Riverside funds appeal of ruling that its water-fund transfer is unconstitutional as a $46M refund looms
The case is Simpson v. City of Riverside, and it goes to the structure of how the city pays for itself. For years Riverside transferred 11.5% of its water revenue into the general fund, the pool that covers police, fire, and the rest of day-to-day operations. In August 2023, a phase-one ruling found that transfer violates the California Constitution. Under Proposition 218, a local government can't charge more for a utility than the service costs or spend that money on unrelated functions — and moving water dollars to the general fund does exactly that.
The case has since moved to remedy. On April 20, Superior Court Judge Harold Hopp said ratepayers are entitled to a refund and discussed a common fund of at least $46 million, though a four-year look-back could limit it. The final judgment is still pending. Hopp also signaled the city can't settle the bill with future bill credits alone, because that leaves former customers with nothing for what they already paid.
On the June 23 council agenda, the cost of fighting on shows up in line items. The city moved to raise its Simpson legal budget — an added $60,600 to Colantuono, Highsmith & Whatley for a $560,000 trial total, plus up to $500,000 to a second firm, Greines, Martin, Stein & Richland, for appellate work. A separate item lifted the city's outside electric-utility legal budget to roughly $895,000 for the coming year. Riverside is choosing to appeal rather than absorb the ruling, and it is spending real money to do it.
This is the same playbook that already failed once on the electric side. A nearly identical case over the electric utility's transfer, Parada, ended with the city settling for $24 million in refunds in 2020. Riverside tried to lock in the transfer at the ballot with Measure C in 2021; it passed but was struck down on a technicality. The water case is the second act.
The timing is the operator's concern. Two weeks before the June council meeting, the Board of Public Utilities forwarded a 5.7% inflation-based adjustment to electric and water user fees, tied to regional CPI from January 2024 through November 2025, to a June 23 public hearing. By the utility's own estimate the adjustment would raise about $603,000 a year across both funds — modest money. But it is being layered onto a revenue model a judge has already called unconstitutional, and the council had separately declined to put such increases on automatic CPI autopilot. Meanwhile, Riverside voters in June rejected Measure Z, the sales-tax increase pitched to fund fire staffing, by a 58.5% to 41.5% margin — closing off the general-fund cushion that a $46 million-plus refund would otherwise hit.
For a business on Riverside Public Utilities, the read is that rate and fee stability here rests on an unsettled legal question. A city that loses Simpson on appeal owes a large refund and loses a long-standing general-fund revenue stream at the same time, with no new sales-tax money to replace it — pressure that tends to resurface as higher utility costs, deferred services, or both. The 5.7% adjustment is a small, visible number sitting on top of a much larger unresolved one.