In a case that could have statewide ramifications, a group of multimillionaire Hillsborough residents, including an early funder of Microsoft, has sued the town claiming that its drought rules and penalties intended to keep people from over-watering big lawns are illegal.
The nine residents who are taking the town to court say that by imposing tiered water rates, and a $30 penalty for each unit of water used over the allotted amount, Hillsborough water officials violated Proposition 218, a state law that makes it illegal for government to charge more for a service than it costs to provide.
“This isn’t about whether our clients can pay more,” said Beau Burbidge, a San Francisco attorney representing the group. “It’s about bringing the town into compliance with the law. It’s about the principle. It’s not like the clients are becoming destitute from the water rates, but the town is running amok.”
The lawsuit, however, is raising eyebrows and some concerns in Hillsborough, one of America’s richest addresses — a community of 11,000 people in the San Mateo County hills where the median home value is $4.3 million and property owners over the years have included William Randolph Hearst, Bing Crosby and New England Patriots quarterback Tom Brady.
“We’re in a drought,” said Paul Saffo, a Hillsborough resident, noted technology forecaster and engineer. “We have a short reprieve, but the fact is that this problem is only going to get worse, long term, and everybody has to pull together.”
Saffo said that if a court strikes down Hillsborough’s tiered water rates, people who use less will have to pay a greater share of the overall bill, essentially subsidizing the biggest users with the largest green lawns.
“People here have had no problem conserving,” Saffo said. “It was a civic duty. Good citizens cooperate. These are very rich, very self-entitled people who just don’t have any sense of community.”
Among the people who filed the class action lawsuit: Eldridge Gray, a former Goldman Sachs executive now working as managing director of Seven Post, a private investment firm in San Francisco; Arthur Stromberg, former chairman and CEO of URS Corp., a global engineering company; and oral surgeon Dr. Charles Syers, along with residents John Lockton, Brad and Kathy Baruh, Charles Bolton and Paul Rochester. Several have large lots with expansive lawns.
Perhaps most high-profile is Dave Marquardt, 67, a well-known figure in technology who invested $1 million in 1981 in Microsoft to gain 5 percent ownership of the company, and served on its board from 1981 to 2014, as well as on the boards of more than 25 companies, including Sun Microsystems and Seagate. He did not respond to requests for comment on the lawsuit. His three-story house sits on 1.6 landscaped acres.
“A lot of them are top-tier users,” said Burbidge of his clients. “They have quite a bit of acreage. They all let their lawns go brown. They put in drought-friendly plantings, and all they did was get penalized.”
Hillsborough was required last year to cut water use 36 percent from 2013 levels under Gov. Jerry Brown’s now-lifted mandatory water targets. The city cut by 42 percent, but as of June was still using 321 gallons per capita per day, triple the state average.
The case follows a key ruling last year in which a California appeals court found that tiered water rates in the Orange County city of San Juan Capistrano were unconstitutional. The ruling, which has been closely watched by water agencies statewide, did not say that all tiered water rates — where somebody pays a higher price per unit of water the more they use — were illegal. Rather the court ruled that water departments must clearly demonstrate a link between the higher rates and the cost of providing the water.
Like the Orange County case, the Hillsborough lawsuit focused on Proposition 218, a ballot measure approved in 1996 by state voters.
Hillsborough clearly violated the law, the lawsuit says, because the city buys all of its water from the San Francisco Public Utilities District’s Hetch Hetchy system, and pays $1,633 per acre foot of water. That works out to be $3.75 per 100 cubic feet, or unit. But Hillsborough charges its residents $8.74 per unit for using up to 10 units a month, and gradually higher rates peaking at $17.36 a unit for usage over 100 units a month. That’s far more than the city needs to pay its small water department staff and run the water system, Burbidge said.
“We are looking for them to make the attempt to tie their tiers to the cost of providing water,” said Burbidge. “They arbitrarily set the tiers. It is blatantly illegal.”
Each “unit,” a common measure in water bills statewide, is about 748 gallons. Two-thirds of water providers in California used tiered rates. Burbidge said he hopes the lawsuit “becomes a cautionary tale for other cities.”
The group also is suing over a $30 per unit penalty that Hillsborough imposed in June 2015 — and dropped this June after drought conditions improved — for water use over a monthly amount that was budgeted for each property based on the number of residents and the size of lots. That penalty generated roughly $600,000 for city coffers, the city says.
City officials say they are confident they will prevail. Kelly Salt, an attorney for the city, said that all the water rates comply with Proposition 218 because the city must provide more pipe and pumping capacity to maintain a high peak water demand when people are using large volumes.
“The rates are structured to recover the costs of providing more water to those who demand more water,” she said. “Do they incidentally encourage people to conserve? Yes. They send a price signal.”
