Public Agency Legal Updates for 2025 – Part 2
In 2024, California saw notable updates in water, environmental, and resource management through new case law and legislative changes. From increased penalties for illegal water diversions to paying a fee first before challenging such fee in court, these developments continue to shape the legal framework for managing the state’s critical resources. This is the second of four posts in Baker Manock & Jensen’s Legal Updates Series exploring key developments in water law.
If you have questions about how any of these updates may impact you, please contact Shareholder Lauren D. Layne at 559-432-5400.
Bringing the Hammer Down: Water Rights Enforcement (AB 460)
The California State Water Resources Control Board’s (“Board”) authority includes imposing penalties for violations of its rules, regulations, and permits. However, penalties for water right violations have not increased since first being set in the late 1980s. Consequently, existing enforcement mechanisms were considered ineffective in deterring bad-faith water users.
For instance, during a 2021 drought, the Board implemented emergency regulations to protect fish populations in the Scott and Shasta Rivers, issuing curtailment notices to senior water right holders. Despite this, the Shasta River Water Association (“SRWA”) illegally diverted water in August 2022, causing a decline in river flows. The Board imposed the maximum fine of $4,000 for SRWA’s eight-day violation. While the Board could have sought legal action to halt the diversion, the short duration of the violation raised questions about the practicality and timeliness of such measures.
In response to this behavior and climate change projects, the California legislature proposed AB 460. After almost two years of revising the legislation, it was narrowed to a water penalty bill, and eventually adopted to strengthen enforcement measures related to unauthorized water use and enhance penalties to ensure compliance with water laws.
Starting January 1, 2026, the Board must annually adjust civil and administrative penalties for inflation, based on the California Consumer Price Index, with specific rounding rules to ensure consistency. AB 460 increases the maximum daily penalty for violating cease-and-desist orders from $1,000 to $2,500, with higher penalties of up to $10,000 per day during severe drought conditions. Additionally, the new law raises civil liability for violations of water permits, licenses, and regulations from $500 to $1,000 per day. Finally, AB 460 incorporates new fines for violations involving water diversion contrary to curtailment orders with penalties of up to $10,000 per day and $2,500 per acre-foot of water diverted.
Groundwater Well-Drilling Restrictions
On September 5, 2024, Governor Gavin Newsom issued Executive Order (“EO”) N-3-24 terminating provisions of prior EOs N-7-22 and N-3-23, which required local agencies to obtain consistency determinations from GSAs before issuing permits for new wells in medium- or high-priority subbasins. These prior orders were intended to ensure well projects aligned with Groundwater Sustainability Plans (“GSPs”) and avoided adverse effects like subsidence or interference with other wells. The former EOs exempted domestic wells providing less than two acre-feet per year (“AFY”) of groundwater and public water supply systems.
EO N-3-24 enabled some counties to establish their own regulations. For example, Yolo County responded by enacting Urgency Ordinance No. 1569, introducing new well-permitting requirements to safeguard groundwater resources. These measures build on the previously terminated EOs and include hydrogeological assessments and GSA reviews. Also, special requirements apply to wells in designated “Focus Areas,” which face stricter oversight to ensure compliance with sustainable groundwater management criteria.
Conversely, in Fresno County, the Environmental Health Division oversees issuance of permits for constructing, repairing, or destroying wells in unincorporated areas. However, the County notes that its role is limited to permitting the installation of wells and that GSAs regulate the use of water wells in critically overdrafted subbasins. As such, GSAs may impose specific limitations or requirements for wells in their jurisdiction, which vary by agency and case. While the County handles the permitting process, it does not enforce or negotiate GSA restrictions.
Now that the prior EOs have been terminated, groundwater well-drilling requirements will vary on a county-by-county basis, with some counties, like Yolo, electing to retain the processes adopted under the former EOs. Parties planning to drill new wells should ensure to comply with each applicable county process for drilling new wells.
Groundwater Users Must First Pay Before Getting Their Day in Court.
In Mojave Pistachios, LLC v. The Superior Court, the Court of Appeal, Fourth Appellate District, Division Three, addressed applying of the “pay first” rule to fees imposed by Groundwater Sustainability Agencies (“GSAs”) pursuant to the Sustainable Groundwater Management Act (“SGMA”).
Mojave Pistachios, which farms 1,600 acres in the Mojave Desert and relies solely on groundwater from the critically overdrafted Indian Wells Valley Groundwater Basin, challenged the Indian Wells Valley Groundwater Authority’s (the “Authority”) replenishment fee of $2,130 per acre-foot and its exclusion from annual “Exempted Pumping Allotments.” Mojave Pistachios argued these actions violated its water rights.
