A city has no obligation to provide new water service to development in unincorporated areas, and a city may use its utilities as growth-management tools, the First District Court of Appeals has ruled. The unanimous three-judge panel said that Crescent City did not act unreasonably when the City Council decided to prohibit new water utility connections outside the city limits. The appellate panel overturned the ruling of Del Norte County Superior Court Judge George L. Nelson. He had characterized the city's decision as "blackmail," and he ruled the city acted arbitrarily. "The city's first duty, as reflected in the applicable city and county ordinances, is to its own residents, who funded the system in the first place. Existing customers, wherever located, also have a right to continued service," Justice Timothy A. Reardon wrote for the First District, Division Four. "A proposed multimillion-dollar water system upgrade was on the table. The city was under a cease and desist order from the RWQCB (Regional Water Quality Control Board) with respect to its wastewater system. Under these circumstances it was not unreasonable for the city to reserve new connections for city residents and businesses." In the 1950s, Crescent City purchased a private, unregulated water system that relied on muddy wells. Most — but not all — of the system's customers were within the city limits. The city approved a general obligation bond to upgrade the system, and in 1958 received a permit from the State Water Resources Control Board. The permit allowed the city to draw water from a Smith River tributary, and the permit defined a "place of use" that included acreage inside and outside the city limits. By 1990, about two-thirds of the 3,600 water customers were in unincorporated Del Norte County. City officials complained the city was losing tax revenue because commercial and residential builders, who relied on the city's water system, were not required to seek annexation into the city. The city approved an interim policy that gave first priority for new service to users inside the city limits and disallowed major new users outside the city limits to connect unless there was a specific agreement. That interim policy — followed by drought in 1992 and capacity problems in 1994 — led to negotiations between the city and county. The two sides settled on a revenue-sharing agreement that gave the city about $60,000 annually in sales tax revenue. But the county withdrew from the agreement in June 1997. The city responded one month later by cutting off new water connections in unincorporated areas. The county then asked the Water Resources Control Board to intervene. The board, however, said the 1958 permit does not oblige the city to provide water to entire "place of use." The County filed suit on Jan. 20, 1998, and the trial court ordered the city to provide water connections on a nondiscriminatory basis. On appeal, the county argued that the city's acquisition of a private water system required the city to provide service to all potential users in the "place of use" designated by the Water Resources Control Board permit. The appellate panel rejected this contention. "[I]t is apparent that there is no grounding for the county's contention that inhabitants of the unincorporated area have a right to new hookups today by virtue of the city's purchase of a private, unregulated water system in 1958 with a different source and undefined service area and terms," Justice Reardon write. "For purposes of our analysis, it is as if the city started from scratch as a water provider when it financed system improvements through a general obligation bond and then received its permit from the board." Reardon continued, "The ‘place of use' authorized by the board pursuant to a water appropriation permit is not equivalent to the ‘service area' associated with a privately owned public utility. … Thus, persons coming into unincorporated lands within the ‘place of use' do not have a vested right to new service under terms of the permit." The city's general plan legally says the city may use its utilities as a growth management tool, the court said. "For example in Dateline Builders Inc. v. City of Santa Rosa (1983) 146 Cal.App.3d 520, a developer filed suit for relief arising out of a city's refusal to extend its existing sewer line to a proposed ‘leap frog' development beyond city boundaries. The reviewing court held that the city could use the sewer hookup as a ‘planning device' to manage growth," Reardon wrote. The appellate panel rejected the county's argument that the city violated the California Environmental Quality Act by going forward on a project without determining if the project would impact the environment. The statute of limitations for a CEQA suit is 180 days, and the county filed its lawsuit 194 days after the city's new policy took effect. The appellate court also discounted the county's argument that the city violated open meeting laws during the July 10, 1997 meeting where it halted new water connections. The county did not raise the issue at the time or at the trial court level, the appellate court said. The Case: County of Del Norte v. City of Crescent City, No. A082256, 99 C.D.O.S. 3078, 1999 Daily Journal D.A.R. 3995, filed April 28, 1999. The Lawyers: For the county: Steven P. Belzer and S. Craig Hunter, Livingston & Mattesich, (916) 442-1111. For the city: Dohn R. Henion, city attorney, (707) 464-9761.