SAN MARCOS WATER DISTRICT v. SAN MARCOS UNIFIED SCHOOL DISTRICT (1985)

Defendant San Marcos Unified School District (School District) appeals from a judgment entered on an agreed case pursuant to Code of Civil Procedure sections 1138 and 1139 validating a “sewer capacity right fee” (capacity fee) imposed on the School District by plaintiff San Marcos Water District (Water District.)   We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

The case was submitted to the trial court on a stipulated set of facts.   The Water District provides sewer services and the School District provides educational services for the San Marcos area.   Although the boundaries of the two districts are not contiguous, they serve roughly the same community.   All of the currently used school sites of the School District are within the Water District.

Beginning in 1971, the School District connected certain of its school sites and facilities to the Water District's sewer system and thereby began incurring various charges from the Water District.   The Water District charges its customers three different types of fees.   A connection fee is charged when a customer's property is initially connected to District sewer lines.  (See post, p. 263 and fn. 8.)   A monthly sewer service charge is assessed based on rates approximating the amount of sewage discharged monthly.¹  And a one-time capacity fee is also charged prior to connection which, like the monthly service charge, is based on approximate amounts of sewage discharged.²  According to a 1983 Water District ordinance, the capacity fee “is a primary source of funds for the development of additional capacity and [is set] at a level which will defray the costs of providing additional sewage treatment and/or reclamation facilities, major trunk and transmission pipelines and facilities for pumping when such facilities are needed.”

DISCUSSION

The sole question presented to the trial court and to us on appeal is whether the Water District may validly collect the capacity fee from a property tax-exempt entity such as the School District.   There is no dispute as to the Water District's authority to collect or the School District's obligation to pay the connection fees and monthly service charges.   Nor is there any contention by the School District that the capacity fee it is charged is any different from the capacity fees charged non-tax-exempt entities.   Because the facts are undisputed, we review the trial court action as involving solely a question of law.

I

The Water District's capacity fee is imposed pursuant to Health and Safety Code section 5471.   That section provides in relevant part as follows:

“Any entity shall have power ․ to prescribe, revise and collect, fees, tolls, rates, rentals, or other charges, including sewer standby or immediate availability charges, for services and facilities furnished by it, either within or without its territorial limits, in connection with its sanitation or sewerage․  Revenues derived under the provisions in this section, shall be used only for the acquisition, construction, reconstruction, maintenance and operation of water systems and sanitation or sewerage facilities ․;  provided, however, that such revenue shall not be used for the acquisition or construction of new local sewers or laterals as distinguished from main trunk, interceptor and outfall sewers.”

The School District relies on a series of three cases which, with minor factual variations, address the question whether a local government entity which operates a sewer system can collect a fee designed to defray the costs of capital improvements from public entities not subject to the property tax.   (See County of Riverside v. Idyllwild County Water Dist. (1978) 84 Cal.App.3d 655, 148 Cal.Rptr. 650;  Regents of University of California v. City of Los Angeles (1979) 100 Cal.App.3d 547, 160 Cal.Rptr. 925;  Regents of University of California v. City of Los Angeles (1983) 148 Cal.App.3d 451, 196 Cal.Rptr. 14.)   In each case, the court concluded that to the extent the fee was used to finance capital improvements, it constituted a special assessment which could not be collected from tax-exempt entities absent legislative authorization.³

The Water District responds with a sequential argument.   It first contends the capacity fee is not a special assessment but rather a service charge or user fee.   Accordingly, in the District's view, the fact that the School District is exempt from the property tax is irrelevant.   Even if the capacity fee is a special assessment, however, the Water District finds legislative authorization for the assessment in Education Code section 39613 which empowers school districts to construct their own sewer systems or to contract for the right to utilize sewer systems constructed by others.⁴  The District suggests that since the construction of a sewer system by a school district would clearly involve capital costs, the Legislature must have intended that a school district's “contracts” for sewer utilization rights include payment of capital costs.   Finally, the Water District argues that capacity fees for tax-exempt entities were specifically authorized with the enactment of Water Code section 31101.5 in 1982.⁵  (Cf. Water Code, § 71670.5;  Carlton Santee Corp. v. Padre Dam Mun. Water Dist. (1981) 120 Cal.App.3d 14, 30, 174 Cal.Rptr. 413.)

II

The first question we must address is whether the Water District's capacity fee constitutes a “special assessment.”   If it does, the School District cannot be required to pay it absent special legislative authorization.   On the other hand, if the capacity fee is merely a user service charge, i.e., the price charged for a governmental service, there is no reason to exempt the School District from a fee all users of the sewer system must pay.

County of Riverside v. Idyllwild County Water Dist., supra, 84 Cal.App.3d 655, 148 Cal.Rptr. 650 was the first case to confront a similar question.   The water district sought to impose a monthly sewer capacity charge against tax-exempt public entities as an “ ‘equitable contribution toward the capital cost of the sewerage system.’ ”  (Id., at p. 657, 148 Cal.Rptr. 650.)   The court began by stating the general rule that tax-exempt public entities are also impliedly exempt from special assessments.  (Id., at pp. 659–660, 148 Cal.Rptr. 650.)   It then framed its conclusion in the following terms:

“The imposition of a capital cost charge on tax exempt entities was a means of making such entities contribute a proportionate share of the cost of constructing the district's sewerage facilities.   The charges are in effect a special assessment under a different name and constitute an attempt by the district to do indirectly that which it could not do directly.”6  (Id., at p. 660, 148 Cal.Rptr. 650.)

