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  




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          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  





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          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,  





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            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  





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          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.

            








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