BILL ANALYSIS Ó
SB 620
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Date of Hearing: June 26, 2013
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
K.H. "Katcho" Achadjian, Chair
SB 620 (Wright) - As Amended: June 18, 2013
SENATE VOTE : 31-4
SUBJECT : Water replenishment districts.
SUMMARY : Amends state laws governing water replenishment
districts' annual budget reserves and the penalties a district
can impose on water-producing facility operators. Specifically,
this bill :
1)Eliminates, until the 2019-20 fiscal year, the requirement in
existing law that a minimum of 80% of a water replenishment
district's annual reserve fund shall be expended for water
purchases.
2)States the intent of the Legislature to provide the Water
Replenishment District of Southern California with the ability
to determine the appropriate use of moneys held in its annual
reserve fund, and that public records that are kept by the
district of expenditures from the annual reserve fund shall
help the Legislature determine whether the flexibility
provided should be permanently extended beyond the 2019-20
fiscal year.
3)Increases the penalty from $150 to $1,000 for any operator of
a water-producing facility who knowingly fails to register his
or her water-producing facility or knowingly fails to file the
groundwater production statement, or knowingly fails to file
and furnish any other reports or statements required by
resolution of the board, as specified, and in addition to
interest.
4)Provides that the increase in penalty shall not apply to
either of the following at the time the act adding this
subdivision takes effect until after the litigation is settled
and all legal remedies have been exhausted:
a) An operator of a water-producing facility that is a
plaintiff in City of Cerritos, et al. v. Water
Replenishment District of Southern California, Los Angeles
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Superior Court Case No. BS 128136; and,
b) An operator of a water-producing facility that is a
plaintiff in Tesoro Refining and Marketing Company v. Water
Replenishment District of Southern California, Los Angeles
Superior Court Case No. BS 134239.
5)Requires, for existing law that allows the water replenishment
district to proceed for injunctive relief, that the court
direct the party prevailing on any motion is awarded 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.
6)Provides that the provisions specifying the awarding of
attorney's fees in the bill shall not apply to either of the
following until after the litigation is settled or all legal
remedies have been exhausted:
a) An operator of a water-producing facility that is a
plaintiff in City of Cerritos, et al. v. Water
Replenishment District of Southern California, Los Angeles
Superior Court Case No. BS 128136; and,
b) An operator of a water-producing facility that is a
plaintiff in Tesoro Refining and Marketing Company v. Water
Replenishment District of Southern California, Los Angeles
Superior Court Case No. BS 134239.
EXISTING LAW :
1)Provides, under the Water Replenishment District Act, for the
formation of a water replenishment district and grants
authority to a water replenishment district relating to the
replenishment, protection, and preservation of groundwater
supplies within that district.
2)Allows a water replenishment district to establish an annual
reserve fund in an amount not to exceed $10 million commencing
with the 2000-01 fiscal year, and allows the maximum allowable
reserve fund to be adjusted annually commencing with the
2001-02 fiscal year to reflect percentage increases or
decreases in the blended cost of water from district supply
sources.
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3)Requires a minimum of 80% of the annual reserve fund to be
used for water purchases.
4)Requires, should any operator of a water-producing facility
knowingly fail to register his water-producing facility or
knowingly fail to file the groundwater production statement,
or knowingly file to file and furnish any other reports or
statements required by resolution of the board, as specified,
the operator to, in addition to interest due, be liable to the
district for a penalty of $150.
5)Authorizes the superior court of the county in which the major
portion of the water replenishment district lies to issue a
temporary restraining order upon the filing by the district
with the court of a verified petition or complaint setting
forth that the defendant is the operator of a water-producing
facility that has not been registered with the district or
that the defendant is delinquent in the payment of a
replenishment assessment, as specified.
FISCAL EFFECT : None
COMMENTS :
1)This bill repeals a limitation on the expenditure of the Water
Replenishment District of Southern California's annual reserve
fund for a five-year period and increases the penalty that may
be imposed for the failure of the owner of a water-producing
facility to file certain reports. Additionally, the bill
authorizes a court of law to award attorney's fees and costs
to a prevailing party in the case when the District files a
motion for injunctive relief when the owner fails to file
reports or pay its water replenishment assessment bill. The
bill exempts specified pending litigation from the provisions
of the bill that increase the penalty and award attorney's
fees.
