HOCH, J. —
California voters adopted Proposition 13 in 1978 (Cal. Const., art. XIII A, added by Prop. 13, as approved by voters, Primary Elec. (June 6, 1978))
Proposition 26 added subdivision (e) to section 1 of article XIII C, broadly defining "tax" to include "any levy, charge, or exaction of any kind imposed by a local government." (Art. XIII C, § 1, subd. (e).) Subdivision (e) incorporated seven exceptions to this definition of tax. (Ibid.) The second exception is the subject of this appeal and provides that "tax" does not include "[a] charge imposed for a specific government service or product provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product." (Art. XIII C, § 1, subd. (e)(2), italics added.) Section 1 of article XIII C further provides that "[t]he local government bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor's burdens on, or benefits received from, the governmental activity." (Art. XIII C, § 1 [last par.].)
This case calls us to consider whether Proposition 26 applies to a practice by the City of Redding (Redding) of making an annual budget transfer from the Redding Electrical Utility (Utility) to Redding's general fund. Because the Utility is municipally owned, it is not subject to a 1 percent ad valorem tax imposed on privately owned utilities in California. (Art. XIII, § 3,
Plaintiffs in this case (Citizens for Fair REU Rates, Michael Schmitz, Shirlyn Pappas, and Fee Fighter LLC) challenge the PILOT on grounds it constitutes a tax for which article XIII C requires approval by two-thirds of voters. Redding responds the PILOT is not a tax, and if it is a tax, it is grandfathered in because it precedes the adoption of Proposition 26.
We conclude the PILOT constitutes a tax under Proposition 26 for which Redding must secure two-thirds voter approval unless it proves the amount collected is necessary to cover the reasonable costs to the city to provide electric service. We reject Redding's assertion the PILOT is grandfathered in by preceding Proposition 26's adoption. As a budget line item, the PILOT is subject to annual discretionary reauthorization by Redding's city council. The PILOT does not escape the purview of Proposition 26 because it is a long-standing practice.
The facts of this case are undisputed.
In 1987, Redding's director of finance proposed a PILOT to transfer funds from the Utility to the city's general fund. The director of finance noted 17
Redding adopted the PILOT in 1988.
As noted above, California voters adopted Proposition 26 in the general election November 2, 2010. The next month, in December 2010, Redding passed a resolution (No. 2010-179) increasing electric rates by 7.84 percent effective January 2011, and an additional 7.84 percent effective December 2011. There is no line item in the electric bills sent to the Utility's customers that reflects the PILOT.
On February 4, 2011, plaintiffs filed a petition for writ of mandate and complaint for declaratory and injunctive relief. Plaintiffs' first petition and complaint focused on resolution No. 2010-179, which the Redding City Council passed in December 2010 to increase the Utility's rates. One of the stated purposes for the Resolution was "to obtain funds necessary to maintain such intra-City transfers as authorized by law." Plaintiffs alleged the new rates incorporated the PILOT charge (about $6,000,000), which did not reflect "any particular costs or expenses incurred" to provide electric service, but was "purely extra revenue." They alleged that because the PILOT was an invalid tax, the rate increase calculated based on the PILOT was also invalid. Plaintiffs asserted the PILOT is an unlawful tax that is "in excess of the reasonable cost of providing services, due to the unlawful incorporation of the PILOT charge and transfer to [Redding]'s general fund."
Redding demurred, raising three general claims: First, Proposition 26 was not retrospective and therefore did not apply to any aspect of the PILOT charge; second, utility rates were not "imposed" because anybody was free to provide their own electricity rather than pay the Utility for a supply; third, a
The trial court denied the first petition based on its conclusion the PILOT charge predated and therefore was immune from a Proposition 26 challenge. "The PILOT was an established cost that was not increased or affected by the adoption of Resolution 2010-179 [(raising rates)]. As the rate increases did not increase the PILOT, the Court finds that the Resolution did not impose or increase any tax, and therefore did not require voter approval."
