BILL ANALYSIS Ó SB 620 Page 1 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 ----------------------------------------------------------------- |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 | | | | | | ----------------------------------------------------------------- APPROPRIATIONS 15-0 ----------------------------------------------------------------- |Ayes:|Gatto, Bigelow, | | | | |Bocanegra, Bradford, Ian | | | | |Calderon, Campos, Eggman, | | | | |Gomez, Hall, Holden, | | | | |Linder, Pan, Quirk, | | | | |Wagner, Weber | | | ----------------------------------------------------------------- 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 SB 620 Page 2 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 SB 620 Page 3 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 SB 620 Page 4 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 SB 620 Page 5 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 SB 620 Page 6 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 SB 620 Page 7 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 SB 620 Page 8 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 SB 620 Page 9 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 SB 620 Page 10 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 FN: 0001846