the City of Santa Barbara, and the Goleta Sanitary District. (See RJN, exhibits A-C.) Malott also points to the District’s differentiation among categories of commercial users. (Note: As pointed out above, Malott pays residential user rates and does not challenge the sufficiency of the Rate Study to support the allocation of EDUs for different commercial users. The court expresses no opinion as to commercial rates.) The existence of different rate classifications, whether by different agencies for residential users or by the District for commercial users, indicates only that different rate classifications may be used. This is not particularly probative here. As the Griffith court indicated, the fact that other methods more favorable to the petitioner may exist does not imply that the method of allocation actually used is unconstitutional.

The Rate Study does not contain a user classification study which compares the EDU rate among residential user types. Instead, the Rate Study explains its methodology: “Proposition 218 requires that wastewater rates and charges should be recovered from classes of customers in proportion to the cost of serving those customers.[] It also requires that the wastewater rate-setting methodology must be sound and that there must be a nexus between the costs and the rates charged. Raftelis follows industry standard rate setting methodologies set forth by the Water Environment Federation [WEF] Manual of Practice No. 27, Financing and Charges for Wastewater Systems, 2004 to ensure this study meets Proposition 218 requirements.” (AR, exhibit 8, p. 42.)

As discussed at greater length in the court’s ruling on the District’s motion to strike Malott’s extra-record declarations, the court resolves the challenge to the rates based upon the administrative record, supplemented by extra-record evidence only under very narrow exceptions. At the same time, the constitutional burden is on the District to demonstrate compliance with Proposition 218. These two rules effectively require that all evidence supporting or challenging the rate determination be included in the administrative record.

Because Malott did not participate in the public hearing or submit a written protest, Malott did not provide evidence that is part of the administrative record to challenge the basis for District’s rate increase as not differentiating among classes of residential users. Malott attempted to resolve this failure by using the declaration of its expert to provide evidence to contradict the evidence in the administrative record. But, as discussed above, the court excluded that declaration as improper extra-record evidence. Consequently, Malott’s argument is wholly a negative one: Malott argues that the absence of an explicit residential customer class analysis in the Rate Study means that the District cannot meet its constitutional burden for setting rates based upon a uniform residential customer class.

As Boynton pointed out in a more general context, rate design is not subject to mathematical precision as to each specific user. There are innumerable variations of user classifications potentially available. As a result, it is plainly not feasible to include in any rate study a comparison of rates as against each and every potential variation of user classifications. It would also be unreasonable, even in consideration of the constitutional burden on the District to justify the rates, for such justification to be made against a world of possibilities. Proposition 218 requires the District to support what it adopts, not to show that its adopted structure is superior in some fashion to every other potential rate structure.

This reasoning suggests that there are three general approaches to providing a sufficient support for classification-based rates. The first alternative is to propose a general classification that that is an accepted industry standard for rate allocation and then at the public hearing show a complying cost allocation to that classification. This is the alternative that was used and adopted in the instant case, using a uniform “residential unit” classification. The second alternative is to propose multiple, narrower classifications and, in addition to showing the cost allocation to each classification, provide a cost basis for distinguishing between classifications. This alternative is discussed, for example, in water rate cases where the water rates follow an inclining block rate structure rather than a single rate for a category of user. In some cases, the rates fail to comply with Proposition 218 because the agency fails to support the cost differences of service at different tiers. (See, e.g., Capistrano Taxpayers Association, Inc. v. City of San Juan Capistrano (2015) 235 Cal.App.4th 1493, 1516 [above-cost-of-service pricing for tiers of water service is not allowed by Proposition 218]; City of Palmdale v. Palmdale Water District (2011) 198 Cal.App.4th 926, 936-937 [failure to support inequality between tiers and customer classes used by water district].)

Finally, a third alternative approach is suggested by what did not happen in the administrative proceedings below. Here, the District used the first general approach by adopting a single residential classification. Malott complains that the District should have adopted a distinction within the residential classification at least to distinguish multi-unit buildings from detached single family residences. The administrative record, however, contains no evidence that multi-unit buildings have any materially different per-unit sewer service demands than a comparable number of detached single family residences. Had Malott provided such evidence as part of the public hearing, then a reasonable argument could be made that the District would fail in its burden to show proportionality where the rate study or other evidence fails to address the challenge specifically.

At its core, the argument put forward by Malott would put the District into an impossible position. Whatever residential rate classifications the District would use, some District customer would be in a position to argue that the rate classification is too broad and distinctions could and should have been made that were not studied specifically. Following the reasoning of Malott’s argument, the District’s rate design would always fail because it could not support rejection of any and all such unstudied alternative designs. Where the District is on notice by the presentation of evidence to challenge a particular aspect of the rates, the District is in a position to address that evidence (perhaps by proposing a revised rate design) and to provide greater support for the challenged aspect of the rates (to the extent the District believes the aspect is not adequately addressed by the existing record). The requirement that the District be put on notice as to specific issues regarding classifications being challenged is consistent with the rationale behind both the exhaustion doctrine (see City of San Jose v. Operating Engineers Local Union No. 3 (2010) 49 Cal.4th 597, 609 [administrative agency autonomy]) and the no-extra-record evidence rule (see Western States Petroleum Assn. v. Superior Court (1995) 9 Cal.4th 559, 578 [extra-record evidence undermines finality of administrative decision]).

Here, District proposed a uniform per-EDU rate for residential customers. On independent review, the court finds that the administrative record supports the adoption of this rate. The Rate Study methodology, quoted above, by its citation to and statement of consistency with industry standard practice implies that the use of a single residential per-EDU rate is a proper rate classification design in the absence of evidence in the administrative record to the contrary. No evidence appears in the administrative record that a per-EDU rate for residential users is constitutionally disproportionate to the per-parcel cost of sewer service for which the rate is charged. Based upon the evidence presented in the administrative record, the District was not required to address, to reject, or to provide further analysis of alternative residential user classifications or sub-classifications. The administrative record, and the Rate Study in particular, fully supports the calculation on a cost-of-service basis the residential per-EDU rates adopted in Ordinance 19. (See Moore v. City of Lemon Grove (2015) 237 Cal.App.4th 363, 374.)

Consequently, applying its independent review of the evidence and after consideration of the arguments of the parties, the court finds that the District has met its constitutional burden under article XIII D, section 6 to demonstrate its compliance with Proposition 218. The petition for writ of mandate to invalidate Ordinance 19 will therefore be denied.

Malott’s request for an award of attorney fees based upon her projected success on the writ will be denied as moot.