On August 29, 2011, plaintiffs filed a second complaint, seeking a declaration that a new two-year budget adopted on June 22, 2011, violated Proposition 26. The Redding City Council passed resolution No. 2011-111 to adopt the biennial budget for the fiscal years ending June 30, 2010, and June 30, 2011. The resolution explains that "the City Council has approved continuation of the PILOT in every budget since 1988-89. Upon adoption of the [fiscal year] 1992-1993 budget, the City Council amended the PILOT to include the value of capital improvement projects undertaken during the budget year in the asset base to which the 1% [PILOT] is applied. Upon adoption of the [fiscal year] 2002-2003 budget, the City Council further revised the PILOT to adjust the value of assets for inflation in the calculation of the PILOT. Upon adoption of a two-year budget in June 2005, the City Council amended the PILOT into its current form by including the value of joint-venture assets in which [the Utility] has a share in the asset base to which the 1% [PILOT] is applied. The City's practice is to estimate the value of the assets over the life of a two-year budget and to calculate the PILOT based on that estimate and to correct any variance between the PILOT calculated for the last two-year budget and the actual asset value experienced in that time. Estimates are necessary because the PILOT formula: (i) includes capital projects to be completed in the two future years covered by a [PILOT] and (ii) uses an estimate of inflation during that time." Thus, Redding's biennial budget incorporated "a marked increase" in the PILOT that was "due to the addition of the Unit Six generator ...."
By stipulation, the trial court consolidated the two actions. The trial court then issued a memorandum of decision in favor of Redding. The trial court
Plaintiffs timely appealed from the ensuing judgment for Redding.
We begin by considering whether the PILOT constitutes a tax under Proposition 26. If the PILOT is not a tax under Proposition 26, there is no need to consider whether it is grandfathered in. Plaintiffs contend the PILOT is a tax because it is not based on any calculation of reasonable costs to Redding for providing electric service. In support, plaintiffs note the PILOT is intended to replicate the tax that would be imposed if the Utility were privately owned.
In contrast to taxes that serve to raise general revenue, fees "`"`do not exceed the reasonable cost of providing services necessary to the activity for which the fee is charged and which are not levied for unrelated revenue purposes.'"'" (Apartment Assn. of Los Angeles County, Inc. v. City of Los Angeles (2001) 24 Cal.4th 830, 843, fn. 6 [102 Cal.Rptr.2d 719, 14 P.3d 930],
The issue of whether the PILOT in this case constitutes a tax or a fee arises only after the adoption of Proposition 26 because Proposition 218 previously excluded fees for gas and electrical service from the voter approval requirement. (Compare art. XIII C, § 1, subd. (e) [definition of "tax" to include "any levy, charge, or exaction of any kind imposed by a local government" added by Prop. 26 (italics added)] with art. XIII D, § 3, subd. (b) [Prop. 218's exemption of electrical and gas service from its provisions].)
Proposition 26 was intended to address taxes disguised as fees. As pertinent to this case, Proposition 26's findings and declaration of purpose state: "`Since the enactment of Proposition 218 in 1996, the Constitution of the State of California has required that increases in local taxes be approved by the voters. [¶] (c) Despite these limitations, California taxes have continued to escalate.... [¶] ... [¶] (e) This escalation in taxation does not account for the recent phenomenon whereby the Legislature and local governments have disguised new taxes as "fees" in order to exact even more revenue from California taxpayers without having to abide by these constitutional voting requirements. Fees couched as "regulatory" but which exceed the reasonable costs of actual regulation or are simply imposed to raise revenue for a new program and are not part of any licensing or permitting program are actually taxes and should be subject to the limitations applicable to the imposition of taxes. [¶] (f) In order to ensure the effectiveness of these constitutional limitations, this measure ... defines a "tax" for state and local purposes so that neither the Legislature nor local governments can circumvent these restrictions on increasing taxes by simply defining new or expanded taxes as "fees."'" (Prop. 26, § 1, subds. (b), (c), (e), (f), reprinted at Historical Notes, 2B West's Ann. Cal. Const. (2013 ed.) foll. art. XIII A, § 3, pp. 296-297; see also Howard Jarvis Taxpayers Assn. v. City of Roseville (2002) 97 Cal.App.4th 637, 645, fn. 17 [119 Cal.Rptr.2d 91] [noting courts may use ballot summary, arguments, and analysis to construe voter-approved initiatives].)
