California Supreme Court Upholds Regulatory Fees

In California Farm Bureau Federation v. State Water Resources Control Board (here), the California Supreme Court held that regulatory fees imposed by the State Water Resources Control Board to pay the cost of administering California’s water rights program are not facially unconstitutional as invalid taxes. The decision adopts generous language concerning the scope of a regulatory fee. While such a fee cannot “exceed the reasonable cost of regulation with the generated surplus used for general revenue collection,” the fee need not benefit the fee payers, and it need not be proportional to the service rendered to individual fee payers. With respect to the as-applied challenge, the Supreme Court remanded for the trial court to make detailed findings regarding the Board’s showing that the regulatory costs were reasonably related to the fees assessed. However, the Court acknowledged that while fees must be reasonably related to regulatory costs, a “government agency should be accorded some flexibility in calculating the amount and distribution of a regulatory fee.” It therefore appears that the plaintiffs have an uphill battle to support their claim that the fee is illegal, even though under the statutory scheme, only 40% of those subject to the Board’s jurisdiction are being assessed to pay the regulatory costs (because the remaining 60% of water rights holders are either grandfathered or immune from Board decisions granting vested rights)