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