In short, the question of whether Redding's PILOT constitutes a tax under Proposition 26 turns on whether the PILOT serves to raise general revenue or reflects the reasonable costs to the city to provide electric service.
More specifically, for purposes of this case, whether the PILOT constitutes a tax within the meaning of section 1, subdivision (e), of article XIII C turns on whether the exception in article XIII C, section 1, subdivision (e)(2), applies. This exception asserted by Redding pertains to "[a] charge imposed
Because the Utility is municipally owned, Redding imposes the PILOT to collect the same amount as would be due under the ad valorem tax on privately owned utilities. Throughout its history, the PILOT has been measured against the ad valorem tax. The PILOT has been adjusted to keep it equivalent to the ad valorem tax. It has not been designed to approximate the reasonable costs of providing electric service in Redding.
The PILOT is calculated as a flat percentage of the Utility's assets. As a flat percentage, the PILOT in this case resembles the in-lieu payment reviewed by this court in Howard Jarvis Taxpayers Assn. v. City of Roseville, supra, 97 Cal.App.4th 637 (Roseville). In Roseville, we considered a challenge to an in-lieu payment at a flat 4 percent of the annual budgets of three of Roseville's municipal utilities that provided water, sewer, and garbage collection. (Id. at p. 648.) In considering the constitutional validity of the in-lieu payment, we acknowledged that "[o]f course," the city could recoup "what it costs to provide such services includ[ing] all the required costs of providing service, short-term and long-term, including operation, maintenance, financial, and capital expenditures." (Id. at pp. 647-648.) Even so, we concluded the "fee does not represent costs. It is a flat fee. It is imposed on the utilities' budgets, presumably after their total costs have been accounted for in the budget process. If the budget of a utility increases because of a cost increase unrelated to the in-lieu fee, the in-lieu revenues, as a flat percentage of that increased budget, increase as well. The in-lieu fee is the same percentage applied to each budget, regardless of varying uses of streets, alleys and rights-of-way by the individual utilities. It cannot be said that this flat fee on budgets coincides with these costs." (Id. at p. 648.) Like the in-lieu payment at issue in Roseville, Redding's PILOT is a flat percentage of the Utility's assets.
We also reject Redding's argument that the PILOT was never "imposed" by "force or authority" because the 1 percent levy was collected in customer bills for electric service. For guidance, we turn to the instructive case of Howard Jarvis Taxpayers Assn. v. City of La Habra (2001) 25 Cal.4th 809, 823 [107 Cal.Rptr.2d 369, 23 P.3d 601] (La Habra). In La Habra, the California Supreme Court considered the question of when a tax on utility rates is "imposed." (Id. at p. 818.) The city argued the tax was not imposed until the voters approved the levy. (Id. at pp. 817-818.) The Supreme Court rejected the proposition that "when a city disregards the approval requirement in imposing a tax, the imposition has never happened and thus may not be challenged." (Id. at p. 818.) The La Habra court held Proposition 62, which added voter-approval requirements for local taxes, "prohibited the imposition
Redding next argues the PILOT "is a pre-existing legal obligation of [the Utility] and could therefore be funded from rates."
Despite Redding's insistence it could cover the PILOT costs with nonretail income, the city protests the PILOT is necessary to comply with such costs to the Utility as green power mandates (Pub. Util. Code, § 2854), other renewable energy mandates (id., §§ 399.11, 739.2, 739.4), and Redding's "pre-Proposition 26 policy requiring discounted power for low-income and senior households." Nothing in Proposition 26 prevents the Utility from recouping its expenses. To the contrary, Proposition 26 expressly excepted from the definition of taxes any charge that "does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege." (Art. XIII C, § 1, subd. (e)(1).) Neither Redding nor its Utility is restrained from recovering the reasonable costs of electricity production and distribution.
