LOS ANGELES (AP) — In a ruling that Gov. Jerry Brown says puts a "straitjacket" on local governments trying to fight the severe statewide drought, an appeals court has found that an Orange County city's tiered water rates are unconstitutional.

The ruling by the 4th District Court of Appeal on Monday against the city of San Juan Capistrano potentially deals a blow to agencies statewide that have used the pricing structure to encourage water conservation.

"The practical effect of the court's decision is to put a straitjacket on local government at a time when maximum flexibility is needed," Brown said in a statement after Monday's ruling. "My policy is and will continue to be: employ every method possible to ensure water is conserved across California."

The 3-0 ruling upholds a Superior Court judge's decision that found that charging bigger water users incrementally higher rates violates a voter-approved law that prohibits government agencies from charging more than the cost of a service.

It comes shortly after Brown issued drought orders that call for rates that encourage people to save water, including tiered pricing. About two-thirds of water districts in the state use some form of tiered pricing, and the ruling was being closely watched to see how it might apply beyond the appellate court, which is only binding in Orange County.

The court said it had to follow its responsibility to uphold existing law.

"We hope there are future scientists, engineers, and legislators with the wisdom to envision and enact water plans to keep our beloved Cadillac Desert habitable," the decision said. "But that is not the court's mandate. Our job — and it is daunting enough — is solely to determine what water plans the voters and legislators of the past have put in place, and to determine whether the trial court's rulings complied with those plans."

San Juan Capistrano charged nearly four times as much per unit of water for users in the highest tier to provide an incentive to conserve. Residents complained the higher rates were arbitrary and unfair.

"They were exponential, arbitrary and they magically appeared out of thin air," said attorney Benjamin Benumof, who represented San Juan residents. "We feel vindicated and feel the constitution was upheld."

Under the ruling, tiered pricing would be legal, but it would have to be tied to the cost of the water, the court said.

San Juan Capistrano's 2010 rate schedule charged customers $2.47 per unit — 100 cubic feet, or 748 gallons — of water in the first tier and up to $9.05 per unit in the fourth.

While the city got water from five different sources, including the massive Metropolitan Water District, it failed to tie costs it passed on to residents directly to more expensive sources, the court ruled.

The court said the tiered structure violated Proposition 218, a 1996 state law, because the highest rates exceeded the cost of delivering the water.

The city was reviewing the ruling and hadn't decided Monday what action to take.

After the state Superior Court declared San Juan Capistrano's rate structure invalid in 2013, the city flattened its tiers and tied charges more directly to water costs while it awaited the appellate court decision.

Benumof said taxpayers will seek refunds for the additional money they paid.

Resident Jim Reardon, who brought the lawsuit, said he was pleased with the ruling and had talked with the mayor Monday about working together to fix the issue.

"I think arbitrary water rates have become a hidden vehicle for taxation," he said.

Reardon, who replaced his lawn with succulents, bark, decomposed granite and other drought-tolerant landscaping, said the city should raise water prices on the 80 percent of people in the lowest price tier, including him, to inspire immediate conservation.

On a statewide level, he called on Brown to raise the wholesale water price.

Despite its fairly narrow scope, the ruling will likely be cited in other lawsuits and could spur new ones, lawyers said. Benumof is involved in two lawsuits already pending that challenge water rates in Glendale and in part of San Diego County.


Associated Press writers Fenit Nirappil in Sacramento and Amy Taxin in Tustin contributed to this story.

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