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By Chris Frost
The California Court of Appeal has struck down Oxnard’s Measure M.
Siding with the City of Oxnard over resident Aaron Starr, Division Six of the Court of Appeal found that the Measure, passed by voters in 2016, violated Government Code Section 54300, known as the Revenue Bond Law.
The controversy stems from an Ordinance passed by the city council in January of 2016, which raised wastewater utility rates by 35 percent, with annual adjustments going forward. The increase was based on a city commissioned study by Carollo Engineers, which found that the current rates were insufficient to meet obligations of four outstanding bonds. The bonds, which are secured by utility rates, require the city maintain the wastewater system and fix utility rates which are sufficient to yield revenue at least equal to the debt service plus an additional 25 percent reserve.
In response, Oxnard resident Aaron Starr gathered signatures to place Measure M, which called for the return of rate structure that existed prior to the adoption of the ordinance, on the November 2016 ballot. The measure passed by 72 percent of the vote.
Starr then launched a recall campaign against councilmembers Bert Perello, and Oscar Madrigal, against whom Starr is currently running for the District 3 council seat. Mayor Pro Tem Carmen Ramirez and Mayor Tim Flynn were also targeted.
The recall effort failed.
The City of Oxnard filed suit challenging the validity of Measure M and asked the trial court to issue an injunction, arguing that the rate decrease would downgrade the city’s BBB credit rating. This downgrade, the city argued, could have two adverse consequences. First, a letter of credit provided by Union Bank was set to expire and would not be renewed. The City would immediately owe $16.75 million. Second, an interest rate swap with the Royal Bank of Canada would expire, immediately costing the City $3.7 million.
The Court granted the city’s request, issuing an injunction preventing the measure from going into effect pending a trial.
With the Measure on hold, the City undertook a review of the rate increase by forming a “Utility Ratepayers Advisory Panel” known as URAP. Starr was among those appointed to the panel.
In an updated rate study report commissioned by the city, Carollo Engineers recommended a 5.25 percent rate increase in each fiscal year 2017/2018 through 2021/2022. The City adopted that recommendation, effective July 1, 2017, as Ordinance No. 2917. This allowed the city to bring in additional revenue even with Measure M sidelined.
After a hearing, the trial court found Measure M to be valid. In his ruling, Judge Rocky Baio held that an initiative measures should be presumed valid unless there is clear and unmistakable unconstitutionality. The court went on to find that the city’s argument that it would be unable to meet financial, in particular bond obligations, was “speculative and premature,” notwithstanding the Carollo study.
The city appealed the ruling.
In a 3-0 decision, the Court of Appeal reversed the trial court holding Measure M to be invalid. Justice Arthur Gilbert penned the unpublished opinion finding that the Measure was governed by a 1941 law, the Revenue Bond Law (Gov. Code Section 54300 et seq.) which mandates that a wastewater’s utility’s revenue “shall be at lease sufficient to pay” interest and principle on bonds, payments required for compliance with the bondholders requirement of reserves, any local agency obligations and costs of maintenance and operation.
It also requires that the utility operate keep equipment operating and in good repair. Testimony in the trial showed that the treatment plan hasn’t been updated since the 1970’s and critical components of the wastewater treatment plan regularly fail. Evidence also showed that the plant’s Vietnam era backup generated has repeatedly failed sending sewage into the ocean.
At one point, 219,000 gallons of effluent to spill into the ocean causing the Regional Water Quality Control Board to issue a notice of violation.
“[H]ere, the uncontradicted evidence shows that only one reasonable conclusion is possible,” wrote Justice Gilbert. “Measure M violates the Revenue Bond Act of 1941.”
Rejecting Starr’s claim that the city is operating inefficiently, the Court found that “[t]he rates charged under Measure M are insufficient…”
Starr has been ordered to pay costs to the city.