Accordingly, we conclude the PILOT constitutes a tax under Proposition 26 unless Redding proves the amount collected is necessary to cover the
We turn to the question of whether the PILOT preexisted the adoption of Proposition 26. Proposition 26 has no retrospective effect as to local taxes that existed prior to November 3, 2010. (Brooktrails, supra, 218 Cal.App.4th at pp. 205-207.) However, the parties disagree on whether the PILOT in this case existed prior to the adoption of Proposition 26. Redding contends the PILOT is a set fixture of the Redding budget that is grandfathered in, i.e., escapes the applicability of Proposition 26 as a preexisting levy. Plaintiffs respond the PILOT is a component of the electric rates that is transferred to the general fund in Redding's biennial budget and is subject to recurring discretionary adoption and adjustment. As we explain, the PILOT may be a familiar part of the Redding biennial budget, but it has not been fixed by ordinance or any other authority. Being subject to the Redding City Council's recurring discretion, it is not grandfathered in under Proposition 26.
There is no dispute the PILOT has not been implemented by ordinance or other law. Indeed, Redding explains that "City staff calculates the PILOT with each budget according to the formula adopted by the City Council. [Citations.] Because the formula relies on estimates, the PILOT is `trued up' with the adoption of the budgets in odd-numbered years to correct estimates for the previous biennium."
Moreover, the formula itself is periodically adjusted. The trial court found the PILOT's formula has been "refined in 1992, 2002, and 2005." The most notable "refine[ment]" to the PILOT was made in the 2001-2003 budget to "bring it in line with the State Board of Equalization property tax calculation methodologies." However, it appears undisputed that the PILOT has been adjusted to equate as nearly as practicable to the tax a private utility would have to pay Redding in ad valorem taxes.
Despite the period adjustments in the Redding budgeting process, the trial court dismissed plaintiffs' challenges on the rationale that the PILOT had
The PILOT's regular appearance in Redding's budgetary process does not mean it was a permanent or continuing transfer compelled by ordinance or other nondiscretionary authority. As a recurring discretionary part of the Redding biennial budget, the PILOT cannot be said to precede or be grandfathered in under Proposition 26. And, the PILOT also cannot be said to be the product of legislation for which Proposition 218 provided a savings clause to allow "fees and charges" to be brought into compliance by a certain date. Although Propositions 26 and 218 stand in pari materia — namely they relate to the same subject (People v. Honig (1996) 48 Cal.App.4th 289, 327
As to the two-year budget adopted by Redding on June 11, 2009, we conclude the included PILOT was grandfathered in because budget adoption preceded the voters' approval of Proposition 26.
The PILOT included in the two-year budget adopted by Redding on June 22, 2011, was not grandfathered in because it was adopted after Proposition 26 became effective in 2010.
Proposition 26 gives the local government the opportunity to prove the levy, charge, or exaction amounts to "no more than necessary to cover the reasonable costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor's burdens on, or benefits received from, the governmental activity." (Art. XIII C, § 1 [last par.].) Consequently, we turn to the issue of whether the PILOT reflects Redding's reasonable costs of providing electrical service.
Although Redding is entitled to prove the PILOT reflects only reasonable costs of electric service (Art. XIII C, § 1, subd. (e)), the question arises
The pertinent portion of the trial court decision falls under the heading, "Additional Issues" for which the court explained: "While not essential to the analysis and the above conclusion [that grandfathering exempted the PILOT from Proposition 26's purview], the Court finds that the following comments warrant inclusion in a discussion of the issues that came before the Court." Among these, the trial court included a discussion of whether the PILOT reflected the reasonable costs to Redding for providing electric service. The trial court stated: "Even if the PILOT were part of the utility rates charged to ratepayers, it could reasonably be argued that the PILOT is part of the costs of providing the service. All business enterprises have costs and expenses that are a cost of doing business or a cost of providing the service or product. All businesses are required to pay taxes. Here, the City had the foresight to own and operate its own electric utility. As a result, [Redding] has utility rates that are comparatively lower than many others in the state. If there was a private company providing electric service, that company would be required to pay taxes to [Redding] for the services and benefits [Redding] provides. That expense could be passed on to customers as a cost of providing the service and product, and would not be subject to voter approval. The private utility could charge whatever rates it desired. Requiring [Redding] to put its electric rates out to vote every time a rate increase is necessary (because the rates include items that arguably are not `directly related' to the cost of providing electricity) cannot reasonably be deemed to be an intended consequence of Proposition 26."
