BILL ANALYSIS
SB 1035
Page 1
Date of Hearing: June 29, 2010
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
SB 1035 (Hancock) - As Amended: June 10, 2010
SENATE VOTE : 22-6
SUBJECT : MUNICIPAL UTILITY DISTRICT: UTILITY CHARGES:
DELINQUENCIES
KEY ISSUE : SHOULD MUNICIPAL UTILITY DISTRICTS HAVE THE
AUTHORITY TO IMPOSE A LIEN AGAINST REAL PROPERTY FOR UNPAID
WATER AND SEWER FEES?
FISCAL EFFECT : As currently in print this bill is keyed fiscal.
SYNOPSIS
This bill, co-sponsored by East Bay Municipal Utility District
(EBMUD) and Alameda County, seeks to establish new procedures
for the collection of delinquent fees owed to municipal utility
districts (MUD). According to EBMUD, unlike many water
utilities that have the authority to record a lien on a property
when water bills are not paid, it is barred by existing law by
virtue of the fact that it is the only MUD that provides
residential water and sewer services. Without the lien remedy
available, EBMUD contends it has no option when water bills are
not paid but to terminate water service to the property or
unfairly ask its other ratepayers to subsidize the cost of
service to the delinquent account holders. Consequently, this
bill would allow a MUD that furnishes water or sewer service to
residential property to obtain a lien on the property for
non-payment of delinquent fees and other charges. This bill
also authorizes a MUD to collect delinquent fees and other
charges, plus interest and penalties thereon, on the tax roll in
the same manner as property taxes, including any delinquencies
for services rendered to a lessee, tenant, or subtenant, except
on properties where the account was established by the tenant.
The bill establishes a number of due process requirements that
the MUD must comply with before it may apply delinquent charges
to the tax roll. These provisions would sunset in 2016, after
five years, with each MUD that places a lien required to submit
a specified report to the Legislature by January 1, 2015. This
bill passed the Senate by a 22-6 vote and there is no registered
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opposition.
SUMMARY : Authorizes a municipal utility district (MUD) to
collect delinquent utility charges by charging the delinquent
fees to the property owner's tax roll, as specified, and to
place a lien on the property for unpaid water and sewer service.
Specifically, this bill :
1)Eliminates from existing law the restriction against using
utility liens against property owners to collect delinquent
fees or charges for the furnishing of water or sewer service
to residential property, while maintaining the restriction
that applies to furnishing of electric service.
2)Authorizes a MUD, by resolution or ordinance, to collect on
the tax roll, delinquent fees, tolls, rates, rentals, or other
charges and any interest and penalties thereon, including any
delinquencies for services rendered to a lessee, tenant, or
subtenant, in the same manner as property taxes, except on
properties where the account was established by the tenant.
3)Requires a MUD seeking to apply delinquent utility charges to
the tax roll to:
a) Prepare and file an annual report of delinquent charges
for each affected parcel;
b) Give published and mailed notice of the filing of the
report and the time and place for a public hearing;
c) Hear and consider objections or protests of the report
at the public hearing and potentially revise the report;
and,
d) Provide, by August 10 of each year, a final report to
the county recorder, containing specified accounting
information, to be added to the current tax assessment
roll.
4)Authorizes the 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. Provides that, from the time of
recordation of the certificate, the amount of the delinquent
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fees plus interests and penalties constitutes a lien against
the affected real property of the delinquent property owner in
that county, having the force, effect, and priority of a
judgment lien.
5)Requires the MUD to file a release of the lien within 30 days
of receipt of payment of the delinquent charges.
6)Prohibits a MUD from recovering on the tax roll any delinquent
fees, tolls, rates, rentals, or other charges for services for
commercial use to a commercial tenant under an account
established by the commercial tenant, from any subsequent
tenant or the property owner, due to nonpayment of charges by
a previous commercial tenant, except that this does not apply
to master-metered accounts.
7)Requires the MUD to reimburse the county for the reasonable
expenses incurred by the county under this bill.
8)Provides that the remedies in this bill are cumulative, and
the district may pursue the remedies alternatively or
consecutively.
9)Requires any MUD that places a lien on a property for water or
sewer service pursuant to this measure on or before December
31, 2014, to submit to the Assembly and Senate Committees on
Judiciary and to the Assembly and Senate Committees on Local
Government, on or before January 1, 2015, a report containing
the following information:
a) The total number of liens created under this section for
water or sewer service and the total dollar amount of those
liens; and,
b) The overall effectiveness of the liens and any problems
associated with the use of those liens.
10)Clarifies that this bill does not negate certain provisions,
specified by existing PUC Code Section 1822.6, that, among
other things, prohibit the use of utility liens to recover
delinquent fees and charges for the furnishing of services for
residential use to a tenant.
