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Cal. Supreme Court Opens Door for State Reimbursing Local Agencies for Unfunded Mandates

On August 29, the California Supreme Court handed an important victory to local agencies that are seeking to enforce their constitutional right to reimbursement for unfunded mandates imposed by the State.   In Department of Finance v. Commission on State Mandates, the Court ruled in favor of public agencies subject to storm water discharge permits, holding that State-mandated storm water permit provisions exceeding federal law requirements may be reimbursable State mandates under Article XIII B, Section 6, of the California Constitution. While this case arose in the context of storm water regulation, the Court’s analysis will apply to many unfunded mandate situations going forward.

Case Background

In California, California Regional Water Quality Control Boards issue permits under state and federal law for discharges from municipal separate storm sewer systems (MS4s).  Under the federal Clean Water Act, MS4 permits must require controls to “reduce the discharge of pollutants to the maximum extent practicable.”  (33 U.S.C. § 1342(p)(3)(B)(iii).)  States may also impose their own requirements so long as they are not less stringent than required under federal law.  (33 U.S.C. § 1370.)

In 2001, the Los Angeles Regional Water Quality Control Board (Regional Board) issued an MS4 permit that, among many other things, required local agencies to inspect commercial and industrial facilities, implement programs to inspect and control runoff from construction sites, and place trash receptacles at all transit stops.  The County of Los Angeles and several cities filed test claims with the Commission on State Mandates (Commission) seeking State reimbursement for these permit provisions because they exceeded the federal “maximum extent practicable” standard.  The Commission found all the provisions were unfunded mandates, but the inspection requirements were not reimbursable because local agencies could levy fees or assessments to pay for them.  However, the trial court overturned the Commission’s decision, finding that all the permit provisions were mandates imposed by federal law and were not reimbursable state law mandates.  The court of appeal affirmed, and the Supreme Court granted review.

Supreme Court’s Decision

The Supreme Court held that the California Constitution “establishes a general rule requiring reimbursement of all state-mandated costs,” and if the State argues an exception to that rule, such as the federal mandate exception at issue in this case, it “bears the burden of demonstrating that it applies.”  The Court found that the State did not carry this burden, and that “[i]t is clear federal law did not compel the Regional Board to impose these particular requirements.”  In doing so, the Court also found that in proceedings before the Commission, the Regional Board was not entitled to deference in its conclusion that the permit requirements at issue were federally mandated.  The Supreme Court reversed the Court of Appeal’s judgment and remanded the case to the trial court for further proceedings on additional issues raised by the State and on the permittees’ cross-appeal that the inspection requirements are reimbursable state mandates.

What’s Next

In anticipation of the Supreme Court’s decision, the Commission has signaled that it intends to clear its backlog of storm water test claims, with hearings beginning in early 2017.  It is also anticipated that another storm water test claim arising out of San Diego County, which is currently fully briefed and pending before the Third Appellate District Court of Appeal, Case No. C070357, may soon be scheduled for supplemental briefing and oral argument.

In future Commission proceedings, test claimants may argue that once they establish that a statute or executive order (including permits) impose a new program or higher level of service, the State will bear the burden of proving that an exception applies, including exceptions for mandates allegedly imposed by the courts and federal mandates.  Public agencies should now be more vigilant than ever in pursuing their constitutional right to reimbursement of state mandates.