City of Palo Alto v. City and County of San Francisco

Appellees, seven cities and eight districts located in the San Francisco Bay area [“Bay Cities”], brought suit in the district court against the appellant, the City and County of San Francisco [“San Francisco”], to enjoin a proposed 20.5 percent increase in the water rate charged to them by appellant. Because San Francisco increased the rates to its own inhabitants by only 14.5 percent, appellees allege that their increase violates the Raker Act of December 19, 1913, ch. 4, 38 Stat. 242 , as discriminatory and not related to appellant’s cost in providing them service. Appellees also seek to enjoin, under the aegis of the Raker Act, the transfer of $2.9 million in surplus funds from San Francisco’s water department to its general fund. Appellees claim that this surplus was generated from revenues created by the Raker Act, and that they should be plowed back into the water system, rather than enriching the coffers of San Francisco residents.

The district court issued a preliminary injunction restraining both the imposition of the proposed rate increases and the transfer of surplus water department funds into San Francisco’s general fund pending a hearing on the merits.…