The court then goes on to support its holding by citing an Attorney General's Opinion (19 Ops.Cal.Atty.Gen. 195) which states that charges and fees for sewer services may be assessed against public entities to the extent the same charges and fees are paid by all other sewer users.   Noting that the water district's capacity charge was assessed only against tax-exempt entities, the court concluded the charge was invalid.  (84 Cal.App.3d at p. 660, 148 Cal.Rptr. 650.)

A fact situation virtually identical to the present case was considered by the court in Regents of University of California v. City of Los Angeles, supra, 100 Cal.App.3d 547, 160 Cal.Rptr. 925 (Regents I.)   The City of Los Angeles operated a sewer system and imposed a one-time “sewer facilities charge” before a property improvement could be connected for sewer service.   The charge was scaled to anticipated use by each user and was used to defray the costs of sewer construction.   As in the present case, the charge was imposed on all sewer system users, not just tax-exempt entities.   Relying almost exclusively on the Riverside opinion, the court ignored the portion of that case which discussed the selective impact of the capacity fee on tax-exempt public entities and focused solely on the evaluation of the fee as a special assessment.   Defining a special assessment as “a charge imposed on property owners within a limited area to help pay the cost of a local improvement designed to enhance the value of the property within that area” (id., at p. 549, 160 Cal.Rptr. 925), the Regents I court syllogistically concluded:

“[T]he revenues collected as a result of the ‘sewage facilities charge’ are used by the city to provide capital for sewer construction, i.e. to finance local improvements.   Such a charge for capital funding is little more than a disguised special assessment.”  (Ibid.)

The same parties again squared off in Regents of University of California v. City of Los Angeles, supra, 148 Cal.App.3d 451, 196 Cal.Rptr. 14 (Regents II.)   Los Angeles responded to the Regents I decision by increasing its monthly sewer service charge so that monies from such charge could be used to finance capital improvements.   The Regents II court responded by striking down the increased charge, holding that the critical issue in determining whether the charge was a special assessment “is the purpose of the disputed charge.”  (Id., at p. 455, 196 Cal.Rptr. 14, emphasis in original.)   The court read the Regents I decision to hold that where the purpose of the charge is to finance capital improvements rather than operating expenses, it constitutes a special assessment which, as a general rule, cannot be imposed against tax-exempt public entities.  (Ibid.)

III

It would be a simple matter for us to cite Riverside and the two Regents decisions for the “purpose of the charge” proposition in rejecting the Water District's contention.   Unfortunately, the easy way is not always the correct one.   We are concerned that a statement unnecessary to the holding in Riverside has been developed by the Regents cases into a full-blown proposition of law without sufficient—indeed without any—analysis of the economic implications of the proposition on local government finance.

It is perhaps helpful to begin by analyzing the economic rationale behind the Water District's capacity fee.   We will then proceed to examine the economic factors which distinguish user charges from special assessments and, more generally, from taxes.

A

It is obvious that the Water District has sought to finance its sewer system largely by payments from users of that system rather than from general tax revenues.   Accordingly, each sewer user pays a connection fee to compensate for the labor and materials involved in connecting a property improvement to the sewer system.   In addition, a monthly service charge is imposed to cover the operating expenses associated with treating the amount of sewage discharged by the user during the month.   Both of these charges, however, assume the existence of an operating sewage system including main sewer lines, a treatment plant and a sewage outfall for discharge of the treated sewage into the ocean.   The Water District has sought to recoup the costs of constructing such major facilities by way of the challenged capacity fee.   The capacity fee assumes that a system with x capacity is needed to effectively treat a monthly sewage discharge of x.   If a new building is connected to the sewer system which increase the monthly sewage discharge to x + y, the capacity of the system must correspondingly be increased by y.   By setting its capacity fee at a level equal to the cost of adding y capacity, the Water District is simply charging to each new sewer use the capacity costs associated with its impact on the system.

