Riverside Billed Water Ratepayers Illegally for Years, Judge Rules

A Riverside judge ruled last month that the city must fix years of unconstitutional water charges – a decision that could leave the city facing millions of dollars in refunds to ratepayers.

A phase one ruling of the Simpson v. City of Riverside case in August 2023 found that the city's long-running practice of transferring 11.5 percent of water revenue into the general fund violates the California Constitution's rules on utility fees. Under Proposition 218, local governments cannot charge more than the cost of providing a utility service or spend those revenues on unrelated costs.

The case has now moved into its second phase, and on April 20, Superior Court Judge Harold Hopp said plaintiffs are entitled to a refund remedy and discussed a common fund of at least $46 million – though that may be limited by a four-year look-back period.

However, the exact refund amount still needs to be confirmed in the final judgment, which is expected in the next few weeks.

Hopp also said in his April 20 ruling that the city cannot solve the problem just by giving future bill credits, because that would leave former customers with no relief for money they already paid.

The April 20 order also granted the plaintiffs' request for attorneys' fees from the common fund created by the case, another sign the court sees a refund remedy as likely.

The lawsuit was brought by a group of Riverside residents, who first flagged the issue in 2010 while reviewing bond documents tied to the city's Riverside Renaissance program. Those documents, prepared by the city's bond counsel, warned that the transfer could be challenged in court and, if struck down, could affect the city's ability to repay debt.

Even with that warning, the city continued the transfers.

A city spokesperson told the Gazette on April 27 that it is aware of the ruling and plans to appeal.

The Simpson case is not the first time Riverside has faced legal challenges over its 11.5 percent general fund transfer practice — a nearly identical case played out over the city's electric utility nearly a decade earlier.

In 2018, a class-action lawsuit — Parada v. City of Riverside — alleged that the electric services version of the same transfer violated Proposition 26, a 2010 state law requiring voter approval for certain utility charges.

A judge agreed in 2020, and the city ultimately settled for $24 million in refunds to electric ratepayers.

To protect the ongoing transfer going forward, the city placed Measure C on the November 2021 ballot, where it passed with 55 percent of the vote — but Hopp, the same judge now presiding over the water case, struck the election down, ruling it was held during a special election rather than a general election as state law requires.

The water side of the transfer has its own long paper trail.

Voters first approved the water general fund transfer in 1968, and the city has sought re-authorization at the ballot multiple times since.

A 2012 lawsuit by Riverside residents Vivian and Javier Moreno forced the city to briefly halt water transfers and repay $10 million to the water fund. That settlement led to Measure A in June 2013, which voters approved by more than two-thirds.

But the Simpson plaintiffs, several of whom had fought the transfers since 2010 and filed ethics complaints against city council members over Measure A, argued that voter approval alone cannot override Proposition 218's requirement that water fees only cover the actual cost of water service. Phase one of the Simpson case agreed with that argument.