BILL ANALYSIS SB 1035 Page 1 SENATE THIRD READING SB 1035 (Hancock) As Amended June 10, 2010 Majority vote SENATE VOTE :22-6 LOCAL GOVERNMENT 6-3 JUDICIARY 7-3 ----------------------------------------------------------------- |Ayes:|Caballero, Arambula, |Ayes:|Feuer, Brownley, Evans, | | |Bradford, Davis, Solorio, | |Huffman, | | |Swanson | |Jones, Monning, Saldana | | | | | | |-----+--------------------------+-----+--------------------------| |Nays:|Smyth, Knight, Logue |Nays:|Tran, Hagman, Knight | | | | | | ----------------------------------------------------------------- APPROPRIATIONS 12-5 ----------------------------------------------------------- |Ayes:|Fuentes, Bradford, | | | |Charles Calderon, Coto, | | | |Davis, De Leon, Gatto, | | | |Hall, Skinner, Solorio, | | | |Torlakson, Torrico | | | | | | |-----+--------------------------+--------------------------| |Nays:|Conway, Harkey, Miller, | | | |Nielsen, Norby | | | | | | ----------------------------------------------------------- SUMMARY : Authorizes a municipal utility district (MUD) to collect delinquent fees incurred by a commercial or residential lessee, tenant, or subtenant by charging the delinquent fees to the property owner's tax roll, as specified, and deletes a provision of existing law which exempts water and sewer service to residential property from the lien remedy. Specifically, this bill : 1)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 SB 1035 Page 2 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. 2)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 to be added to the current tax assessment roll. 3)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. 4)Requires the MUD to file a release of the lien within 30 days of receipt of payment of the delinquent charges. 5)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. 6)States that the term "subsequent commercial tenant" shall not include an entity or adult person that was located at the same address during the period the charges or penalties accrued. 7)Specifies that the provisions of the bill regarding commercial accounts do not apply to master-metered accounts. SB 1035 Page 3 8)Requires the MUD to reimburse the county for the reasonable expenses incurred by the county under this bill. 9)Provides that the remedies in this bill are cumulative, and the district may pursue the remedies alternatively or consecutively. 10)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. 11)Authorizes a MUD providing water or sewer to residential property to utilize the above lien methodology for delinquencies related to water or sewer services, but prohibits this use on electrical services. 12)Contains a sunset clause of January 1, 2016. EXISTING LAW : 1)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, and 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 and the lien has the force, effect, and priority of a judgment lien. No lien may be created under this section on any publicly owned property. 2)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, SB 1035 Page 4 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. 3)Provides that within 30 days of receipt of payment for all amounts due, including recordation fees paid by the MUD, the MUD shall file for recordation a release of the lien. 4)Provides the lien remedy to MUDs (other than water, sewer, and electric) in addition to any other remedy provided by law. 5)Prohibits a MUD owning or operating a public utility furnishing services for residential use to a tenant under an 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. FISCAL EFFECT : According to the Assembly Appropriations Committee, there is no state impact, as the judgment liens would have lower priority than county liens issued for unpaid property taxes, and local costs to county auditors reimbursed by payments from the utility. COMMENTS : There are five MUDs statewide: 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. 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. 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 SB 1035 Page 5 the exterior." Continuing water service is necessary to keep exteriors vibrant. When water bills are not paid, MUDs, such as EBMUD, are forced to either shut off water service or subsidize the cost of continued water service by charging more for water services to other ratepayers. Under existing law, EBMUD, who serves the County, and other MUDs do not have the authority to record a lien on property when water bills are not paid. Many other water and sewer agencies throughout the state are already afforded that remedy. This bill seeks to align the lien authority for MUDs with that of other water and sewer agencies. According to the co-sponsor, EBMUD, in 2009 there were over 7,000 delinquent accounts totaling nearly $3 million in unpaid charges. 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. Similar legislation: AB 1333 (Hancock, 2008), 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 the exemption of a MUD providing water or sewer services to residential property and allowed this type of MUD to place a lien on a property for delinquent fees or charges. The bill was vetoed. The Governor's veto message expressed his concern that allowing utility liens against property owners for water and sewer services could increase costs associated with foreclosed property and allow utility companies to benefit at a time of financial hardship for many property owners. This bill is more narrow in scope than AB 1333. Support arguments: According to the County, "a change in law is needed to provide EBMUD with 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." Opposition arguments: Opposition could argue that allowing utility liens against property owners for water and sewer SB 1035 Page 6 services could increase costs associated with foreclosed property and allow utility companies to benefit at a time of financial hardship for many property owners. Analysis Prepared by : Katie Kolitsos / L. GOV. / (916) 319-3958 FN: 0005560