BILL ANALYSIS SENATE LOCAL GOVERNMENT COMMITTEE Senator Dave Cox, Chair BILL NO: SB 1035 HEARING: 4/7/10 AUTHOR: Hancock FISCAL: Yes VERSION: 2/12/10 CONSULTANT: Weinberger MUNCICPAL UTILITY DISTRICTS' DELINQUENT REVENUES Background and Existing Law There are five Municipal Utility District (MUDs): East Bay, Lassen, Sacramento, South Placer, and Southern San Joaquin. MUDs can provide many utility services: electricity, water, sewer, garbage disposal, transportation, and communications. A MUD may attach a lien to a property to collect delinquent fees, tolls, rates, rentals, and other charges, together with associated penalties and interest, for services provided to that property, including fees, tolls, rates, rentals, or other charges for services rendered to a lessee, tenant, or subtenant (SB 1660, Stiern, 1986). The lien has the force, effect, and priority of a judgment lien. A MUD cannot attach a lien to publicly owned property. The lien attaches when the MUD records a certificate in the county recorder's office, specifying: The amount of the delinquent fees, tolls, rates, rentals, or other charges, together with interest and penalties. The name of the owner of record of the property to which services were rendered by the district. The legal description of the property. Within 30 days after receiving payment of all amounts due, the MUD must record a release of the lien. Except in master-metered apartment buildings, MUDs providing residential service to a tenant under an account established by the tenant may not seek to recover unpaid charges or penalties for residential service from the property owner or any subsequent tenant, as specified (AB 1770, Brewer, 1996). The statutory authority for a MUD to attach a lien property SB 1035 -- 2/12/10 -- Page 2 does not apply to delinquent fees or charges for furnishing water or sewer service to residential property or electrical service. The East Bay MUD is the only MUD that provides water service to residential property. East Bay MUD and the South Placer MUD are the only MUDs that provide sewer service to residential property. State law authorizes numerous other special districts including Sanitary Districts, Municipal Water Districts, California Water Districts, County Water Districts, and Community Services Districts, to attach liens to property for the amount of delinquent residential water or sewer service charges, plus penalties and interest. East Bay MUD wants to have the same lien authority that other water and sewer utility districts have. Proposed Law Senate Bill 1035 deletes the prohibition against a Municipal Utility District's (MUD's) attaching a lien to property for delinquent fees, tools, rates, rentals, and other charges, together with associated penalties and interest, for the furnishing of water or sewer service to residential property. SB 1035 authorizes a MUD, by resolution or ordinance, to collect delinquent fees, tolls, rates, rentals, or other charges, together with interest and penalties, including any delinquent fees, tolls, rates, rentals, or other charges for services rendered to a lessee, tenant, or subtenant, on the tax roll. To do so, a MUD must: Prepare a report. Provide notice. Conduct a public hearing. File a final report with the county auditor. Record a certificate in the office of the county recorder. Report . SB 1035 requires a MUD's general manager to prepare and file a report with the district's board of directors. The report must describe each affected parcel of real property and the amount of the delinquent fees, tolls, rates, rentals, or other charges, together with interest and penalties thereon, including any delinquent fees, tolls, rates, rentals, or other charges for services rendered to a lessee, tenant, or subtenant for each SB 1035 -- 2/12/10 -- Page 3 affected parcel for the year. Notice . SB 1035 requires a MUD's general manager to give notice of the filing of the report and of the time and place for a public hearing by publishing the notice, as specified in statute, in a newspaper of general circulation, and by mailing the notice to the owner of each affected parcel. Hearing . SB 1035 requires a MUD's board of directors to hear and consider any objections or protests to the report at a public hearing. At the conclusion of the public hearing, the board may adopt or revise the delinquent fees, tolls, rates, rentals, or other charges, together with interest and penalties thereon, including any delinquent fees, tolls, rates, rentals, or other charges for services rendered to a lessee, tenant, or subtenant. The board must make its determination on each affected parcel. The board's determinations are final. Final Report . SB 1035 requires a MUD's general manager, on or before August 10 of each year following the district board's determinations, to file with the county auditor a copy of the final report adopted by the board of directors. The county auditor must enter the amount of the delinquent fees, tolls, rates, rentals, or other charges, together with interest and penalties thereon, including any