The appellate court held that Mojave Pistachios must first pay the replenishment fee before challenging it, citing the “pay first, litigate later” rule. The appellate court held this rule, derived from Article XIII, Section 32 of the California Constitution and traditionally applied to taxes, is also found within SGMA. While there were previous cases applying the rule to other contexts, none directly addressed SGMA fees. Relying on a similar statute from the Health and Safety Code and an appellate court decision interpreting the Code’s language applying the rule, the appellate court reasoned that since the SGMA legislation was similar, it also applies to challenges against fees imposed by GSAs. As such, a groundwater user is required to pay an outstanding fee imposed under SGMA before commencing an action to challenge the fee and to obtain a refund.
The appellate court noted that due process is satisfied as long as a refund mechanism exists, though exceptions to the rule (e.g., criminal penalties for nonpayment or inadequate remedies at law) were not applicable here. The appellate court also found that Mojave Pistachios’ takings claims lacked economic impact without referencing the fee, so the court dismissed them.
The decision underscores the financial implications of challenging GSA fees, particularly for agricultural groundwater users, who must pay the fees before seeking judicial review as to their validity.
Of critical importance, the appellate court recognized application of the “pay first” rule could lead GSAs to impose unaffordable and unreasonable fees targeted to certain users who could eventually be run out of business. However, the appellate court stated that issue was not before them and refused to address the potential problem. The appellate court left open the question of when, if ever, a fee or a tax would be so extraordinarily high that the “pay first” rule should not apply. In the case of Mojave Pistachio, the appellate court reasoned a Replenishment Fee of $2,130 per acre-foot was not a grossly disproportionate fee compared to other agencies, such as the Antelope Valley-East Kern Water Agency that charged about $1,700 per acre-foot. For agricultural users who are already struggling with crushing expenses and low commodity prices, the question remains, how high is too high?
Navigating Murky Waters: The Court’s Interpretation of Federal Jurisdiction Over WOTUS.
One of the major components of the Clean Water Act (“CWA”) is to regulate the discharge of pollutants into navigable waters. Traditionally, “navigable waters” referred to water with some direct connection to navigation. However, in 1972, Congress expanded federal jurisdiction beyond the traditional understanding by defining “navigable waters” as “the waters of the United States, including the territorial seas” (“WOTUS”). WOTUS is not further defined. Nevertheless, the U.S. Environmental Protection Agency (“EPA”) and the U.S. Army Corps of Engineers (“Army Corps”) expansively defined WOTUS by regulation, sparking decades of litigation over the meaning of the jurisdictional term.
In United States v. Riverside Bayview Homes, Inc. (1985), the U.S. Supreme Court upheld the regulation of wetlands adjacent to navigable waters, emphasizing their significant effects on water quality and ecosystems. Later, in Solid Waste Agency of Northern Cook County v. U.S. Army Corps of Engineers (2001), the Supreme Court limited federal authority by ruling that isolated, non-navigable waters used by migratory birds did not fall under WOTUS.
In Rapanos v. United States (2006), a four-Justice plurality and a concurring opinion by Justice Kennedy muddied the waters. The plurality opinion held WOTUS to “include [ ] only those relatively permanent, standing or continuously flowing bodies of water ‘forming geographic features’ that are described in ordinary parlance as ‘streams[,] . . . oceans, rivers, [and] lakes,’” and does not include “channels through which water flows intermittently or ephemerally, or channels that periodically provide drainage for rainfall.” Justice Kennedy’s concurring opinion, however, introduced the “significant nexus” test, holding that to be WOTUS, “a water or wetland must possess a ‘significant nexus’ to waters that are or were navigable in fact or that could reasonably be so made.”
Regulatory responses to these decisions included guidance in 2001, 2003, 2007, and 2008, as well as the 2015 Clean Water Rule, which was repealed in 2019. Subsequent rules, such as the 2020 Navigable Waters Protection Rule (“NWPR”), reflected narrower interpretations, but the NWPR was vacated in 2021, reverting to pre-2015 regulations. The January 2023 Revised Definition Rule sought to codify jurisdictional standards but faced legal challenges following the Supreme Court’s decision in Sackett v. EPA (2023).
In Sackett, the Supreme Court rejected the significant nexus standard and affirmed the Rapanos plurality opinion. The Court held “the [Clean Water Act]’s use of ‘waters’ encompasses ‘only those relatively permanent, standing or continuously flowing bodies of water ‘forming geographic[al] features’ that are described in ordinary parlance as ‘streams, oceans, rivers, and lakes.’”
Since Sackett, federal district courts have varied widely in their interpretation of WOTUS as applied to manmade ditches and canals, with California district courts predictably continuing to apply more protective standards. The potential for on-going litigation challenging regulatory exemptions for ditches remains high, particularly as courts must independently evaluate the definition of WOTUS following the Supreme Court’s decision in Loper Bright Enterprises v. Raimondo, which limits deference to agency interpretations of statutory authority.
Disclaimer
This Legal Update / Bulletin is for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. This update should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.
Author
