BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 240| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- 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. CONTINUED AB 240 Page 2 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: CONTINUED AB 240 Page 3 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 CONTINUED AB 240 Page 4 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. CONTINUED AB 240 Page 5 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 CONTINUED AB 240 Page 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 CONTINUED AB 240 Page 7 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 **** END **** CONTINUED