Undoubtedly, Redding incurs costs to provide infrastructure and support to the Utility. For example, Redding police protect the Utility property and the Utility's workers. Redding's streets, used by the Utility in its operations, are built and maintained by Redding's general fund. Redding's fire department stands ready to respond if a Utility transformer sparks a fire, or a downed tree cuts a live utility line, endangering Redding's citizens. The trial court's exploration of the issue of reasonable costs constitutes a conclusion of law rather than a finding of fact. Rather than finding the costs incurred by Redding to provide electric service, the trial court determined the Utility's comparatively low rates necessarily mean the PILOT passes constitutional muster under Proposition 26. We reject this legal conclusion.
We decline Redding's invitation to engage in a factfinding mission to determine whether the administrative record contains enough evidence to cost justify the PILOT for purposes of Proposition 26. As we have explained, the trial court's conclusion that the PILOT passes constitutional muster because the PILOT is equivalent to the ad valorem tax rate applicable to private utilities constitutes a conclusion of law. The possibility that nonrate revenues exceed the PILOT does not satisfy Proposition 26's requirement that Redding demonstrate the collected tax reflects the reasonable costs of providing electric service. So too, Redding's argument that the Utility's electricity rates are "reasonable" does not prove the PILOT bears a reasonable relationship to the costs of service.
Redding misses the mark when it asserts the administrative record shows that "the December 2010 rates do not exceed the cost of providing electric service to [Utility's] customers." In support, Redding asserts the fairness of the rate-making process and the participation of appellants' counsel in the rate-making process. The fairness of the rate-making process, however, does not address whether the amount of the PILOT reasonably reflected Redding's service costs. Tellingly, Redding cites to public comments in the rate-making process rather than any cost study by Redding that shows the dollar amounts expended to provide electricity generation or distribution.
Because findings of fact are the unique province of the trial court, we are unable to supply the factual findings necessary to uphold the PILOT as a reasonable cost under Proposition 26. Our conclusion "reflects an `essential
In Mills, this court considered whether the two-thirds voter approval requirement applied to fees for county services in processing subdivision, zoning, and other land-use applications. (Mills, supra, 108 Cal.App.3d at pp. 658-659.) Mills held that "the `special tax' referred to in section 4 of article XIII A does not embrace fees charged in connection with regulatory activities which fees do not exceed the reasonable cost of providing services necessary to the activity for which the fee is charged and which are not levied for unrelated revenue purposes." (Id. at p. 659.) We explained that "[s]ince the trial court held the fees imposed by [the county's charges] constitute a `special tax' as a matter of law, the factual question whether or not such fees exceed the reasonable cost of the related regulatory activity has never been litigated. On remand that issue must be tried." (Id. at p. 663.) Accordingly, the disposition in Mills was to "reverse and remand for a factual determination of whether the fees in question are reasonably compensatory for the costs occasioned by the regulated activities." (Id. at p. 660.)
In Sinclair Paint, supra, 15 Cal.4th 866, the California Supreme Court likewise held reversal and remand was necessary "`for a factual determination of whether the fees in question are reasonably compensatory for the costs occasioned by the regulated activities.'" (California Assn. of Prof. Scientists v. Department of Fish & Game (2000) 79 Cal.App.4th 935, 947 [94 Cal.Rptr.2d 535].) In Sinclair Paint, the Supreme Court concluded that "Sinclair should be permitted to attempt to prove at trial that the amount of fees assessed and paid exceeded the reasonable cost of providing the protective services for which the fees were charged, or that the fees were levied for unrelated revenue purposes. [Citation.] Additionally, Sinclair will have the opportunity to try to show that no clear nexus exists between its products and childhood lead poisoning, or that the amount of the fees bore no reasonable relationship to the social or economic `burdens' its operations generated." (Sinclair Paint, supra, 15 Cal.4th at p. 881.)