B

In economic terms, user charges are merely one source of revenue for local governments.   For our purposes we can divide self-generated revenues into three general categories:  taxes, special assessments and user fees.   There is a great deal of legal literature attempting to distinguish between taxes and special assessments, but very little which analyzes the concept of a user charge.  (E.g., State Highway Commission v. City of Topeka (Kan.1964) 193 Kan. 335, 393 P.2d 1008, 1010;  see also 14 McQuillin, Municipal Corporations (1970 rev.) § 38.01 and cases there cited.)   In contrast, economists writing on the topic of public finance spend a great deal of time discussing taxes and user charges but routinely omit extensive references to special assessments.   (See, e.g., Hirsch, The Economics of State and Local Government (1970);  Kamer, Crisis in Urban Public Finance (1983).)   This is because, to the economist, there is a great deal of difference between taxes and user charges but significantly less difference between special assessments and user charges.   User charges for public services are viewed as analogous to the prices charged by private business entities for commercial services.   The amount of the charge is closely tied to the benefits received by the purchaser.  (See, e.g., Hirsch, op. cit. supra, at p. 31.)   Special assessments, though distinguishable from user charges, are functionally quite similar because the amount of the assessment, at least in theory, is tied to the benefits received by the owner of the assessed property.  (E.g., Bird & Slack, Urban Finance and User Charges, in State and Local Finance (Break edit. 1983), p. 216;  4 Sands & Libonati, Local Government Law (1982) § 24.06, pp. 24–17.)   Taxes, on the other hand, are quite different from both user charges and special assessments because their amount is generally determined not by reference to benefits received but rather on some measure of the taxpayer's ability to pay.  (Due and Friedlaender, Government Finance—Economics of the Public Sector (1973) pp. 236–237;  Hirsch, op. cit. supra, at pp. 50–51.)

Economists have for some time advocated more extensive utilization of user charges by local governments to finance certain public services.  (E.g., Bird & Slack, op. cit. supra, at p. 215.)

“User charges put public prices on public products.   They apply to those who voluntarily consume public services or use public facilities․  They are favored by economists not only because they raise additional revenues, but also because they can lead to a more efficient allocation of resources and a more equitable distribution of public services.   Efficiency is served because user charges provide a price signal as to what goods should be produced and at what levels.   Equity is served because only those who benefit from a service actually pay for it.”  (Kamer, op. cit. supra, at p. 64.)

As noted above, economists tend to view special assessments as analogous to user charges because the amount of the assessment varies with the benefits received.   Special assessments, however, are not true “public prices.”   One set of economists has sought to define special assessments and distinguish user charges:

“Special assessments and related devices such as subdivision exactments or lot levies are compulsory payments (in cash or kind) intended to defray the cost of certain public sector capital outlays.   They are not ‘user charges' as normally defined, because the amount charged is not related to the use made of any good or service provided by governments.”  (Bird & Slack, op. cit. supra, at p. 216.)

Thus defined, special assessments are properly viewed as a one-time benefit tax which, like taxes based on the ability-to-pay principle, are distinguished from user charges by their involuntariness and the fact that the amount of the assessment is unrelated to use of the public service.⁷

Because they view user charges as a pricing system for public services, it seems clear economists would have no trouble concluding that the type of monthly fee struck down by the court in Regents II, supra, 148 Cal.App.3d 451, 196 Cal.Rptr. 14 is in reality a true user charge rather than a special assessment.   While it is true that special assessments are used to fund capital improvements, it does not follow that any charge used to fund capital improvements is necessarily a special assessment.   By analogy to the private sector, businesses normally obtain capital to finance improvements from the prices they charge for their goods and services.   If a dry cleaning business needs new equipment, there is no procedure for specially assessing its customers.   The cost of the new equipment must be factored into the prices charged for cleaning clothes in the same way as Los Angeles factored the cost of sewer treatment improvements into the price charged for sewer service in Regents II.   As one economist has stated in explaining the advantages of user charges:

“User charges can reduce congestion by rationing scarce facilities to those who place the highest value on access to them.   User charges can also provide the capital needed to maintain or expand existing public facilities.   For example, a user charge imposed on motorists who travel on major highways during peak rush hours can reduce highway congestion while, at the same time, generating the capital needed for highway improvements.”  (Kamer, op. cit. supra, at p. 64, emphasis added.)

The major difference between the capacity fee in this case and in Regents I compared with the service charge in Regents II is that the capacity fee is a one-time charge based on anticipated use whereas the service charge is a monthly assessment based on actual use.   The capacity fee thus has some characteristics which resemble a special assessment (one time charge;  not based on actual use) and some which look more like a user charge (charge only applies to users;  based on anticipated use).  (Compare Seal Tanning Co. v. City of Manchester (1978) 118 N.H. 693, 393 A.2d 1382, 1386 (A special assessment “is incurred only once and is collected from a landowner who is specially benefited by the sewer's construction whether or not he is actually connected to the sewer system.”).)   To resolve the question of which category this hybrid is most properly placed within, we must turn from the realm of public economics to that of legal precedent.   Our examination will necessarily include an analysis of the rationale underlying the exemption from special assessments enjoyed by public entities to determine whether policy considerations warrant its extension to the capacity fee at issue in this case.

IV

Our research has disclosed several out-of-state cases in which courts have been asked to review sewer charges analogous to the Water District's capacity fee.   The closest on point would appear to be Murray City v. Board of Ed. of Murray City Sch. Dist. (1964) 16 Utah 2d 115, 396 P.2d 628.   Murray City issued revenue bonds for extensions and improvements to the city's water plant and sewer system.   To pay off the bonds, the city imposed a sewer charge based on anticipated use of the sewer system.  (Id., 396 P.2d at p. 629.)   As in California, public agencies in Utah are generally exempt from taxes and special assessments.   The school district accordingly contended it was exempt from the sewer charge.   Rejecting the school district's argument that the sewer charge was in reality a special assessment, the Utah Supreme Court sought to distinguish the two concepts:

“An assessment ․ is levied under the taxing power and is imposed upon property within a limited area for an improvement to enhance all property within that area.  [Citation.]  On the other hand, the cost of a service is determined by the benefits conferred upon the occupants of the land rather than an increase in value to the land itself.”  (Id., at p. 630.)

