Key excerpts from the Tentative Decision May 7, 2021

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SUPERIOR COURT OF CALIFORNIA
COUNTY OF SAN BERNARDINO, San Bernardino DISTRICT

TOWN OF APPLE VALLEY, a municipal corporation,

Plaintiff,

vs.

APPLE VALLEY RANCHOS WATER COMPANY, a California corporation; DOES 1-100; AND ALL PERSONS UNKNOWN CLAIMING AN INTEREST IN THE PROPERTY,

Defendants.

 

Case No.: CIVDS1600180

TENTATIVE STATEMENT OF DECISION

By a preponderance of the evidence introduced at trial and reviewed below, Liberty disproved that (1) the public interest and necessity require the Town’s Project (Code Civ. Proc. §1240.030(a)); (2) the Town’s Project is planned in the manner that will be most compatible with the greatest public good and the least private injury (Code Civ. Proc. §1240.030(b)); and (3) the use for which the Town seeks to take Liberty’s property is a more necessary public use than the use to which Liberty’s property is presently devoted (Code Civ. Proc. §1240.610).

pg. 12

[…] The preponderant evidence at trial shows that the public interest and necessity do not “require” the Town’s Project — i.e., the acquisition and operation of the Apple Valley Water System, with no changes to it. The nonexistence of the first public necessity element is demonstrated by evidence in three broad areas: (1) Liberty has operated a safe and reliable water system, while the Town has no experience, but only a hope, of doing so; (2) the regulatory oversight provided by the California Public Utilities Commission is more stringent than the oversight that would apply to Town ownership of the system; and (3) there is a substantial risk that the water system will be imperiled and the ratepayers will be harmed if the Town were permitted to take over the system and supplant regulation by the Public Utilities Commission.

The same evidence also demonstrates the nonexistence of the requirement of “more necessary public use.” Because the Town’s Project is not necessary under 25 Section 1240.030(a), it is not “more necessary” under Section 1240.650(c).

pg. 19

[…] The Court rejects the Town’s effort to call into question the water system’s perfect water quality record. […] By proving its perfect record on water quality, Liberty has proven that the Town could not possibly operate the system with a better record on water quality.

pg. 22

Liberty proved that the Apple Valley water system has been operated and maintained both effectively and efficiently. The Town’s proposed acquisition is not “required” by public interest and necessity and would not be a “more necessary” public use than the use to which Liberty’s property is appropriated. The evidence has revealed no substantial problems with the operation or maintenance of the Apple Valley water system.

pg. 25

During Governor Brown’s conservation mandate, from June 2015 through December 2017, Apple Valley conserved more water than did any of the surrounding publicly-owned systems in Victorville, Hesperia, or Adelanto.

pg. 26

[…] Operating efficiency is also shown by the overall trend in operating expenses for the water system. In nominal dollars, the total operating expenses for the Apple Valley water system decreased from $11,418,458 in 2012 to $11,024,080 in 2018. (Exh. 969-3.) When the dollars are adjusted for inflation, the decrease is even greater: in 2018 dollars, operating expenses decreased from $12,478,179 in 2012 to $11,024,080 in 2018. (Exh. 969-3.) Notably, while total operating expenses over that period have decreased, the number of customers (water connections) served has increased. On a per-connection basis, operating expenses have decreased by 12.81 % since Liberty acquired the system in January 2016. (Exh. 970.)

pg. 27

[…] In addition to operating the system efficiently from a financial perspective, Liberty has also operated and maintained the system professionally and appropriately. […]

pg. 28

[…] The evidence at trial supports Town Manager Robertson’s testimony that he “can’t imagine” that anyone could run the system better than the Liberty employees are currently operating it. […] If no one could run the system better, acquisition by the Town would constitute an experiment posing a risk to public health, safety, and the continued effective system operation by a long-term work force. […]

pg. 33

[…] The Town’s use of borrowed money to shore up its General Fund raises alarm bells because it shows the Town cannot pay its current bills out of current revenue. […]

pg. 47

The Town has argued that the virtues of Proposition 218 would put in place a system of regulation that would be superior to PUC regulation. The Court does not agree.

pg. 51

The Town’s acquisition is not required by the public interest and necessity, nor is it a more necessary public use, when future economic impacts to the system’s customers are considered.

pgs. 55–56

[…] Since Liberty acquired the Apple Valley water system at the beginning of 2016, annual operating expenses on a per-connection basis have been reduced by 12.81%.

pg. 61

[…] The evidence shows that, adjusting for inflation and considering the actual average monthly consumption, residential water bills in Apple Valley — including surcharges and other monthly charges — have decreased by 6.8% from 2009 through 2019. (Exh. 976.)

