BILL ANALYSIS                                                                                                                                                                                                    Ó



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          SENATE THIRD READING
          SB 620 (Wright)
          As Amended  July 3, 2013
          Majority vote 

           SENATE VOTE  :31-4  
           
           LOCAL GOVERNMENT    9-0         WATER, PARKS & WILDLIFE    14-1 
           
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          |Ayes:|Achadjian, Levine, Alejo, |Ayes:|Rendon, Bigelow,          |
          |     |Bradford, Gordon,         |     |Bocanegra, Dahle, Fong,   |
          |     |Melendez, Mullin, Rendon, |     |Frazier, Beth Gaines,     |
          |     |Waldron                   |     |Gatto, Gomez, Gonzalez,   |
          |     |                          |     |Gray, Patterson, Yamada,  |
          |     |                          |     |Williams                  |
          |     |                          |     |                          |
          |-----+--------------------------+-----+--------------------------|
          |     |                          |Nays:|Allen                     |
          |     |                          |     |                          |
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           APPROPRIATIONS      15-0                                        
           
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          |Ayes:|Gatto, Bigelow,           |     |                          |
          |     |Bocanegra, Bradford, Ian  |     |                          |
          |     |Calderon, Campos, Eggman, |     |                          |
          |     |Gomez, Hall,  Holden,     |     |                          |
          |     |Linder, Pan, Quirk,       |     |                          |
          |     |Wagner, Weber             |     |                          |
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           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  








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            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)Requires a water replenishment district to establish a budget  
            advisory committee for purposes of reviewing a replenishment  
            assessment, if any is proposed, and a district's annual  
            operating budget, including reserve funds maintained by the  
            district.

          4)Specifies, for the budget advisory committee, the following:

             a)   The committee shall consist of seven members who shall  
               serve a two-year term and who shall be elected from among  
               representatives of producers who are owners or operators of  
               groundwater producing facilities who are subject to the  
               replenishment assessment, as specified;

             b)   Two members shall be elected by vote of entities with an  
               annual pumping allocation of less than 5,000 acre-feet;

             c)   Two members shall be elected by vote of entities with an  
               annual pumping allocation of at least 5,000 acre-feet but  
               less than 10,000 acre-feet; and,

             d)   Three members shall be elected by vote of entities with  
               an annual pumping allocation of 10,000 acre-feet or  
               greater;

          5)Requires, on or before the first Tuesday in January on a  
            biennial basis, the district to provide by first-class mail to  
            each producer notice that includes information regarding the  
            purpose of the committee, the categories that determine  
            membership on the committee, as specified, the schedule for  
            the election of members, and any additional information the  
            district determines necessary.  Requires the deadline for each  
            producer to inform the district that it would like to serve on  
            the committee and the category for which it is eligible to  
            serve, and requires an eligible producer that would like to  
            serve on the committee and informs the district to be included  








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            on the election ballot.

          6)Requires the election of committee members to be conducted by  
            mail ballot not later than 90 days before the second Tuesday  
            in May, and specifies vote counting procedures.

          7)Requires the committee to hold its first meeting within 30  
            days of the date the results of the election are announced by  
            the district, and requires the committee to develop rules for  
            its operation.  Requires the committee to take action by  
            majority vote of its members, and prohibits members from  
            receiving compensation for serving on the committee.

          8)Requires, no later than the second Tuesday of April of each  
            year, the district to consult with the budget advisory  
            committee, and requires the committee to make recommendations  
            to the board, as specified.

          9)Requires the district to maintain records regarding the  
            recommendations of the budget advisory committee and the final  
            decisions made by the board with regard to those  
            recommendations.

          10)Sunsets all provisions related to the budget advisory  
            committee as of June 30, 2019, and as of January 1, 2020,  
            repeals those provisions, as specified.

          11)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.

          12)Provides that the increase in penalty shall not apply to any  
            operator of a water-producing facility that is a party to  
            litigation involving a water replenishment district filed  
            before July 1, 2013, until after the litigation is settled or  
            all legal remedies have been exhausted.

          13)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  








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            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.

          14)Provides that the provisions specifying the awarding of  
            attorney's fees in the bill shall not apply to any operator of  
            a water-producing facility that is a party to litigation  
            involving a water replenishment district filed before July 1,  
            2013, until after the litigation is settled or all legal  
            remedies have been exhausted.

          15)Specifies that reimbursement to local agencies shall be made,  
            if the Commission on State Mandates determines that this act  
            contains costs mandated by the state.

           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.

          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  








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            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  :  According to the Assembly Appropriations  
          Committee, this bill is a state mandated program.  However, no  
          reimbursement is required because the sponsor of the legislation  
          is the entity subject to the mandate.

           COMMENTS  :  This bill repeals a limitation on the expenditure of  
          the Water Replenishment District of Southern California's  
          (District) annual reserve fund for a five-year period and  
          requires the District to establish a budget advisory committee  
          for purposes of reviewing a replenishment assessment and the  
          District's annual operating budget.  The District would then be  
          required to consult with that advisory committee and would be  
          required to maintain records regarding the recommendations of  
          the budget advisory committee and the final decisions made by  
          the board of the District.  Provisions related the budget  
          advisory committee become inoperative on June 30, 2019, and are  
          repealed as of January 1, 2020.

          Provisions in the bill also increase 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.

          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 through  
          adjudication of groundwater rights in the Central Basin and West  
          Coast Basin aquifers.  The main function of the District is to  








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          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 the 2000-01  
          fiscal year, 80% of which is to be used to purchase water;  
          required the District to order, review, and have in possession  








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          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.

          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 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  








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          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."  This bill 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."  

          This bill 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."  This bill 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 filed before July 1,  
          2013, until after the litigation is settled or all legal  
          remedies are exhausted.

          Current law allows the District to file a petition or complaint  
          in Superior Court seeking a temporary restraining order and  
          injunctive relief against an operator of a water-producing  








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          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.

          This bill 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, this bill would delay the application of  
          those provisions to an operator of a water-producing facility  
          that is a party to litigation filed before July 1, 2013, similar  
          to the provisions that would apply to increasing the penalty  
          from $150 to $1,000.

          The sponsor notes that this bill "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."

          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. 

          Support arguments:  Supporters argue that this bill will help  
          protect the stability of the District's groundwater supply in  








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          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.


           Analysis Prepared by  :    Debbie Michel / L. GOV. / (916)  
          319-3958 


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