BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                            



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          |SENATE RULES COMMITTEE            |                        AB 240|
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                                    THIRD READING


          Bill No:  AB 240
          Author:   Rendon (D)
          Amended:  8/13/13 in Senate
          Vote:     21

           
           SENATE GOVERNANCE & FINANCE COMMITTEE  :  4-1, 6/12/13
          AYES:  Wolk, Beall, DeSaulnier, Liu
          NOES:  Knight
          NO VOTE RECORDED:  Emmerson, Hernandez

           SENATE BUDGET & FISCAL REVIEW COMMITTEE  :  13-0, 8/22/13 (FAIL)
          AYES:  Leno, Emmerson, Anderson, Beall, Berryhill, Block,  
            DeSaulnier, Hancock, Monning, Nielsen, Roth, Torres, Wyland
          NO VOTE RECORDED:  Jackson, Wright, Vacancy

           SENATE BUDGET & FISCAL REVIEW COMMITTEE  :  9-5, 8/29/13
          AYES:  Leno, Beall, Block, DeSaulnier, Hancock, Jackson,  
            Monning, Roth, Torres
          NOES:  Emmerson, Anderson, Berryhill, Nielsen, Wyland
          NO VOTE RECORDED:  Wright, Vacancy

           ASSEMBLY FLOOR  :  76-0, 4/29/13 - See last page for vote


           SUBJECT  :    Mutual water companies

           SOURCE  :     Author


           DIGEST  :    This bill requires mutual water companies to comply  
          with open meeting, public record, audit, and budget requirements  
          and allows them to impose liens to collect unpaid charges.   
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                                                                     AB 240
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          Allows the Water Replenishment District (WRD) of Southern  
          California to receive specified Department of Public Health  
          grants to improve drinking water infrastructure in communities  
          served by mutual water companies in the City of Maywood. 

           ANALYSIS  :    Existing law exempts a mutual water company from  
          state regulation if it is organized to deliver water to its  
          stockholders and members, with specified exceptions.

          Governance of a mutual water company is generally limited to  
          shareholders, or members, of the company.  While the details of  
          any particular company's governing structure are determined by  
          its articles and bylaws, most mutual water companies allow only  
          shareholders and members to vote on organizational matters and  
          serve on the company's governing board.

          The Ralph M. Brown Act (Brown Act), first enacted by the  
          Legislature in 1953, is the set of existing laws which  
          guarantees the public's right to attend and participate in local  
          legislative bodies' meetings.  As private corporations, mutual  
          water companies are not subject to the Brown Act.  Instead,  
          existing law gives mutual water companies broad authority to  
          specify in their articles and bylaws, how their meetings are  
          conducted, and who may attend.  

          In 1968, the Legislature enacted the Public Records Act, which  
          generally requires that government records must be provided to  
          the public, upon request, unless there is a specific reason,  
          specified in state law, to withhold a record.   Private  
          corporations, including mutual water companies, are not subject  
          to the Public Records Act.  Existing law requires that mutual  
          water companies must allow members to inspect specified records  
          including accounting books, meeting minutes, articles and  
          bylaws, and election results.  A mutual water company's articles  
          and bylaws determine whether non-members are permitted access to  
          the company's records. 

          Existing law requires most local governments to prepare annual  
          budgets and requires periodic audits of most local governments'  
          accounts and records.  Existing law requires private  
          corporations to prepare and distribute annual reports and other  
          specified financial statements.

          This bill:

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          1. Enacts the Mutual Water Company Opening Meeting Act, which  
             applies to all mutual water companies, and permits an  
             eligible person to attend a meeting of a mutual water  
             company, as those terms are defined, or to speak at a  
             meeting, except as provided.

          2. Requires the board of a mutual water corporation that  
             operates a public water system to contract with a certified  
             public accountant or public accountant to make an annual  
             audit of the accounts and records of the mutual water  
             company.  The audit must conform to generally accepted  
             auditing standards.

          3. Requires the board of a mutual water company that operates a  
             public water system to adopt in an open meeting, an annual  
             budget on or before the start of each fiscal year of the  
             mutual water company.

          4. Allows a mutual water company's board of directors, after  
             providing at least 20 days' written notice and if authorized  
             by its articles or bylaws, to authorize the recording of a  
             lien against a shareholder's property to secure the  
             collection of rates, charges, and assessments owed to the  
             mutual water company by the shareholder.

          5. Requires mutual water company board members to repeat, every  
             six years, training related to the duties of mutual water  
             companies' board members.

          6. Requires the board of directors of a mutual water company  
             that operates a public water system to make specified  
             documents available to an eligible person, as defined, upon  
             payment of fees covering the direct costs of duplication, a  
             specified.

          7. Expresses the Legislature's intent to encourage collaboration  
             among mutual water companies that operate public water  
             systems in the City of Maywood to create a public agency that  
             can consolidate drinking water services for the people and  
             businesses of that city.

          8. Allows the WRD of Southern California to receive grant  
             funding from $7.5 million appropriated to the Department of  

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             Public Health from the Safe Drinking Water, Water Quality and  
             Supply, Flood Control, River and Coastal Protection Fund of  
             2006.  The WRD must use the grant funds for water quality  
             improvement projects to benefit the residents of the City of  
             Maywood, subject to the following three conditions:

             A.    WRD manages the design and implementation or  
                construction of the project.

             B.    WRD retains ownership of the project and oversees its  
                operation.

             C.    A mutual water company that incorporates the project  
                into its systems complies with specified open meeting  
                requirements.

          9. In keeping with other bond allocations in the budget, the  
             appropriation allows for the use of funds for engineering  
             including planning and California Environmental Quality Act  
             analyses.

