A water district in Fresno County has the authority to pursue incorporation as a city, the Fifth District Court of Appeal has ruled. The court rejected arguments from Fresno County that the Malaga County Water District needed special legislation to proceed with creation of a new city. The court ruled that prohibiting the water district from pursuing incorporation could be inconsistent with the Cortese-Knox Local Government Reorganization Act (Government Code § 56000 et seq., since amended as the Cortese-Knox-Hertzberg Act). The Cortese-Knox Act provided the district with specific authority for incorporating a new city, the court held. In 1998, the water district, which serves a mostly industrial area just outside the City of Fresno, filed an incorporation resolution and petition for change of organization with the Fresno County Local Agency Formation Commission (see CP&DR, May 1999). The district paid a $14,000 filing fee and agreed to fund a LAFCO study estimated to cost $80,000 to $150,000. Fresno County filed a lawsuit arguing that the water district was acting beyond its statutory powers and that its expenditures were unconstitutional gifts of public funds. Fresno County Superior Court Judge Jane York ruled for the county, finding that the water district's authority was limited to that in its specific enabling statute. Therefore, she held that the expenditures with LAFCO were unconstitutional. The water district appealed and a unanimous three-judge panel of the Fifth District reversed the lower court. The water district provides water and sewer services typical of water districts. It also has specially legislated authority to own parks and to run parks and recreation programs. The district qualifies as both a "special district" and as a "district of limited powers" under Cortese-Knox. The issue, the appellate court explained, was whether a district of limited powers could reorganize itself and incorporate as a new city. Fresno County pointed to statutory language that addressed how districts of limited powers may merge with, or become subsidiaries of, cities. The county argued, therefore, that a district of limited powers could only pursue a merger. But the appellate court ruled that the merger option must be considered in context. "The district of limited powers can, but is not required to, merge with or become a subsidiary district of the city," Justice Herbert Levy wrote for the court. "It does not follow that the existence of this option for districts of limited powers excepts those districts from the statute that grants any district the ability to make any change of organization (Government Code § 56119). Rather, construing the 1985 [Cortese-Knox] Act in this manner runs counter to the rules of statutory interpretation." Cortese-Knox was intended to allow cities and districts to provide for the needs of a county and its communities. Fresno County's restrictive interpretation "would result in a district of limited powers being unable to adapt to social and economic developments occurring within its territory. Rather, a district of limited powers would not be able to change its organization in any manner unless its territory overlapped the boundaries of a city," Justice Levy wrote. The court also dismissed the county's argument that because a different community services district in the past had received special legislative authority to incorporate as a city, Malaga needed similar legislation. "The fact that special legislation has been employed previously does not establish such legislation as a condition to incorporation," Levy wrote. The Case: County of Fresno v. Malaga County Water District, No. F038163, 02 C.D.O.S. 6934, 2002 DJDAR 8663. Filed July 31, 2002. The Lawyers: For the county: J. Wesley Merritt, chief deputy county counsel, (559) 488-3479. For the water district: Neal Costanzo, Hargrove & Costanzo, (559) 261-0163.