BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 620 HEARING: 4/17/13
AUTHOR: Wright FISCAL: No
VERSION: 4/9/13 TAX LEVY: No
CONSULTANT: Weinberger
WATER REPLENISHMENT DISTRICTS
Amends state laws governing water replenishment districts'
annual budget reserves and the penalties a district can
impose on water-producing facility operators.
Background
The Water Replenishment District of Southern California
(WRD) is the state's sole water replenishment district.
The primary function of a water replenishment district is
to recharge water into groundwater basins for later
withdrawal by water purveyors. The WRD earns revenue by
charging water replenishment assessments to the agencies,
utilities, and companies that pump groundwater. The
District also gets property tax revenues from its share of
the 1% property tax rate. The WRD uses these funds to buy
surface water that then percolates into the groundwater
basin.
The WRD has been the subject of considerable local
controversy over its water rates, fund balances, capital
projects, and administrative practices. A December 1999
State Auditor's report found that WRD maintained high
fiscal reserves and didn't exercise strict fiscal controls.
In response to the audit, the Legislature amended the
Water Replenishment District Act to, among other things,
cap the size of WRD's reserve fund and require 80% of the
fund to be used for water purchases. In recent years, WRD
has been involved in litigation with a group of cities
within its jurisdiction over whether the District, when
imposing replenishment assessments, complied with the
Constitutional requirements established by Proposition 218
(1996). After an initial favorable superior court ruling,
some cities stopped paying replenishment assessments to
WRD. Litigation over whether WRD may have to pay refunds
to the cities is pending.
SB 620 -- 4/9/13 -- Page 2
In response to mounting fiscal pressures and changes in the
types of expenditures that WRD must make to replenish
groundwater supplies, WRD officials want more flexibility
to spend the District's reserves and additional authority
to impose penalties for unpaid replenishment assessments.
Proposed Law
Current law allows WRD to establish an annual reserve fund
in an amount not to exceed ten million dollars. The
maximum allowable reserve fund can be adjusted annually to
reflect percentage increases or decreases in the blended
cost of water from district supply sources. A minimum of
80% of the reserve must be for water purchases. Senate
Bill 620 deletes the requirement that 80% of WRD's annual
reserve must be for water purchases.
Current law states that any producer who knowingly fails to
pay a replenishment assessment within 30 days of when the
assessment was due is liable to WRD for interest at the
rate of 1 percent per month on the delinquent amount (AB
621, Porter, 1961). Senate Bill 620 allows the interest
liability to be imposed on an assessment that is unpaid for
less than a full month. In addition to the interest,
Senate Bill 620 makes a producer liable to WRD for a
penalty of 5% of the unpaid assessment as of the due date.
Operators of water-producing facilities within WRD must
file quarterly statements with WRD setting forth:
The total production of ground water from the
water-producing facilities.
General descriptions or numbers locating the
water-producing facilities.
The method or basis of the computation of the
ground water production.
Each statement also must contain other information WRD may
require. WRD's governing board also may require operators
of water-producing facilities to file additional reports or
statements that the board determines are necessary or
useful to carry out the Water Replenishment District Act's
purposes. An operator of a water-producing facility who
knowingly fails to register a water-producing facility,
SB 620 -- 4/9/13 -- Page 3
knowingly fails to file the ground water production
statement, or knowingly fails to file and furnish any other
required reports or statements is liable to WRD for a
penalty of $150. Senate Bill 620 increases the penalty to
$1,000.
Current law allows WRD to file a petition or complaint in
Superior Court seeking a temporary restraining order and
injunctive relief against an operator of a water-producing
facility which has not been registered with the district or
who is delinquent in paying a replenishment assessment.
Senate Bill 620 requires the court to award to the party
prevailing on any such motion the reasonable attorney's
fees and costs of making or opposing the motion unless the
court finds that the other party acted with substantial
justification or that other circumstances make the
imposition of attorney's fees and costs unjust.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . Removing restrictions on how WRD
can spend money from its reserve fund and increasing the
penalties WRD can impose on unpaid replenishment
assessments will allow the District to maintain sound
finances. By requiring WRD to use 80% of its reserve fund
for water purchases, current law severely limits the
District's ability to rely on the reserve for contingency
expenses related to other operating costs or capital
projects. This restriction also generates concerns about
WRD's credit quality, which increases borrowing costs.
Higher borrowing costs increase costs paid by the
District's groundwater consumers. WRD's finances also are
threatened by some groundwater producers' ongoing failure
to pay groundwater assessments that are the subject of a
legal dispute. WRD cannot shut off service for nonpayment.
The penalties imposed by current law appear to be
insufficient to induce timely payment of WRD's groundwater
assessments, forcing WRD to endure a substantial and
ongoing loss of revenues. The added financial flexibility
and security provided by SB 620 will help WRD to continue
SB 620 -- 4/9/13 -- Page 4
providing vital groundwater management functions that
benefit millions of residents and thousands of businesses
within its service area.
2. War by other means . Military theorist Carl von
Clausewitz declared that, "War is a mere continuation of
policy by other means." Conversely, SB 620's opponents
suggest that the bill's policy provisions merely continue -
by other means - the lengthy, complicated legal war between
WRD and numerous Southern California cities and special
districts. Officials from some cities that are in
litigation against WRD suggest that SB 620's additional
penalties for unpaid assessments are a form of retaliation
against cities that are seeking to enforce their legal
rights in court. They also worry that if a court
ultimately finds their cities to be liable for paying
delinquent replenishment assessments, the court may
interpret the penalty enacted by SB 620 to increase the
amount that the cities would otherwise be liable for paying
under current law. SB 620 invites the Legislature to get
involved in a local legal battle that should be resolved
through the courts.
3. What's changed ? The Legislature required WRD to use
80% of its reserves for water purchases in response to a
State Auditor's report which found that the District's
replenishment assessment rates were too high and that the
District maintained excessive cash reserves. The 80%
restriction promotes compliance with the Auditor's
recommendations. It benefits consumers by providing a
cushion against overcharges by WRD. Some of SB 620's
opponents suggest that WRD is circumventing the reserve
restrictions by placing revenues into a separate reserve
fund for capital projects. By contrast, WRD officials note
that, in 2004, the State Auditor found that the District
had addressed many of the concerns raised in the 1999
audit. They assert that the District has implemented all
of the Auditor's recommendations and that changes to WRD's
management practices and fiscal policies make the 80%
restriction unnecessary. The Committee may wish to
consider whether these changes are sufficient to ensure
that WRD will not mismanage its reserve fund in the absence
of restrictions on reserve expenditures, or whether the
bill should be amended to restore the 80% restriction.
SB 620 -- 4/9/13 -- Page 5
Support and Opposition (4/11/13)
Support : Water Replenishment District of Southern
California; City of Gardena; AFSCME Local 1902, Employees
Association of Water Replenishment District of Southern
California; AFSCME Local 1902, Employees Association of the
Metropolitan Water District of Southern California; Bell
Gardens Chamber of Commerce; Hub Cities Consortium;
Inglewood Airport Area Chamber of Commerce; Lawndale
Chamber of Commerce; Rancho Southeast Association of
Realtors;.
Opposition : Cities of Bellflower, Cerritos, Downey, and
Signal Hill; Maywood Mutual Water Company #1; Southeast
Water Coalition.