The judgment is reversed and the cause remanded for further proceedings consistent with this opinion. Plaintiffs (Citizens for Fair REU Rates, Michael Schmitz, Shirlyn Pappas, and Fee Fighter LLC) shall recover their costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1) & (2).)
Mauro, Acting P. J. concurred.
DUARTE, J., Dissenting. —
The majority opinion requires every municipal utility that is charged a payment in lieu of taxes (PILOT), with the insignificant exception of those utilities, if any, that pay PILOTS pursuant to a pre-Proposition 26 ordinance, to prove at a trial the exact cost of providing fire, police, sanitation, streets, and other municipal services, no doubt with competing accounting, municipal finance, and other experts. This result is disruptive, uncertain, and chaotic, and, in my view, is not compelled by Proposition 26 (as approved by voters, Gen. Elec. (Nov. 2, 2010)).
The resulting disruption will be widespread; I note that amici curiae in support of Redding include the League of California Cities, the California State Association of Counties, and the California Municipal Utilities Association (CMUA).
I perceive this result as unwarranted because, in my view, a PILOT such as the City of Redding's — which actually conforms to the limitations set forth by Proposition 13 (as approved by voters, Primary Elec. (June 6, 1987)) and
Accordingly, I respectfully dissent.
I agree with the majority that Redding's PILOT program is not grandfathered in, and thus immune from a Proposition 26 challenge, because the PILOT is adopted by each successive city council during the biennial budget process. As the majority explains, this practice, however long-standing, is unlike an ordinance, and each council must consider the potential applicability of Proposition 26 when using the PILOT as one component during the process of setting electricity rates.
I agree that the record does not contain evidence of the exact benefits conferred by Redding to its utility — benefits available equally to all other property owners who pay their taxes in conformity with Proposition 13 and related laws. My disagreement flows from the fact that a PILOT, by definition, is designed to equate to the property taxes the utility would pay, were it not a municipal utility. The PILOT is a "payment in lieu of taxes." (Italics added.) In this case, the trial court found Redding's PILOT budget transfer equated to what a private utility would pay in taxes. Indeed, plaintiffs themselves pleaded that Redding's PILOT equals "as closely as possible" the taxes a private utility would pay. Thus, Redding's PILOT equals what a private utility would pay in taxes.
As I shall now explain, in my view, any PILOT, whenever adopted, is reasonable as a matter of law if it actually comports with Proposition 13 and implementing laws.
The trial court stated that because the PILOT equated to what a private utility would pay in taxes, its use in the periodic calculation of electric rates by Redding does not result in an unreasonable charge for providing electric service. In full, this part of the trial court's ruling reads as follows:
I make two preliminary observations about this ruling.
First, a private utility servicing Redding could not "charge whatever rates it desired" as the trial court suggested. The Public Utilities Commission (PUC) has broad regulatory authority, conferred by the California Constitution and relevant statutes. (See Southern California Edison Co. v. Peevey (2003) 31 Cal.4th 781, 792 [3 Cal.Rptr.3d 703, 74 P.3d 795] (Peevey); 8 Witkin, Summary of Cal. Law (10th ed. 2005) Constitutional Law, §§ 1099-1100, pp. 726-729.) "Statutorily, [the] PUC is authorized to supervise and regulate public utilities and to `do all things ... which are necessary and convenient in the exercise of such power and jurisdiction' ([Pub. Util. Code,] § 701); this includes the authority to determine and fix `just, reasonable [and] sufficient rates' ([id.,] § 728) to be charged by the utilities." (Peevey, supra, 31 Cal.4th at p. 792.) "In contrast, publicly owned municipal utilities are not regulated by the [PUC] or any other supervising agency [citations] in the absence of a legislative grant of authority .... Thus, it is the public entity itself which fixes utility rates pursuant to its independent legislative power." (American Microsystems, Inc. v. City of Santa Clara (1982) 137 Cal.App.3d 1037, 1042-1043 [187 Cal.Rptr. 550] (American Microsystems).)
