Summary
In Department of Finance v. Commission on State Mandates (2021) 59 Cal.App.5th 546, the Court of Appeal for the Second Appellate District held that city costs associated with installing and maintaining trash receptacles at transit stops in compliance with stormwater drain permits are reimbursable by the State of California, but costs associated with inspection of construction facilities are not because cities can levy fees for inspection services.

Discussion
The California Constitution requires the State to reimburse local governments for the costs of any State-mandated new program or higher level of service.1 This reimbursement requirement does not apply when the local government has the authority to levy fees sufficient to pay for the program or increased level of service.2 In 2001, the California Regional Water Quality Control Board, Los Angeles Region, issued permits to the County and certain cities to operate stormwater drainage systems. The permit requires these agencies to (1) install and maintain trash receptacles at transit stops and (2) inspect commercial facilities and construction sites to ensure compliance with environmental regulations. These agencies filed claims with the Commission on State Mandates to determine whether reimbursement was required for the trash receptacle and inspection requirements.

The Commission determined that while both requirements did impose a new program or higher level of service, the State was only required to reimburse the agencies for the costs of compliance with the trash receptacle requirement because local governments have the authority to impose fees to pay for the required inspections. The Department of Finance, State Water Resources Control Board, and the Regional Board filed suit challenging the Commission’s determination, and the trial court ruled in favor of these State agencies, finding that the trash receptacle and inspection requirements were not State-mandated programs. The local agencies appealed, and the Court of Appeal held that the Commission correctly determined that the trash receptacle requirement but not the inspection requirement requires reimbursement.

In reaching this conclusion, the Court found that both requirements qualify as government programs that are subject to reimbursement, so long as no exceptions apply. One such exception, which eliminates the duty for the State to reimburse the local agency if it has the authority to levy fees to pay for the costs of compliance, applied to the inspection requirement but not the trash receptacle requirement. Generally, the police power authorizes cities to impose regulatory fees to cover the costs of permitting, investigating and enforcing compliance with a regulatory scheme so long as the fee does not exceed the cost.

Here, the Court rejected the local agencies’ argument that they have no authority to levy fees for inspection costs because such a levy is not preempted by State law and such a levy would not necessarily exceed the costs borne by the agency. However, local agencies have no authority to levy fees to cover the cost of placing and maintaining trash receptacles at transit stops because they cannot impose a fee on a transit operator agency under Government Code section 54999.7. This statute allows one public agency to impose a fee on another for a service, provided that the other agency that solicited and uses the services for which it is charged a fee. A city cannot install trash receptacles on the transit agency property and then charge the transit agency for the installation and maintenance. Cities cannot levy a fee for this on parcels that are near transit stops because the trash receptacles do not benefit those parcels as required by Proposition 218.

Conclusion
While not a complete win for local agencies, this court decision does suggest that many State-mandated permit requirements that cannot be levied against commercial dischargers may be reimbursable by the State. Our office can assist in evaluating which stormwater permit requirements may be reimbursable by the State under this decision.

Information on www.jones-mayer.com is for general use and is not legal advice. The posting of this Municipal Law Update is not intended to create, and receipt of it does not constitute, an attorney-client-relationship. Should you have any questions or require further clarification of the above, please contact Keith F. Collins at our office at (714) 446-1400, or by email kfc@jones-mayer.com.

1Cal. Const., art. XIIIB(6)(a).
2Gov. Code. § 17556.