Dr. Hanemann’s conclusion that Apple Valley customers will face higher water bills under Town ownership was more compelling and the Court accepts it. […]

pg. 68

The Town’s avoidance of property taxes and income taxes is not a true cost savings.

pg. 68

If the Town were to acquire the water system, it would not pay income taxes or property taxes, as Liberty does. This tax avoidance is not properly considered a “savings” of Town ownership. As Dr. Hanemann testified, the Town’s tax avoidance just creates holes in the budgets of other public entities, which must be replaced by other taxpayers.

pgs. 68–69

[…] Even though the Town will someday pay off the debt, the community is better off financially under continued Liberty ownership rather than Town ownership, at any purchase price. […]

pg. 70

The preponderance of the evidence on this issue [economic consequences] proves that the Town’s Project is not required by the public interest and necessity, and is not a “more necessary” public use of Liberty’s property that the Town seeks to acquire.

pg. 71

Dr. Hanemann’s analysis showed what average monthly rates would be for each of the systems if they operated on equal footing — and Liberty’s average residential monthly charges compare favorably to — in fact, are less than — the average residential monthly charges for each of the other systems. […]

pg. 73

Liberty has rebutted the presumption that the Town’s project is planned in the manner most consistent with the greatest public good and the least private injury.

pg. 74

Liberty objects to the Town’s right to take Liberty’s property under Code Civ. Proc. §1250.370(c) — that “[t]he proposed project is not planned or located in the manner that will be most compatible with the greatest public good and the least private injury.” (Emphasis added.) The Court sustains Liberty’s objection. The preponderance of the evidence at trial shows that the Town’s Project does not meet the greatest public good/least private injury standard.

pgs. 74-75

[…] Thus, the continued status quo involves greater public good and lesser private injury than the Town’s proposed Project.

In addition, there are other factors that show the Town’s Project is not planned in the manner most compatible with the greatest public good and the least private injury. And these factors are, simultaneously, additional evidence disproving that the Town’s Project is required by the public interest and necessity, or that the Town’s Project constitutes a “more necessary public use” of Liberty’s water system.

pg. 77

If the Town were to acquire the water system, it would not be able to provide a low-income discount that is funded by a surcharge on the rest of the customers. (119120 Hanemann 15:19-25.) As the State Auditor noted: “Under Proposition 218, however, a publicly run water district may not use revenue derived from water fees to offer reduced rates to low-income ratepayers. Public utilities can offer such programs but must fund them through other revenue sources, such as the city’s general fund.” (Exh. 68-15.)

There is nothing in the Town’s Project that indicates any intent to provide discounts to low-income customers. Its Resolutions of Necessity say nothing about such discounts. […]

pg. 78

Over the period of Dr. Hanemann’s model, low-income customers would pay an additional $20.6 million in water bills under Town ownership than they would under continued Liberty ownership, with their low-income discounts intact.

Low-income customers are likely to suffer substantial private injury if the Town acquires the water system. […]

pg. 79

The Town’s project would cause additional private injury to those who currently rely on tax revenues that would be lost if the Town were to acquire the system.

Liberty Apple Valley is the third-largest payer of property taxes in the Town of Apple Valley. (11/12/19 Harris 119:5-16; Exh. 238-139.) Some of the property tax payments that are paid to the Town are distributed to other entities, like the Apple Valley Unified School District and the County of San Bernardino. (11/12/19 Harris 120:19-121:15.) If the Town acquires the water system, it will not pay those property taxes, and the revenue that is distributed to other entities will be lost. […]

The entities that will lose property tax revenue if the Town acquires the water system, as well as those that derive services from those tax revenues, will suffer substantial private injury. […]

pgs. 79–80

The court finds that Liberty, through evidence introduced during the court’s bench trial, has rebutted the presumptions established by Eminent Domain Law for the taking of its property for use as a municipal water utility. In particular, Liberty has disproved that 1) the public interest and necessity require the Town’s Project (Code of Civil Procedure section 1240.030(a)); 2) the Town’s Project is planned in the manner that will be most compatible with the greatest public good and the least private inquiry (Code of Civil Procedure section 1240.030(G)); and 3) the use for which the Town seeks to take Liberty’s property is a more necessary public use than the use to which Liberty’s property is presently devoted (Code of Civil Procedure section 1250.370(G) and (c) and section 1250.360(f). Therefore, Liberty’s objections to the Town’s right to take the Apple Valley Water System are sustained.

Finally, the court shall find for Liberty and shall dismiss this action under Code of Civil Procedure section 1260.120(c)(1).

pgs. 83–84

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