Murray City was relied on by that same court in Home Builders Ass'n of Gr. Salt Lake v. Provo City (1972) 28 Utah 2d 402, 503 P.2d 451, sustaining a $100-per-living-unit “connection fee”⁸ designed to defray the costs of improvements and enlargements to the sewer system.   Citing Murray City, the court noted that sewer charges and connection fees “are neither taxes nor assessments but payments for services furnished.”  (Id., 503 P.2d at p. 452.)

A similar conclusion with respect to a similar connection fee was reached by the Indiana Supreme Court in Brandel v. Civil City of Lawrenceburg (1967) 249 Ind. 47, 230 N.E.2d 778.   In distinguishing benefit taxes such as special assessments from user charges (referred to in the opinion as “use taxes”) the Brandel court explained:

“The tax here involved, it should be noted, is not a benefit tax, but rather a use tax for the services of disposing of sewage from particular property.   It is not a benefit tax for the reason that not all property in the area under the ordinance is required to pay the $200.00 fee.   It is only such property as has sewage to be disposed of to which the tax is applicable.”  (Id., 230 N.E.2d at p. 780.)

In City of Dunedin v. Contractors & Builders Ass'n (Fla.App.1975) 312 So.2d 763, the city imposed a $325 “impact fee” for connections to the city's sewer system to cover the costs of capital improvements to that system.   The court quite succinctly defined the issue before it:

“No one doubts that a municipality has the power to make reasonable charges for water and sewer services.   The question is whether the cost of projected capital improvements can be considered in setting the charges.”  (Id., at p. 766, fn. 4.)

In concluding that sewer service charges may properly include the cost of projected capital improvements, the court stated as follows:

“The imposition of fees for the use of a municipal utility system is not an exercise of the taxing power nor is it the levy of a special assessment.   [Citation.]  In our view, connection fees such as those involved in this case do not constitute a tax but a charge which may be made for the use of the utility service․”  (Id., at p. 766, fn. omitted.)

In Opinion of Justices (1944) 93 N.H. 478, 39 A.2d 765, the New Hampshire Supreme Court was asked to consider whether the City of Concord could charge the State certain “sewer rents” based on “ ‘the metered comsumption of water on the premises connected with the sewer system, the number and kind of plumbing fixtures connected with the sewer system, the number of persons served by the sewer system or upon any other equitable basis.’ ”  (Id., 39 A.2d at p. 766.)   The funds raised by such charges were to be used for, among other things, the construction and repair of the sewer system including treatment and disposal facilities.  (Ibid.)  Responding to the argument that the sewer rents constituted a special assessment for which the state was impliedly exempt, the court responded that “the difficulty with this contention, as here applied, lies in the fact that the price which the city charges for sewer service is in no sense a special assessment.”  (Id., at p. 767.)   In support of its conclusion, the court cited a major treatise in the field:

“ ‘․ Another form of a charge which is in substance a contract is to be found where a municipality, under authority conferred by statute, imposes a charge upon property owners who connect their land with a sewer system constructed by the city, the owner being free to avoid liability by refraining from making such connection.   Such charge may be a fixed sum for the privilege of making the connection, or it may be a charge based upon the amount of sewage discharged from the premises into the sewer.   Such a charge is not ordinarily regarded as a local assessment.’   Page & Jones, Taxation by Assessment, § 6.”  (Ibid. (emphasis added);  to the same effect, see also Louisville and Jefferson County Met. Sewer D. v. Barker (1948) 307 Ky. 655, 212 S.W.2d 122.)9

Opinion of Justices was cited with approval by the court in Hayes v. City of Albany (1971) 7 Or.App. 277, 490 P.2d 1018.   The Hayes court validated a sewer connection charge which ranged from $255 for a single family dwelling to as much as $400,000 for a major industrial plant.   Of particular interest is the fact that Hayes also relied on a California Supreme Court decision in support of its holding.   In Associated Homebuilders v. City of Livermore (1961) 56 Cal.2d 847, 17 Cal.Rptr. 5, 366 P.2d 448, the city imposed a $150-per-dwelling-unit sewer connection charge designed to defray the cost of capital improvements to the sewer system.   Relying on Health and Safety Code section 5471 (ante, p. ––––), the court sustained the charge against a challenge by builders and developers that imposition of the charge exceeded the city's taxing power:

“In any given case the charge prescribed by the subject ordinances is measured by the use to which the property (and consequentially the city's sewer system) will be put, including the number and type of plumbing fixtures to be installed.   Accordingly, it does not constitute an assessment on the value of the property ․ but rather is in the nature of an excise tax imposed on all persons thereafter applying for building permits for the privilege of connection to (and is reasonably commensurate with the burden to be imposed on) the facilities of defendant's sewer system.”  (Id., at pp. 852–853, 17 Cal.Rptr. 5, 366 P.2d 448 (emphasis added).)