delinquent fees, tolls, rates, rentals, or other charges for services rendered to a lessee, tenant, or subtenant, against each of the affected parcels of real property as they appear on the current assessment roll. The county tax collector must include these amounts on the tax bills for each affected parcel of real property and collect the amounts due in the same manner as property taxes. Recordation . SB 1035 authorizes a MUD to recover any delinquent fees, tolls, rates, rentals, or other charges, together with interest and penalties thereon, including any delinquent fees, tolls, rates, rentals, or other charges for services rendered to a lessee, tenant, or subtenant, by recording in the office of the county recorder of the county where the affected parcel is located, a certificate declaring: The amount of the delinquent fees, tolls, rates, rentals, or charges, together with interest and penalties thereon, including any delinquent fees, tolls, rates, rentals, or other charges for services rendered to a lessee, tenant, SB 1035 -- 2/12/10 -- Page 4 or subtenant, due. The name and last known address of the person liable therefore. From the time of recordation of the certificate, the amount of the delinquent fees, tolls, rates, rentals, or charges, together with interest and penalties thereon, including any delinquent fees, tolls, rates, rentals, or other charges for services rendered to a lessee, tenant, or subtenant, constitutes a lien against the affected real property of the delinquent property owner in that county. This lien has the force, effect, and priority of a judgment lien. Within 30 days of receipt of payment of all amounts due, including recordation fees paid by the district, the district shall file for recordation a release of the lien. SB 1035 requires a MUD to reimburse the county for its reasonable expenses. SB 1035 states that specified remedies for payment of delinquent charges are cumulative and the bill authorizes a MUD to pursue remedies alternatively or consecutively. Comments 1. Improved bill collection, decreased blight . Because MUDs cannot impose a lien on residential property when water or sewer bills are delinquent, they must either cut off services to the property or unfairly ask other ratepayers to subsidize the cost of service to delinquent account holders. Within the territory served by the East Bay MUD, the problems associated with neglected and abandoned properties are becoming a growing problem as a result of the turmoil in the real estate market. Cutting off water service to properties accelerates neighborhood blight by preventing the proper irrigation and maintenance of landscaping. By giving MUDs alternative ways to collect delinquencies, SB 1035 will help to slow the spread of blight. 2. As clear as mud . Ambiguous language in the current law makes it unclear whether the statutory changes proposed by SB 1035 could have unintended consequences. SB 1035 grants new authority to MUDs, in some circumstances, to require a property owner to pay for delinquent residential water or sewer service charges incurred by a tenant, lessee, or subtenant. For example, a MUD would have new authority to SB 1035 -- 2/12/10 -- Page 5 compel payment for such delinquent charges from an owner of a master-metered apartment building. The Committee may wish to consider amending SB 1035 to clarify that the bill is not intended to alter or circumvent the prohibition enacted by the 1996 Brewer bill against a MUD's seeking to recover, from a property owner, unpaid charges or penalties for residential services provided to a tenant under an account established by the tenant. 3. Legislative history . SB 1035's authorization for MUDs to impose judgment liens for delinquent fees or charges for residential water or sewer service also appeared in AB 1333 (Hancock, 2008), which Governor Schwarzenegger vetoed. The Governor's veto message expressed his concern that allowing utility liens for water and sewer services could increase costs associated with foreclosed property and allow utilities to benefit at a time of financial hardship for many property owners. 4. Mandate . The California Constitution requires the state to reimburse local governments for the costs of new or expanded state mandated local programs. Because SB 1035 imposes new duties on county auditors and recorders, Legislative Counsel says that it imposes a new state mandate. SB 1035 disclaims the state's responsibility for providing reimbursement by citing local agencies' authority to levy charges, fees, or assessments to cover their costs. 5. Double-referral . Because SB 1035 expands MUDs' authority to impose judgment liens on property, the Senate Rules Committee ordered a double-referral of the bill -- first to the Senate Local Government Committee and then to the Senate Judiciary Committee, which will hear the bill at its April 13 hearing. Support and Opposition (4/1/10) Support : East Bay Municipal Utility District, Alameda County, California Special Districts Association. Opposition : Unknown. SB 1035 -- 2/12/10 -- Page 6