Gifting Contract

							To:      Los Trancos County Water District Board
Fr:      Sandy Sloan; Camas Steinmetz
Date: April 13, 2006
RE:      Offset of Water Rates


BACKGROUND
Before the sale to California Water Service Company (“Cal Water”) of the Los
Trancos County Water District (“District”)’s water distribution facilities in April,
2005, District taxpayers were paying some of the highest rates in the State, in
part to deliver water to this small hilly District, and in part to pay for the costly
upgrade to the District’s water distribution system in preparation for its sale to Cal
Water. In addition, although the Blue Oaks area was annexed to the District in
the late 1990’s, the District received no additional revenue to assist in its delivery
of services to this annexed area. To compensate its taxpayers for years of
paying these high rates and, in anticipation of increasing water costs as a result
of the Hetch Hetchy upgrade, the District Board decided that a partial offset of
water rates was appropriate and this concept was included in its contract with Cal
Water.


The District sold its water distribution services to Cal Water in April, 2005
pursuant to the Asset and Real Property Purchase and Sale Agreement (“Sale
Agreement”) dated December 18, 2003 which references the District’s intention
to enter into agreement with CWS Utility Services (“CWS”), an affiliate of Cal
Water, to administer offsets of water rates. On April 21, 2005, the District passed
Resolution No. 190 authorizing the distribution of a portion of the District’s
revenues to the District’s constituents in order “to offset the increasing cost of
water” (“Offset”). On September 16, 2005 the District entered into an agreement
with CWS whereby CWS agreed to provide its billing services to administer the
Offset and the District agreed to pay CWS, as consideration for its services, a
monthly fee in the amount of 2% of the total monthly Offset administered.




                              C:\Docstoc\Working\pdf\6c432b62-202f-4222-9805-89f5bbe709e9.doc
QUESTION PRESENTED
Is the issuance of the Offset a gift of public funds?


SHORT ANSWER
No, because 1) the purpose of the Offset is to reduce the cost of water, and
setting rates for the cost of water is a public purpose within the District’s
jurisdiction per California Water Code Sections 31007, 310251, 71614-16; and 2)
the District has the power generally to perform all acts necessary to carry out its
powers per California Water Code Section 31001.


GOVERNING LAW
    The California Constitution (Article XVI § 6) prohibits any public agency from
making “any gift of any public money or thing of value to any individual, municipal
or other corporation whatever.” The determining factor in whether there has
been an illegal gift of public funds is whether the expenditure was for a “public
purpose.” Schettler v. County of Santa Clara (1977) 74 Cal.App.3d 990, 10003.
If the expenditure is for a public purpose within the jurisdiction of the
appropriating board or body, it is not regarded as a gift even though there may be
incidental benefits to private persons. Id; Atlantic Richfield Company v. County
of Los Angeles (1982) 129 Cal. App. 3d 287, 297. In Schettler, the court stated
that “[i]t is .. settled that if a public purpose is served by the expenditure of public
funds, the constitutional prohibition is not violated even though there may be
incidental benefits to private persons [citations].” Schettler, 74 Cal.App.3d 1004.
The Schettler court further held that “[e]ven more importantly, under an unbroken
line of cases the determination of what constitutes a public purpose is primarily a
matter for the [governing body], and its discretion will not be disturbed by the
courts so long as that determination has a reasonable basis.” Id. In Atlantic, the
court specifically held that a refund of taxes to the taxpayers was not an illegal
gift of public funds because the purpose of the refund was to relieve taxpayer



1
    Section 31025 states “[T]he district shall fix and through the general manager collect the water rates.”


                                  C:\Docstoc\Working\pdf\6c432b62-202f-4222-9805-89f5bbe709e9.doc              2
hardship and relief of hardship to a taxpayer is a valid public purpose. Atlantic,
supra 129 Cal. App. 3d 287.




ANALYSIS
Although the Offset does provide incidental benefits to private persons, the Offset
is for a public purpose within the District’s jurisdiction and therefore not an illegal
gift of public funds. Resolution No. 190 authorizing the Offset states that the
purpose of the Offset is “to offset the increasing cost of water.” Offsetting the
increasing cost of water is a legitimate public purpose for two reasons: 1)
offsetting the increasing cost of water relieves hardship and relief of taxpayer
hardship is specifically recognized by California courts to be a legitimate public
purpose (Atlantic Richfield Company v. County of Los Angeles (1982) 129 Cal.
App. 3d 287, 297) and 2) the District has wide discretion in determining what is a
public purpose (Schettler v. County of Santa Clara (1977) 74 Cal.App.3d 990).
The public purpose of offsetting the increasing cost of water is within the District’s
jurisdiction because the District is authorized to fix and collect water rates under
Sections 31007, 31025, 71614-16 of the California Water Code and the District
has the power “to perform all acts necessary to carry out fully” this Section under
Section 31001. The Offset effectively sets the District taxpayer’s water rates by
offsetting them. Therefore, although there is incidental benefit to private persons,
the Offset is for a legitimate public purpose and is not an illegal gift of public
funds.


cc:      Thomas F. Casey
         Carol L. Woodward




                         C:\Docstoc\Working\pdf\6c432b62-202f-4222-9805-89f5bbe709e9.doc   3