 We are not totally sure what the Supreme Court meant by a charge “in the nature of an excise tax.”   We suspect the court had in mind the type of analysis it employed in City of Glendale v. Trondsen (1957) 48 Cal.2d 93, 102–103, 308 P.2d 1 where it validated a city's rubbish collection fee alternatively characterized as a “excise tax” and “service charge.”¹⁰  In any event, it seems clear the Livermore court did not view the sewer connection charge as a special assessment.¹¹

V

We are thus faced with a situation in which the rationale of a series of three recent Court of Appeal opinions, with which we have already expressed our concern, is inconsistent with the weight of authority from other states and is arguably inconsistent with language in a California Supreme Court decision.   Significantly, neither Riverside nor either of the Regents decisions discuss the out-of-state authority or cite the Supreme Court's opinion in Livermore.   Under such circumstances, we think it appropriate to briefly analyze the rationale underlying the rule which generally exempts public agencies from special assessments.

As previously noted, the special assessment exemption derives by analogy from the constitutional exemption from property taxation enjoyed by public agencies.   That rule arose at a time when there were far fewer local agencies whose boundaries much less frequently overlapped.   The exemption of public property from taxation was viewed as avoiding the necessity of a municipality assessing its own property.  (See Holbrook & O'Neill, California Property Tax Trends:  1850–1950 (1951) 24 So.Cal.L.Rev. 252, 268.)   To the extent local agency boundaries did overlap, the transaction costs associated with inter-entity tax payments were apparently perceived as outweighing any theoretical advantages in terms of tax equity.¹²

It is because special assessments are viewed as being within the government's taxing power (see Inglewood v. County of Los Angeles, supra, 207 Cal. at p. 703, 280 p. 360) and are clearly levied on property that the analogy to the property tax exemption developed.   While there is a clear difference between a tax for general governmental purposes imposed on ability-to-pay principles and an assessment for a specific improvement levied on benefit principles, the facial similarity has been seen as sufficient to justify the implied exemption.  (Id., at pp. 703–704, 280 P. 360.)

Where there is no necessary relationship between the amount of a tax and the amount of benefits received from governmental services (i.e., where a tax is imposed on an ability-to-pay principle), it is arguable that the transaction costs associated with assessing public agencies do not justify the results, especially in view of the theoretical difficulties involved in determining the “ability-to-pay” of a governmental body.   Even in the case of a special assessment, where the benefits received are solely related to increases in the value of the subject property, such a benefit is perhaps less useful to a public agency which is not in business to make a profit.   But where the benefit to the public entity is direct, defined as in the present case in terms of use of a service, there is no more reason to exempt the agency from payment of the charge than there is to exempt it from paying private businesses for goods delivered and services rendered.

VI

 The general rule with respect to tax exemptions is that they should be strictly construed against the person or entity claiming the exemption.  (See Cedars of Lebanon Hosp. v. County of L.A. (1950) 35 Cal.2d 729, 734, 221 P.2d 31.)   While this general rule has been held inapplicable to exemptions in favor of public agencies (see Pasadena v. County of Los Angeles (1920) 182 Cal. 171, 174, 187 P. 418), this rule of liberalized construction has only been invoked where a tax exemption is express.   Where a tax exemption is created neither by constitution nor statute but is rather a creature of judicial interpretation (see ante, fn. 3), we believe the general rule is more appropriate and the implied exemption must be strictly construed.   So construed, and in view of the abundant precedent from other states sustaining similar sewer capacity charges coupled with the supportive language in the Supreme Court's Livermore opinion, we conclude the School District is not impliedly exempted from paying the Water District's capacity fee.   The capacity fee does not constitute a special assessment for the purposes of the implied exemption because it is not assessed against all property benefited by the sewer system but is only imposed on users of the system whose use gives rise to the need for additional sewer capacity.¹³

We do not reach this conclusion lightly.   We recognize that it places us in conflict with the holdings of at least two other divisions of the Court of Appeal.   Despite our respect for the principle of stare decisis, however, we believe those courts' failure to consider the arguments and precedent we have discussed here mandates our taking a fresh look at the question.   Our contrary conclusion is a function of those different arguments and additional precedent.¹⁴

DISPOSITION

Judgment affirmed.

I respectfully dissent.

The issue presented in this case is whether the San Marcos Water District (Water District) may impose on the San Marcos Unified School District (School District) a “sewer capacity right fee” which is used by the Water District to fund capital improvements.

