Practical Lessons for Local Governments

Public agencies across California depend on revenue from rates and fees to fund essential services. From utility rates to licensing charges and permit fees, these revenues only hold up legally—and publicly—when they are fair, proportional, and backed by solid documentation. Recent appellate decisions have reinforced the need for agencies to carefully connect the dots between the cost of a service and the fee charged for it.

Proportionality

The core principle is proportionality. Courts have made it clear that fees cannot exceed the reasonable cost of providing a service, nor can they include expenses that benefit people who aren’t paying the fee. Flat charges that treat all customers the same, without regard to differences in the level of service or burden they create, are particularly vulnerable to challenge. Similarly, agencies must take care not to bundle general government costs, such as infrastructure maintenance, into service-specific fees.

Fee Structures

Regulatory and tiered fee structures also demand extra attention. To withstand scrutiny, regulatory charges must be broken down by activity, showing exactly which costs are tied to oversight and compliance. Tiered rates, for example, those based on water or utility usage—must be carefully documented to show how each pricing level corresponds to actual cost drivers, such as peak demand or system capacity. Without that clear link, the structure risks being overturned.

Transparency

Agencies should invest in thorough cost-of-service or nexus studies, keep documentation current as circumstances evolve, and maintain transparency with the public about how fees are set. Not only does this reduce legal risk, but it also builds trust with rate and fee payers, who are far more likely to support their charges when they can see the fairness and logic behind them.

In short, the safest path forward is to ensure that every rate and fee can be explained, justified, and traced back to real, proportionate costs. Courts are watching closely—and so are the communities and stakeholders that agencies serve.