This bill is sponsored by the Water Replenishment District of
Southern California.
2)The Water Replenishment District of Southern California, which
was established by voters in Los Angeles County in 1959, is
the state's only water replenishment district. The District
was established while the Los Angeles County court proceeded
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through adjudication of groundwater rights in the Central
Basin and West Coast Basin aquifers. The main function of the
District is to recharge water into groundwater basins for
later withdrawal by water purveyors, and the District has
certain legal authorities to accomplish this purpose. The
District 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. Funds
are used to buy surface water that then percolates into the
groundwater basin.
In December of 1999, the Bureau of State Audits (BSA) issued a
report that discussed the weak policies and poor planning by
the District which BSA noted had led to excessive water rates
and questionable expenses.
According to the BSA Summary document contained in the report,
"Every year the district overestimates the amount it needs to
collect to pay for the water it buys to replenish the
groundwater in these two basins. Over the past 10 years, the
district has purchased considerably less water than it has
estimated it would need. Also, the district has not
sufficiently taken into consideration its unused cash balance
when estimating how much money it will need to collect through
the assessment in a given year. As a result, by June 30,
1998, the district had accumulated $67 million in its
unreserved fund balances. Thus, not only have the annual
assessments been too high, but the district also is
maintaining more than it needs in its cash reserves."
The 1999 BSA report also concluded that the District had
failed to maintain sufficient controls over its administrative
functions and spending, and made a number of recommendations.
On the heels of that report came two bills, SB 1979 (Escutia),
Chapter 894, Statutes of 2000, and AB 1834 (Havice), Chapter
888, Statutes of 2000. SB 1979 contained a number of changes
including the following - the bill required the District to
enter into contracts for construction work materials,
supplies, and equipment for professional services; required
the District to prepare and review a cost-benefit analysis
prior to constructing, leasing, purchasing, or contracting for
a capital improvement project; prohibited the District from
establishing a reserve of more than $10 million, starting with
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the 2000-2001 fiscal year, 80% of which is to be used to
purchase water; required the District to order, review, and
have in possession an independent audited financial statement;
required the audit to contain certain things including the
balances in all accounts for the District's funds; required
the District to submit the audit to the Governor and the
Legislature; and, required the District to apply the estimated
fiscal year-end balance of the reserve in excess of the $10
million limit to a reduction in the water assessment or to the
purchase of water in the following fiscal year. The other
bill, AB 1834, found and declared that reforms to the District
needed to be enacted to implement the recommendations set
forth in the 1998 BSA report, and stated the Legislature's
intent to review and reform the District's governance
structure.
BSA followed up in June of 2004 and found that the District
had not yet fully addressed all of BSA's concerns. According
to the BSA Summary highlights from June 2004, the review
revealed that the District "adopted a reserve-funds policy
that calls for increasing its reserve funds, but since
adopting the policy, the District allowed its reserve funds to
further deplete, and likely overstated its reserve-funds
targets by using some faulting assumptions in calculating
them," among other issues.
In the years that followed, several cities and the Central
Basin Municipal Water District challenged the District on its
legal authority and finances. One key dispute was control of
the storage space in the aquifers, which led to the Court of
Appeals, in January 2012, confirming the Superior Court's
authority to determine which agency controlled the storage
while noting that the Legislature has not specifically
assigned that authority. Last year,
SB 1386 (Lowenthal), Chapter 215, Statutes of 2012, eliminated
the authority of the Central Basin Municipal Water District to
manage groundwater, in favor of the District. While this
dispute proceeded, litigation over the District's authority to
increase replenishment assessments also continued.
3)According to the sponsor, "no other local agency has a
statutory limitation on its annual reserve fund, let alone a
restriction as to the manner in which such funds can be
expended. [The District] seeks the repeal of the 80%
requirement for several reasons. First, the restriction
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unnecessarily limits the ability of the District to rely on
the annual reserve fund?to meet unexpected costs not included
in the annual budget. Second, [the District] today is vastly
different from fifteen years ago. Less is spent today on
purchasing replenishment water and more is spent on operations
unrelated to water purchases. Finally, while one cannot
predict the future, should the present refusal by at least six
groundwater producers to pay their replenishment assessments
continue, [the District] would be forced to dip into its
annual reserve fund to pay for operations."
