Appellate Court Finds Certain State-Mandated Stormwater Permit Requirements Imposed on Local Governments Are Subject to Cost Reimbursement

In Department of Finance v. Commission of State Mandates (“Department of Finance II”), the Second Appellate District of the California Court of Appeal recently held that local governments are entitled to subvention (i.e., reimbursement of costs) for certain stormwater permit trash receptacle requirements under article XIII B, section 6 of the California Constitution (“section 6”) which provides for the reimbursement of costs of any state-mandated “new program or higher level of service.” However, the court also found that these local agencies are not entitled to subvention for stormwater permit inspection requirements because, while such programs are new programs or higher level of service under section 6, in this instance the local agencies have the authority to levy fees sufficient to pay for those permit conditions. Still, the Court’s ruling under section 6 is critical to local governments because state agencies were routinely arguing as a complete defense to stormwater-related test claims that stormwater programs mandated in permits were not new programs or higher levels of service.  According to the Court, “[b]y requiring the local governments to comply with the trash receptacle and inspection requirements, the state agencies have effectively shifted the financial responsibility for such programs to the local governments.”

Department of Finance II is this latest judicial ruling in the underlying action which was initially brought in 2009 and is based on permit conditions that were initially imposed in 2001. The California Supreme Court previously found in Department of Finance v. Commission on State Mandates (2016) 1 Cal.5th 749 (“Department of Finance I”) that the permit conditions at issue were not federal mandates and therefore potentially subject to subvention by the state. The analysis in Department of Finance II is particularly important because it makes it much more likely that the Commission on State Mandates will grant the numerous stormwater test claims currently pending on its docket. Department of Finance II potentially has far-reaching implications as it suggests that many state-mandated permit requirements that cannot be charged to business dischargers may be subject to subvention. In addition to the trash receptacle requirements at issue, these requirements might include trash capture systems and other trash removal programs, green infrastructure requirements designed to reduce pollutant loads into stormwater, public education programs, etc.

The issues in Department of Finance II are complex and have been litigated for more than a decade. To help explain the Court’s detailed and lengthy ruling, Meyers Nave attorneys Greg Newmark and Bryan Brown prepared an analysis of the decision that can be found here. Please contact Greg or Bryan if you have questions about how this case may impact your agency’s interests.