The majority refuses to follow the clear reasoning and the general rule found in the California Supreme Court decision of Inglewood v. County of Los Angeles, 207 Cal. 697, 703–704, 280 P. 360.¹  The majority would in effect overrule three precisely-in-point appellate decisions, Regents of University of California v. City of Los Angeles, 100 Cal.App.3d 547, 160 Cal.Rptr. 925 (hg. den.) (Regents I);  Regents of University of California v. City of Los Angeles (Regents II), 148 Cal.App.3d 451, 160 Cal.Rptr. 925 (hg. den.);   and County of Riverside v. Idyllwild County Water Dist., 84 Cal.App.3d 655, 148 Cal.Rptr. 650, that rely on Inglewood, supra, as the foundational authority.   The majority ignores, refuses to follow two well-reasoned opinions of the Attorney General, 19 Ops.Cal.Atty.Gen. 195, and 67 Ops.Cal.Atty.Gen. 13.   The reasoning underlying this abandonment of controlling long-standing precedent as well as a fundamental constitutional aversion to allow one taxing body to assess another taxing body (without express legislative authority) for capital improvement is difficult to grasp and evaluate.   Learned discourse on economic philosophy or out-of-state cases resting on different statutory-constitutional judicial concepts, while of academic interest, have little to no persuasive value.   Our own Constitution, as interpreted by the California Supreme Court, binds us, controls our decisions.

The parties' stipulated statement of facts shows Water District and School District serve roughly the same community.   School District is larger but all of its school sites are located within Water District's boundaries.   Water District has been handling sewage for the property involved here since 1971.

Water District charges School District and its other customers three types of fees:  (1) a connection fee when the customer's property is initially connected to the district's sewer system;  (2) a monthly sewer service charge computed based on an estimated amount of sewage discharged monthly;  and (3) a one-time capacity fee computed based on anticipated sewage discharge.   The capacity fee is “a primary source of funds for the development of additional capacity and [is set] at a level which will defray the costs of providing additional sewage treatment and/or reclamation facilities, major trunk and transmission pipelines and facilities for pumping when such facilities are needed.”  (San Marcos Water District Ordinance, No. 47–6, art. X, § 4.)   The School District disputes only the applicability of the capacity fee.

I

Under the California Constitution, public schools are exempt from property taxation.  (Cal. Const., art. XIII, § 3.)   The California Supreme Court has held there exists also an implied exemption for public property from special assessments.  (Inglewood v. County of Los Angeles, supra, 207 Cal. 697, 703, 280 P. 360.)   Unless the Legislature has expressly authorized a special assessment, public property is exempt.  (County of Riverside v. Idyllwild County Water Dist., supra, 84 Cal.App.3d 655, 659–660, 148 Cal.Rptr. 650.)

A special assessment is a charge imposed on property owners in a limited area to help pay for a local improvement designed to enhance property value in that area.  (Regents of University of California v. City of Los Angeles, supra, 100 Cal.App.3d 547, 549, 160 Cal.Rptr. 925.)   Whether a charge is a special assessment depends on the purpose of the disputed charge, not on whether the charge is calculated based on actual use rather than property value.   (Regents of University of California v. City of Los Angeles, supra, 148 Cal.App.3d 451, 455, 196 Cal.Rptr. 14.)   Similarly, it is irrelevant that the public entity benefits from the capital improvements;  it is exempted from property taxations and special assessments and is not required to contribute to its capital costs.  (Regents II, supra, 148 Cal.App.3d 451, 456, 196 Cal.Rptr. 14.)   A sewage fee, used to provide capital for sewer construction, is a special assessment which may not be imposed on state or local government property absent express legislative authorization.  (Regents II, supra, 148 Cal.App.3d 451, 196 Cal.Rptr. 14;  Regents I, supra, 100 Cal.App.3d 547, 160 Cal.Rptr. 925;  County of Riverside v. Idyllwild County Water Dist., supra, 84 Cal.App.3d 655, 659–60, 148 Cal.Rptr. 650.)

II

Water District contends the capacity fee is authorized by the Education Code.²

The Education Code requires a school district to consider “waste disposal facilities” when evaluating potential school sites (§ 39002) and to provide “water closets” for its students (§ 39612).   The code also permits a school district to enter into an agreement with a water district for the installation charges for sewer service (§ 39011), to dedicate land or grant an easement for sewers (§ 39540), to construct sewers on or in close proximity to school property (§ 39606) and, without regard to proximity, to construct adequate systems “to treat and/or dispose of sewage and drainage” or “acquire adequate disposal rights in systems constructed or to be constructed by others for these purposes.”  (§ 39613.)

Water District asserts section 39613's language permitting a school district to “acquire disposal rights in systems constructed or to be constructed by others” (emphasis added) is the express legislative authorization for its capacity fee.

The Legislature enacted section 39613's predecessor (§ 15811) as an urgency measure in 1950 in response to the rapid growth of schools and attendant sewage disposal problems.   Prior to its enactment, school districts lacked explicit authority to use their funds, including building funds,³ to construct sewage treatment and disposal facilities and were limited to constructing sewers on or adjacent to their property.  (See § 39606 (former Ed.Code (1959) § 15804, Ed.Code (1943) § 18003);  Los Angeles City School Dist. v. Payne, 219 Cal. 106, 25 P.2d 985.)  Section 39613 was designed to alleviate these problems, i.e., to allow school districts to use their funds to construct systems either exclusively for their own use or in conjunction with orders without regard to proximity.