The District notes that "the 80% restriction would impede the
District's ability to maintain the groundwater monitoring
program, water quality testing, debt service payments, capital
projects and litigation costs, among others." SB 620 would
remove the 80% requirement for five fiscal years. The bill
also states the intent of the Legislature that the removal of
the 80% requirement will provide the District with the ability
to determine the appropriate use of moneys held in its annual
reserve fund, and that public records that are kept by the
District of expenditures from the annual reserve fund shall
help the Legislature determine whether the flexibility should
be permanently extended beyond the 2019-20 fiscal year.
According to the sponsor, "the 1955 Water Replenishment
District Act authorized the imposition of a penalty for the
failure of a groundwater producer to submit certain reports.
Under the original Act, [the District] could impose a penalty
of up to 10% of the assessment for failure to file reports in
a timely manner. The penalty was last increased in 1961 - to
$150 for failure to file reports."
SB 620 would increase the penalty for failure to file reports
to $1,000, which the sponsor argues is "less than the rate of
inflation as applied to the 1961 statutory amount?.it is
clear, more than 50 years later, that the penalty is not
sufficient to provide the proper incentive for a groundwater
producer to timely file specified reports and statements." SB
620 also would delay the application of the increase in the
amount of that penalty to an operator of a water-producing
facility that is a party to certain litigation cases until
after the litigation is settled or all legal remedies are
exhausted.
Current law allows the District to file a petition or
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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. Unlike some other public agencies, the District
can only collect unpaid replenishment assessments through a
court action. In recent years, several groundwater pumpers
have withheld payments of their replenishment assessments,
requiring the District to pay attorney's fees to file a court
action to collect those unpaid assessments.
SB 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. Additionally, SB 620 would delay the application of
those provisions to an operator of a water-producing facility
that is a party to specified litigation, similar to the
provisions that would apply to increasing the penalty from
$150 to $1,000.
The sponsor notes that SB 620 "does not interfere with pending
litigation, in which plaintiffs assert that the District
replenishment assessment is a property-related fee or charge
for purposes of Proposition 218."
4)The Consumer Attorneys of California are opposed to provisions
in the bill regarding attorney's fees and argue that "this
one-sided provision would set a very dangerous precedent in
California law and placed the cities serviced by the
[District] in a difficult position when seeking to defend
against such a motion?this provision sets in place a type of
'loser-pays' provision that only benefits one party in the
litigation - the [District]."
It should be noted, however, that the attorney's fees
provision in this bill applies only to replenishment
assessment collection actions, and does not apply to other
kinds of actions challenging the District's decisions.
Additionally, California law provides for attorney's fees
under several different provisions, applying to contract
disputes, judgment creditors and public records, so this is
not a new precedent.
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5)COMMITTEE AMENDMENTS . The Committee may wish to consider the
implications of specifically listing the District's pending
litigation cases in statute. Instead, the Committee may wish
to pick a firm date - say July 1, 2013 - and use that date to
encompass any litigation that is pending at that point in time
for the District.
6)Support arguments : Supporters argue that this bill will help
protect the stability of the District's groundwater supply in
order to ensure that the residents of south Los Angeles County
have reliable, affordable water.
Opposition arguments : The Consumer Attorneys of California
argue that the attorney's fee provision in the bill sets a
very dangerous precedent in California law and places the
cities serviced by the District in a difficult position when
seeking to defend against such a motion.
7)This bill is double-referred to the Assembly Water, Parks, and
Wildlife Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
Water Replenishment District of Southern California [SPONSOR]
Bell Gardens Chamber of Commerce
American Federation of State, County and Municipal Employees
(AFSCME), AFL-CIO
AFSCME Local 1902
Association of California Water Agencies
California Municipal Utilities Association
Cities of Gardena, Lawndale
Groundwater Resources Association of California
Hub Cities Consortium
Inglewood/Airport Area Chamber of Commerce
Lawndale Chamber of Commerce
Latin Business Association
Los Angeles/Orange Counties Building & Construction Trades
Council
Plumbers & Pipefitters Long Beach Local 494
Rancho South East Association of REALTORS
UA Local 250 Steamfitters & Refrigeration
West Basin Municipal Water District
Sheet Metal, Air, Rail, Transportation Workers' Local Union 105
South Bay Latino Chamber of Commerce
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Opposition
Consumer Attorneys of California
Analysis Prepared by : Debbie Michel / L. GOV. / (916)
319-3958