JOINT POWERS FINANCING AUTHORITY AGENDA PACKET 9-15-26

44 Water Agency v. Verjil (46 Cal. Rptr. 3d 73 (Cal. 2006)), and Howard Jarvis Taxpayers Assoc. v. City of Fresno (26 Cal. Rptr. 3d 153 (Cal. App. 5th Distr. 2005)). Under the Bighorn case, for example, the court held that under Article XIIIC, local voters could adopt an initiative measure that could reduce or repeal a local agency’s rates and charges, though it is not clear whether (and California courts have not decided whether) any such reduction or repeal by initiative would be enforceable in a situation in which such rates and charges are pledged to the repayment of bonds or other indebtedness, as is the case with respect to the Installment Payments securing the 2026 Bonds. Under the City of San Juan Capistrano case, the court held that tiered or inclined rates that go up progressively in relation to usage must correspond to the actual cost of providing water service at each tier (level of usage), and accordingly the pricing for any tier cannot exceed the cost of service to that tier. City’s Current Practice Regarding Rates and Charges. The City’s practice in implementing increases in water rates and charges has been to comply with the requirements of Article XIIID, including the practice of providing property owners with a 45-day mailed notice and public hearing before the City Council approves rate increases. Conclusion. It is not possible to predict how courts will further interpret Article XIIIC and Article XIIID in future judicial decisions, and what, if any, further implementing legislation will be enacted. As noted above, under the Bighorn case, local voters could adopt an initiative measure that reduces or repeals the City’s rates and charges, though it is not clear whether (and California courts have not decided whether) any such reduction or repeal by initiative would be enforceable in a situation in which such rates and charges are pledged to the repayment of bonds or other indebtedness, as is the case with respect to the Installment Payments securing the 2026 Bonds. There can be no assurance that the courts will not further interpret, or the voters will not amend, Article XIIIC and Article XIIID to limit the ability of local agencies to impose, levy, charge and collect increased fees and charges for water, or to call into question previously adopted water rate increases. Environmental Regulation The supply of water by the City through the Water System is regulated, to a large extent, by the federal government and the State. Water treatment standards set forth in federal and State law control the operations of the Water System (and the wholesale water providers that supply water to the Water System) and mandate its use of technology. If the federal government, acting through the Environmental Protection Agency, or the State, acting through the Department of Health Services, or additional federal or State legislation, should impose stricter standards upon the Water System, the City’s expenses related to the Water System could increase accordingly and rates and charges would have to be increased to offset those expenses. See “Operations and Maintenance Costs; Third Party Sources of Water Supply” above. It is not possible to predict the direction which federal or State regulation will take with respect to water standards, although it is likely that both will impose more stringent standards with attendant higher costs. Page 172 of 205