State Water Resources Control Board's Proper Adoption of Permit Fee Schedule Upheld: Cal.

Introduction

In the landmark case of California Building Industry Association v. State Water Resources Control Board (4 Cal.5th 1032, 2018), the Supreme Court of California addressed critical questions regarding the procedural and substantive aspects of the State Water Resources Control Board's (Board) adoption of a permit fee schedule under Water Code section 13260. The plaintiff, the California Building Industry Association, challenged the Board's fee schedule on multiple grounds, including procedural irregularities, statutory violations, and constitutional constraints under Article XIII A of the California Constitution. This case primarily revolved around the Board's authority and the proper process for setting regulatory fees, which are essential for funding water quality management programs across the state.

Summary of the Judgment

The Supreme Court of California affirmed the judgment of the Court of Appeal, holding that the State Water Resources Control Board properly adopted the permit fee schedule and that it did not violate statutory provisions or constitutional restrictions. Specifically, the Court addressed three main issues:

Whether a two-member vote by the Board effectively adopted the fee schedule.
Whether the Board violated Water Code sections 13260(d)(1)(B) or (f)(1) in setting the permit fees.
Whether the fee schedule violated constitutional restrictions on regulatory fees under Article XIII A.

The Court concluded that the Board acted within its legal authority, followed the required procedural norms, and ensured that the fee schedule was aligned with both statutory mandates and constitutional guidelines.

Analysis

Precedents Cited

The judgment extensively referenced prior cases and statutory interpretations to support its reasoning:

City of Burbank v. State Water Resources Control Board (2005): Established primary responsibility for water quality coordination.
Building Industry Association of San Diego County v. State Water Resources Control Board (2004): Clarified the nature of discharge permits.
Department of Finance v. Commission on State Mandates (2016): Addressed the imposition of regulatory fees.
Sinclair Paint Co. v. State Board of Equalization (1997) and California Farm Bureau Federation v. State Water Resources Control Board (2011): Provided foundational principles distinguishing taxes from regulatory fees under Article XIII A.

These precedents were pivotal in interpreting the statutory language and constitutional provisions related to the Board's authority and fee-setting mechanisms.

Legal Reasoning

The Court employed a multifaceted approach to arrive at its decision:

Statutory Interpretation: The Court analyzed Water Code sections 181 and 183, determining that the general quorum rules applied unless specifically overridden by statute. Since Section 183 only applies when the Board delegates authority to a single member for hearings or investigations, it did not dictate a three-member approval for adopting fee schedules.
Constitutional Analysis: Under Article XIII A, the Court examined whether the fees constituted taxes, which require a two-thirds legislative majority to enact. Citing Sinclair Paint and Farm Bureau, the Court affirmed that bona fide regulatory fees, which cover the reasonable costs of regulation, do not fall under the 'tax' category.
Burden of Proof: The Court addressed the shift in burden of proof introduced by Proposition 26, concluding that since the amendment was not retroactive to the Board's actions, the original burden-shifting framework from Farm Bureau applied.
Fee Allocation: The Court evaluated whether the fee allocations were reasonable and did not unfairly burden specific payers. It concluded that the slight discrepancy between fee distributions and program costs was within acceptable bounds.

Impact

This judgment has significant implications for regulatory agencies and industries reliant on permits:

Clarification of Procedural Requirements: Establishes that tribunals can adopt fee schedules with a majority of present members, provided quorum requirements are met, even if not all board members are present.
Distinction Between Fees and Taxes: Reinforces the legal framework distinguishing bona fide regulatory fees from taxes, limiting the application of Article XIII A constraints to true tax levies.
Regulatory Autonomy: Empowers regulatory boards to set fees necessary for their operations without undue legislative interference, as long as they adhere to statutory mandates and constitutional limitations.
Future Litigation: Sets a precedent for how similar fee-setting disputes will be adjudicated, emphasizing the need for clear legislative language and adherence to established statutory procedures.

Complex Concepts Simplified

To ensure clarity, the following legal concepts are explained:

Quorum: The minimum number of board members required to be present to conduct official business. Here, a quorum is three out of five members.
Regulatory Fee vs. Tax: A regulatory fee is a charge for services directly related to regulation, intended to cover the costs of those services. A tax is a compulsory financial charge imposed by the government without a direct service benefit to the payer.
Burden of Proof: The responsibility to prove one's assertion in court. Initially, the challenger must present a prima facie case, after which the burden may shift to the state to prove the fee's validity.
Prima Facie: Based on the first impression; accepted as correct until proven otherwise.

Conclusion

The Supreme Court of California's decision in California Building Industry Association v. State Water Resources Control Board underscores the judiciary's role in upholding statutory and constitutional boundaries governing regulatory practices. By affirming the Board's authority to adopt a fee schedule with a majority vote of present members and distinguishing regulatory fees from taxes, the Court reinforced the mechanisms allowing regulatory bodies to function effectively. This judgment ensures that environmental regulation efforts, particularly those related to water quality, are adequately funded while maintaining fair and constitutional practices in fee imposition and allocation.

State Water Resources Control Board's Proper Adoption of Permit Fee Schedule Upheld