           Background
           
          In response to concerns that that some mutual water companies  
          lacked capital to pay for needed water quality improvements and  
          the managerial capacity to operate successful public water  
          systems, the Legislature passed AB 54 (Solorio, Chapter 512,  
          Statutes of 2011).  The bill established training requirements  
          for mutual water districts' board members, made mutual water  
          companies liable for specified fines and penalties for violating  
          the California Safe Drinking Water Act, and expanded local  
          agency formation commissions' authority to review matters  
          related to mutual water companies.

          Three mutual water companies deliver water to residents of the  
          City of Maywood in Los Angeles County.  Maywood residents have,  
          for years, expressed concerns about the quality of water they  
          receive, citing problems with discoloration, odors, and taste.   
          Deteriorated water supply infrastructure may be a primary cause  
          of these problems.  A substantial portion of Maywood's residents  
          are renters.  Because they don't own real property in Maywood,  
          they are not stockholders or members of the mutual water  
          companies that serve Maywood and cannot participate in those  
          companies' corporate governance.  

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           FISCAL EFFECT  :    Appropriation:  Yes   Fiscal Com.:  Yes    
          Local:  No

           SUPPORT  :   (Verified  8/30/13)

          Central Basin Municipal Water District
          Sierra Club
          Union de Vecinos

           OPPOSITION  :    (Verified  8/30/13)

          Amarillo Mutual Water Company
          Bellflower-Somerset Mutual Water Company
          California Association of Mutual Water Companies
          California Domestic Water Company
          Central Basin Water Association
          Cities of Bellflower, Covina and Lakewood
          Covina Irrigation Company
          Del Rio Mutual Water Company
          Lake Elizabeth Mutual Water Company
          Lawndale Mutual Water Company
          Loma Mar Mutual Water & Improvement Company
          Long Beach Water Department
          Montebello Land & Water Company
          Muscoy Mutual Water Company
          Oildale Mutual Water Company
          San Andreas Mutual Water Company
          San Gabriel Valley Water Association
          Santa Teresa Mutual Water Company
          Southeast Water Coalition
          Valencia Heights Water Company

           ARGUMENTS IN SUPPORT  :    According to the author's office, this  
          bill makes several changes to the law of mutual water companies,  
          to make those that operate "public water systems" more public.   
          By opening the practices of mutual water companies up to those  
          who drink their water, this bill brings increased oversight to  
          their operations.  Additionally, this bill takes important steps  
          to improve water quality in the City of Maywood.  

          The authors office further notes, that this bill brings badly  
          needed transparency and oversight to mutual water companies.   
          This bill requires these companies to provide access to meetings  

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          6

          and records to all individuals that receive drinking water from  
          mutual water companies.  This bill brings greater accountability  
          to these companies and compels them to disclose information to  
          those that they serve.

          The author's office further states, this bill moves  
          significantly closer to the goal of resolving the City of  
          Maywood's water issues.  This bill amends the 2011-12 State  
          Budget appropriation to allow the WRD to build water quality  
          improvement projects for the people of Maywood.  WRD has both  
          the necessary resources to remedy Maywood's water issues and a  
          proven track record in improving water quality. This record  
          includes the District's work in Maywood, where it has already  
          installed a water treatment plant on one of the mutual water  
          company's wells.  Allowing WRD access to state funding will kick  
          start efforts to resolve long-standing drinking water quality  
          problems for the people of Maywood.

           ARGUMENTS IN OPPOSITION  :    The opposition states that this bill  
          sets no threshold for mutual water companies to adopt it  
          provision based upon lack of customer service and/or water  
          quality standards, laws and practices.  Instead, it applies to  
          all without regard to already practiced best management  
          standards which many mutual water companies can document.   This  
          bill makes it more difficult for board of directors to promptly  
          address pressing issues by restricting board communication and  
          actions.   This bill requires companies to hire accountants to  
          conduct expensive financial reviews without any triggers that  
          would warrant the expense.  This will result in costs that will  
          increase water rates, diverting much needed resources from other  
          priorities.  Mutual water companies are already subject to  
          provisions under the California Corporate Code, the California  
          Health Department, county health departments, regional water  
          quality control boards, state and federal employment laws.   
          Extra requirements that single out small mutual water companies  
          are not needed and are hurtful.  This bill will have the effect  
          of confusing already well-established channels for addressing  
          water supply and water quality issues.

           ASSEMBLY FLOOR  :  76-0, 4/29/13
          AYES:  Achadjian, Alejo, Allen, Ammiano, Bigelow, Bloom,  
            Blumenfield, Bocanegra, Bonilla, Bonta, Bradford, Brown,  
            Buchanan, Ian Calderon, Campos, Chau, Chávez, Chesbro, Conway,  
            Cooley, Dahle, Daly, Dickinson, Eggman, Fong, Frazier, Beth  

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                                                                     AB 240
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            Gaines, Garcia, Gatto, Gomez, Gordon, Gorell, Gray, Grove,  
            Hagman, Hall, Harkey, Roger Hernández, Holden, Jones,  
            Jones-Sawyer, Levine, Linder, Logue, Lowenthal, Maienschein,  
            Mansoor, Medina, Melendez, Mitchell, Morrell, Mullin,  
            Muratsuchi, Nazarian, Nestande, Olsen, Pan, Patterson, Perea,  
            V. Manuel Pérez, Quirk, Quirk-Silva, Rendon, Salas, Skinner,  
            Stone, Ting, Torres, Wagner, Waldron, Weber, Wieckowski, Wilk,  
            Williams, Yamada, John A. Pérez
          NO VOTE RECORDED:  Atkins, Donnelly, Fox, Vacancy


          AB:d  8/31/13   Senate Floor Analyses 

                           SUPPORT/OPPOSITION:  SEE ABOVE

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