Contrary to Water District's assertion, the authorization to “acquire disposal rights in systems constructed or to be constructed by others” does not equate with an authorization to impose a capacity fee.   Rather, the Legislature intended by this language to permit a school district the option of using its building funds to acquire an ownership interest in a system with others, an alternative that might provide for sewage disposal in a more economical manner than either constructing its own system (§ 36913) or contracting with a water district (§ 39011).   This sentiment is echoed in Water Code section 31049 which permits a water district and public entity to enter a contract “for the joint construction, acquisition, disposition or operation of any property or works of a kind which might be constructed, acquired, disposed of or operated by the district.”

Moreover, the Legislature in Education Code section 39609 (former Ed.Code (1959) § 15806, Ed.Code (1943) § 18005), expressly authorized school districts to “appropriate money to pay assessments, for the improvement of streets.”  (Italics added.)   Had the Legislature intended school districts to be subject to assessments for sewage treatment facilities, it could have easily have said so, as it did for street improvements in section 39609.   The fact it did not authorize such an assessment in section 39011 or 39613 while it did so in section 39609 supports the conclusion the omission was intentional.  (Inglewood v. County of Los Angeles, supra, 207 Cal. 697, 707–708, 280 P. 360.)

III

Alternatively, Water District argues its capacity fee is authorized by the Water Code.

Water District points to Water Code sections authorizing it to contract with any public agency for sewer outfall facilities (§ 31100), to “prescribe, revise and collect rates or other charges for [its] services and facilities” (§ 31101, italics added), to enter into an agreement with a public agency for the “joint construction, acquisition, disposition or operation of any property or works” which a water district might construct or operate (§ 31049), and to “supply sewage and waste services to property not subject to district taxes at special rates, terms, and conditions as are determined by the board for the services” (§ 31101.5).

While these sections may authorize a water district to enter into contracts with public agencies for sewage treatment or for joint ownership and generally allow the assessment of fees for improvements, none of the sections expressly authorize a water district to impose such fees against public property.   The California Supreme Court made it clear that a general grant of authority to assess real property for improvement of sewer facilities will not be read to authorize such an assessment of public property.  (Inglewood v. County of Los Angeles, supra, 207 Cal. 697, 707–708, 280 P. 360.)

IV

Water District contends School District signed a contract to pay the capacity fees and is bound by it.   This argument was disposed of in County of Riverside v. Idyllwild County Water Dist., supra, 84 Cal.App.3d 655, 659, 148 Cal.App.3d 665, where the court reasoned “whether the [tax-exempt entity] can agree to pay the charge depends upon whether the district has the power to impose it.”   If the District does not have the authority to impose the charge, then the tax-exempt entity's agreement “to pay [the] invalid charge would amount to a gift of public funds in contravention of article XVI, section 6, of the California Constitution.”  (Id., at p. 660, 148 Cal.App.3d 665.)   The court concluded:  “The charges are in effect a special assessment under a different name and constitute an attempt by the district to do indirectly that which it could not do directly.”  (Ibid.)

Nor does the doctrine of equitable estoppel apply since there is a strong public policy against one public entity taxing or assessing another public entity (see Eisley v. Mohan, 31 Cal.2d 637, 642, 192 P.2d 5;  Inglewood v. County of Los Angeles, supra, 207 Cal. 697, 703–704, 280 P. 360;  Regents II, supra, 148 Cal.App.3d 451, 454, fn. 2, 196 Cal.Rptr. 14) and estoppel will not be applied against the government if it would annul a strong rule of public policy (City of Long Beach v. Mansell, 3 Cal.3d 462, 493, 91 Cal.Rptr. 23, 476 P.2d 423).

I would reverse the judgment.

FOOTNOTES

1.   For schools, the monthly service charge amounts to $5.75 for the first 25 students, faculty, staff, etc., at the facility and $3.50 for each additional 25 persons assigned to the school.

2.   For schools, the capacity fee charged is equal to $2,400.00 for each 25 students, faculty, staff, etc. assigned to the school.

3.   Under established law, public agencies in California are generally exempt from property taxation under the provisions of article XIII, section 3 of the California Constitution.  (Inglewood v. County of Los Angeles (1929) 207 Cal. 697, 702, 280 P. 360.)   Although the constitutional exemption does not apply to special assessments, the courts have considered public property impliedly exempt from special assessments unless the Legislature provides otherwise.  (Id., at pp. 703–704, 280 P. 360.)

4.   Education Code section 39613 provides:“In addition to the other powers granted the governing board of each school district may provide sewers and drains adequate to treat and/or dispose of sewage and drainage on or away from each school property.   For this purpose it may construct adequate systems or acquire adequate disposal rights in systems constructed or to be constructed by others for these purposes without regard to their proximity.   The cost thereof may be paid from the building fund, including any bond moneys therein.”

5.   Water Code section 31101.5, effective January 1, 1983, provides:“A district may supply sewage and waste services to property not subject to district taxes at special rates, terms, and conditions as are determined by the board for the services.”