11)Sunsets these provisions as of January 1, 2016.
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EXISTING LAW :
1)Authorizes the MUD board of directors to provide for the
collection of fees, tolls, rates, rentals, or other charges in
any lawful manner, and may provide for collection by action at
law, and further provides that all remedies for the collection
and enforcement thereof are cumulative and may be pursued
alternatively or consecutively as the board determines.
Authorizes the board to provide for the collection of an
additional penalty, interest amount, or both, as specified.
(Public Utilities Code Section 12811.)
2)Authorizes a MUD, by resolution or ordinance, to require the
owner of record of real property within the MUD to pay the
fees, tolls, rates, rentals, or other charges for services
rendered to a lessee, tenant, or subtenant. Further provides
that those fees, tolls, rates, rentals, and other charges that
have become delinquent, together with interest and penalties
thereon, are a lien on the property when a certificate is
filed in the office of the county recorder. Provides that the
lien has the force, effect, and priority of a judgment lien,
except that no lien may be created on any publicly owned
property. (Public Utilities Code Section 12811.1(a).)
3)Provides that a lien attaches when the MUD files for
recordation in the office of the county recorder a certificate
specifying the amount of the delinquent fees, tolls, rates,
rentals, or other charges together with interest and penalties
thereon; the name of the owner of record
of the property to which services were rendered by the district;
and, the legal description of the property. Further provides
that within 30 days of receipt of payment of all amounts due,
including recordation fees paid by the MUD, the MUD shall file
for recordation a release of the lien. (Public Utilities Code
Section 12811.1(b).)
4)Provides that the authority of the MUD to seek and collect on
a lien against the owner of record of real property within the
MUD does not apply to delinquent fees or charges for the
furnishing of water or sewer service to residential property,
or electrical service. Furthermore ((Public Utilities Code
Section 12811.1(d).)
5)Prohibits a MUD from owning or operating a public utility
furnishing services for residential use to a tenant under an
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account established by the tenant from seeking to recover any
charges or penalties for the furnishing of services to, or for
the tenant's residential use from, any subsequent tenant or
the property owner due to nonpayment of charges by a previous
tenant. (Public Utilities Code Section 12822.6(b).)
6)Specifies the report, notice, and hearing requirements that
must be carried out before a community services district (CSD)
can use certain collection and enforcement methods, including
seeking a lien against the property. (Government Code Section
61115.)
COMMENTS : This bill, sponsored by East Bay MUD and Alameda
County, seeks to establish new procedures for the collection of
delinquent fees owed to municipal utility districts. First,
this bill would allow a MUD that furnishes water or sewer
service to residential property to obtain a lien on the property
for failure of the property owner to pay off delinquent fees and
other charges. Secondly, this bill authorizes a MUD to collect
delinquent fees and other charges, plus interest and penalties
thereon, on the tax roll in the same manner as property taxes.
The MUD could collect on the tax roll any delinquencies for
services rendered to a lessee, tenant, or subtenant, except on
properties where the account was established by the tenant.
Background on Municipal Utility Districts: According to the
co-sponsor, EBMUD, there are only five MUDs statewide, serving
the East Bay, Lassen, Sacramento, South Placer, and Southern San
Joaquin. MUDs can provide various utility services, including
electricity, water, sewer, garbage disposal, transportation, and
communications. Currently, only East Bay MUD (EBMUD) and South
Placer MUD provide sewer service, and only EBMUD also provides
water service to residential customers.
Co-sponsor EBMUD's stated need for the bill. According to the
co-sponsor, EBMUD, in 2009 there were over 7,000 delinquent
accounts totaling nearly $3 million in unpaid charges in the
areas it serves. While the number of delinquent accounts has
been relatively steady in recent years, the amount of the
delinquencies has risen sharply and has more than doubled since
2006. As co-sponsor, EBMUD explains in its letter of support,
this bill is needed to give EBMUD authority to use the lien
remedy it currently lacks in order to increase collection of
these delinquent utility accounts.
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Unlike many water utilities that have the authority to
record a lien on a property when water bills are not
paid, EBMUD cannot. When water bills are not paid,
EBMUD has no option but to terminate water service to
the property or unfairly ask its other ratepayers to
subsidize the cost of service to the delinquent
account holders. Terminating service to the property
unfairly punishes tenants who have paid for and are
continuing to pay for utility services as part of
their rent. Tenants have no control over whether the
property owner pays for utility bills for services
provided.
A change in law is needed to provide EBMUD with the
same authority already vested with other water
utilities in the state to record a lien for
nonpayment. A lien places the obligation for payment
on the responsible party without unduly penalizing
other ratepayers.