Second, although the trial court used the phrase "it could reasonably be argued" that Redding's PILOT was a valid cost of service, in context the trial court was not merely hypothesizing about reasonableness, it was finding reasonableness. Just prior to the quoted passage, the trial court stated that if the PILOT were the imposition, extension or increase of a tax, "the next issue to be decided" is whether the charges exceeded "the reasonable costs of providing" service. Then the trial court addressed the issue in detail, as fully quoted ante. Thus, I interpret this passage as an alternative or secondary finding by the trial court, not mere musings.
In my view, the trial court's finding is not a factual finding based on the evidence, but a legally compelled finding. Under Proposition 26 a "tax" does not include: "A charge imposed for a specific government service ... provided directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service ...." (Cal. Const., art. XIII C, § 1, subd. (e)(2).) Further, the local government must show "the amount is no more than necessary to cover the reasonable costs" and that "the manner in which those costs are allocated to a payor bear a fair or reasonable relationship" to the benefits received. (Id., § 1, last par., italics added.) Thus Proposition 26 does not compel Redding to charge the utility the least possible amount for municipal services, nor to charge customers the least possible amount for electricity, as plaintiffs assert.
The electric rates set by Redding may be increased by the PILOT transfer, but that is only one factor the city council considers in setting rates. That is, an increase in the amount of the PILOT (e.g., through acquisition of new property by the utility) does not raise rates; rates are set by the city council. (See American Microsystems, supra, 137 Cal.App.3d at pp. 1042-1043.) Thus, the PILOT is not of itself a "levy, charge, or other exaction" (Cal. Const., art. XIII C, § 1, subd. (e)) imposed on ratepayers.
A municipal budget ascertains "the amount of money which must be raised to conduct the affairs of the municipality for the ensuing fiscal year, so that the business of the municipality may be conducted on a balanced budget, and on sound business principles, and, as far as practicable, on the same basis that a successful private business is conducted." (15 McQuillin, Law of Municipal Corporations (3d ed. 2014) Budget Law, § 39:49, fns. omitted.) We have deemed it to be a "fundamental proposition ... that the adoption of a budget is a legislative function." (County of Butte v. Superior Court (1985) 176 Cal.App.3d 693, 698 [222 Cal.Rptr. 429] (Butte); see Scott v. Common Council (1996) 44 Cal.App.4th 684, 690-694 [52 Cal.Rptr.2d 161].) "The budgetary process entails a complex balancing of public needs in many and varied areas with the finite financial resources available for distribution among those demands. It involves interdependent political, social and economic judgments which cannot be left to individual officers acting in isolation; rather, it is, and indeed must be, the responsibility of the legislative body to weigh those needs and set priorities for the utilization of the limited revenues available." (Butte, supra, 176 Cal.App.3d at p. 699; see Collier v. City and County of San Francisco (2007) 151 Cal.App.4th 1326, 1345 [60 Cal.Rptr.3d 698] [citing this passage of Butte with approval].)
Taxation is fundamental to municipal budgeting. Proposition 13 — the foundation of future tax and appropriation initiatives, including Proposition 26 — ensures "fair" property taxation. (Ballot Pamp., Primary Elec. (June 6, 1978) argument in favor of Prop. 13, p. 58, capitalization omitted; id., rebuttal to argument against Prop. 13, p. 59, capitalization omitted.) Therefore, if the amount of a PILOT is consistent with Proposition 13 and implementing legislation, the PILOT perforce is fair and reasonable. Proposition 26 was not designed to allow the utility to use Redding's general civic services without paying its "fair share."
By requiring the utility to pay the same amount that a private utility would pay in taxes, Redding recoups the reasonable or — as stated by Proposition 13 — "fair" costs incurred in providing electric service. This insures Redding operates "on sound business principles, and, as far as practicable, on the same basis that a successful private business is conducted." (15 McQuillin, supra, § 39:49; see also 12 McQuillin, supra, § 35:65 ["In setting rates, a city may take into consideration the fact that the property of the utility is not taxed and
Accordingly, I would affirm the judgment in favor of Redding.