6.   The Riverside court cited County of Santa Barbara v. City of Santa Barbara (1976) 59 Cal.App.3d 364, 376, 130 Cal.Rptr. 615 in support of its holding.   While the Santa Barbara case does indicate that a public entity cannot label as a “charge” that which is really a special assessment, there is no discussion of how to distinguish the two concepts.

7.   The average special street assessment is a typical example.   The cost of paving a street is assessed against all abutting property owners in proportion to the amount of property fronting on the street.   The assessment is involuntary (a property owner cannot refuse to have the street in front of his house paved) and unrelated to actual use of the paved street (a similarly situated property owner with no vehicles is assessed the same amount as one with several.)

8.   The connection fee in Home Builders and some of the cases we later discuss should be distinguished from the connection fee charged by the Water District in this case.  (See ante, p. 260.)   The Water District's connection fee is designed solely to compensate for the labor and materials costs incurred in physically connecting a property improvement to the sewer system.   The connection fee in Home Builders and the other cases is analogous to the Water District's capacity fee because it is designed to defray the cost of capital improvements to the sewer system.

9.   Interestingly, both Opinion of Justices and Barker were heavily relied on in 19 Ops.Cal.Atty.Gen. 195, the same Attorney General's Opinion relied on by the court in Riverside, supra, 84 Cal.App.3d at p. 660, 148 Cal.Rptr. 650 to support its conclusion that public agencies could not be charged for sewer services at rates different from private persons.  (See ante, p. 262.)

10.   Under California law, an “excise tax” is generally considered to be any charge imposed pursuant to the government's taxing power other than a property or poll tax.  (City of Glendale v. Trondsen, supra, 48 Cal.2d at pp. 103–104, 308 P.2d 1;  accord 16 McQuillin, Municipal Corporations (3d ed. 1984) § 44.190, p. 619.)   Thus, even if sewer capacity and connection fees are characterized as excise taxes, the School District would be hard-pressed to argue it is exempt from such taxes based on the constitutional provision which exempts it from paying property taxes.  (See ante, fn. 3.)

11.   Although the Livermore court did not focus on it, our reading of Health and Safety Code section 5471 suggests the Legislature possessed a similar view.   That section, pursuant to which the Water District's capacity fee was imposed, authorizes the collection of “fees, tolls, rates, rentals, or other charges ․ for services and facilities furnished by [the sewer district]․”  (Emphasis added.)   The statute further specifically provides that revenue from such charges may be used to acquire or construct sewer facilities (i.e., capital improvements).   In view of the specific contemplation of capital costs, we think it highly significant the Legislature omitted the term “assessments” from the generic list of charges.   Implicit in the wording of the statute, we believe, is the Legislature's understanding that a user charge does not become a special assessment merely because it is used to defray the cost of capital improvements.

12.   The theoretical inequity of the tax exemption can be illustrated if we assume a small public entity located entirely within a considerably larger public entity.   We can further assume the large entity owns significant amounts of property within the small entity's boundaries but that the small entity owns very little property.   Normally we would expect that any burdens created by a public agency will be borne equally by all its taxpayers.   But if the large entity's property is exempt from taxation, the tax burden on the small entity's taxpayers must be correspondingly increased.   This results in a situation where small entity taxpayers effectively subsidize large entity taxpayers who do not also reside within the small entity.

13.   The School District argues that even if the capacity fee is not properly characterized as a special assessment, the Water District has failed to demonstrate that the amount of the fee “does not exceed the reasonable cost of providing the service or regulatory activity for which the fee is charged ․” within the meaning of Government Code section 50076.  (See Beaumont Investors v. Beaumont-Cherry Valley Water Dist. (1985) 165 Cal.App.3d 227, 211 Cal.Rptr. 567.)   Accordingly, it suggests that the capacity fee, lacking a two-thirds voter approval, is an invalid “special tax” under article XIII A, section 4 of the California Constitution.  (Ibid.)The School District's contention is raised for the first time on this appeal.   The Water District had no opportunity to make a record on this issue in the trial court.   Our holding here that the capacity fee is not an invalid special assessment should not be read to preclude a subsequent challenge to the fee based on section 50076.   As a footnote, however, we observe that special assessments do not constitute “special taxes” within the meaning of article XIII A, section 4.  (See J.W. Jones Companies v. City of San Diego (1984) 157 Cal.App.3d 745, 753–754, 203 Cal.Rptr. 580.)

14.   In view of our conclusion that its capacity fee does not constitute a special assessment, we need not reach the Water District's additional contentions that the Legislature has specifically authorized its collection from public agencies so as to negate any implied exemption.   (See ante, pp. 261–262.)

1.   “While publicly owned and used property is not exempt from special assessments under the constitution or statutory law of this state, there is an implied exemption of such property from burdens of that nature.”  (Inglewood v. County of Los Angeles, supra, at p. 703, 280 P. 360, italics added.)

2.   All statutory references are to the Education Code unless otherwise specified.

3.   In the original section, school districts were required to use only building funds for sewage treatment and disposal systems.   In 1959, the Legislature amended this section to make the use permissive rather than mandatory.

WIENER, Associate Justice.

BUTLER, J., concurs.