The connection between continued water service and reducing
blight in neighborhoods. According to the co-sponsor, Alameda
County (County), it is experiencing a sharp increase in the
occurrences of blight in the County. According to the County:
Blighted property can lower the values of nearby
properties, decrease safety and impact area
businesses. The decay of an abandoned property not
only affects the property itself, but can also affect
the livability of the entire community. Once it gains
a foothold, blight can spread quickly through a
neighborhood that is demoralized by neglect, and is
difficult to stop. One of the best ways to avoid
crippling blight and the associated economic impacts
on businesses and the community is to prevent vacant
buildings from ever appearing abandoned. This can be
as simple as maintaining the exterior. Caring for the
grounds of vacant properties gives the appearance of
occupancy and serves as an excellent deterrent to
blight-related crime.
Supporters, including the East Bay Economic Development Alliance
and Berkeley Chamber of Commerce, contend that "a brown lawn and
dead vegetation signals no one is watching and the property is
ripe for abuse," while a healthy landscape tells people that the
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property is under someone's care. They believe that this bill
might help reduce blight by keeping the garden hose and
automatic sprinklers functional for the purpose of helping
maintain healthy exterior plants and lawns at these properties.
New Authority For Municipal Utility Districts To Impose Liens
Against Property For Unpaid Water and Sewer Fees. This bill
would additionally delete a provision under existing law that
prevents a municipal utility district from placing a lien on a
property for the delinquent fees or charges for the furnishing
of water or sewer service to lessees and tenants of residential
property. That prohibition was enacted in 1986 with respect to
both water and electrical service, and was expanded in 1998 to
cover sewer service. It is believed that East Bay MUD is the
only municipal utility district that provides water and sewer
service at the residential level, and therefore the only current
MUD that would be covered by the deletion of the existing
prohibition. This provision is not limited to properties
acquired by foreclosure or to those where the landlord collects
money from the tenant for utility services. However, it is
believed that allowing for the imposition of a lien against the
property will be a disincentive for landlords to fail to pay the
utility district because the landlord will not thereby be able
to avoid responsibility for the unpaid services.
The bill does not specify a minimum delinquency threshold before
a lien may be created, but it is believed that EBMUD will use
the authority responsibly. The bill sunsets after five years
and requires a report to this Committee, the Senate Judiciary
Committee, and the Assembly and Senate Committees on Local
Government regarding the total number of liens created and the
overall effectiveness of, or problems with, the use of these
liens.
Notice and Hearing Requirements Before Applying Delinquent
Charges to the Property Tax Roll. This bill establishes a
number of procedural requirements that the MUD must comply with
before it may apply delinquent charges to the tax roll. First,
the MUD must prepare and file an annual report describing and
itemizing the delinquent charges for each affected parcel. The
MUD must then give published and mailed notice of the filing of
the report and the time and place for a public hearing. At the
public hearing, the MUD board of directors must hear and
consider objections or protests of the report, and make any
revisions it feels are necessary. Finally, the MUD must
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provide, by August 10 of each year, a final report to the county
recorder, containing specified accounting information, to be
added to the current tax assessment roll.
According to the author, these procedural requirements mirror
those already approved by the Legislature for use by the board
of directors of a community services district to enforce and
collect on the tax roll certain rates and other charges for
services and facilities that the district provides, pursuant to
Government Code Section 61115(b).
Previous Legislation: AB 1333 (Hancock) of 2008 would have
required legal owners of residential rental property to pay
utility charges when they acquire the property after foreclosure
and the property is subject to a rental agreement under which
the tenant pays the landlord for utilities. AB 1333 would have
also deleted language that currently prohibits a MUD providing
water or sewer services to residential property from placing a
lien on property for delinquent fees or charges. The bill was
vetoed by the Governor, whose veto message, in part, stated:
This bill takes the wrong approach of potentially
increasing the costs associated with foreclosed
property by allowing utility liens for water and
sewer, and allows utilities to benefit during a time
of financial hardship for many property owners. This
bill could further have an adverse economic impact on
California as it may complicate and impede the sales
of foreclosed property or result in more evictions
upon sale of the foreclosed property. By requiring
lenders and legal owners of foreclosed property to
assume the responsibility for utility payments, this
bill may increase the financial costs associated with
buying foreclosed property.
This bill is narrower than AB 1333 because it does not impose
obligations on lenders or legal owners of foreclosed property to
pay the utilities provided to tenants following a foreclosure in
certain circumstances specified by that bill.
REGISTERED SUPPORT / OPPOSITION :
Support
County of Alameda (co-sponsor)
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East Bay Municipal Utility District (EBMUD) (co-sponsor)
Berkeley Chamber of Commerce
Coalition of California Utility Employees
East Bay Economic Development Alliance
Oakland Metropolitan Chamber of Commerce
California Special Districts Association
Opposition
None on file
Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334