BILL ANALYSIS Ķ
AB 656
Page 1
Date of Hearing: April 29, 2015
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Brian Maienschein, Chair
AB 656
(Cristina Garcia) - As Introduced February 24, 2015
SUBJECT: Joint powers agreements: mutual water companies.
SUMMARY: Allows two or more mutual water companies, or two or
more mutual water companies and one or more public agencies that
operate a public water system, to enter into a joint powers
agreement for risk-pooling and the provision of technical
support, continuing education, safety engineering, and
operational and managerial advisory assistance. Specifically,
this bill:
1)Allows two or more mutual water companies, or two or more
mutual water companies and one or more public agencies that
operate a public water system, to enter into a joint powers
agreement (JPA) for risk-pooling and the provision of
technical support, continuing education, safety engineering,
and operational and managerial advisory assistance to be
provided to the members of that JPA.
2)Allows two or more mutual water companies, or two or more
mutual water companies and one or more public agencies that
operate a public water system, to form a JPA to provide
insurance by any of the following methods:
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a) Self-insurance, which may be, but is not required to be,
funded by appropriations to establish or maintain reserves
for self-insurance purposes;
b) Insurance in any insurer authorized to transact such
insurance in this state; and,
c) Insurance secured in accordance with existing law
governing surplus line brokers.
3)Allows two or more mutual water companies, or two or more
mutual water companies and one or more public agencies that
operate a public water system, to be coinsured under a master
policy and allows the total premium to be prorated among those
entities.
4)Specifies that, for the purposes of this bill, "mutual water
company" has the same meaning as the term does in existing law
governing mutual water companies.
EXISTING LAW:
1)Specifies that any corporation organized for or engaged in the
business of selling, distributing, supplying, or delivering
water for irrigation purposes or for domestic use must be
known as a mutual water company.
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2)Defines a "public water system" to mean a system for the
provision of water for human consumption through pipes or
other constructed conveyances that has 15 or more service
connections or regularly serves at least 25 individuals daily
at least 60 days out of the year. A public water system
includes the following:
a) Any collection, treatment, storage, and distribution
facilities under control of the operator of the system that
are used primarily in connection with the system;
b) Any collection or pretreatment storage facilities not
under the control of the operator that are used primarily
in connection with the system; and,
c) Any water system that treats water on behalf of one or
more public water systems for the purpose of rendering it
safe for human consumption.
3)Requires each mutual water company operating as a public water
system to, no later than December 31, 2012, submit to the
Secretary of State and the local agency formation commission
(LAFCO) a map depicting the boundaries of the property that
the company serves.
4)Requires a mutual water company that operates a public water
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system, if the LAFCO or a county department requests
information, to provide within 45 days of a request all
reasonably available, non-confidential information and
explain, in writing, why any requested information is not
reasonably available.
5)Requires a mutual water company that operates a public water
system to maintain a financial reserve fund to be used for
repairs and replacements to its water productions,
transmission and distribution facilities at a level sufficient
for continuous operation of facilities in compliance with the
federal Safe Drinking Water Act.
6)Authorizes a LAFCO to approve with or without amendment,
wholly, partially, or conditionally or disapprove the
annexation of territory served by a mutual water company
operating as a public water system to a city or special
district.
7)Authorizes a LAFCO, in conducting a service review, to include
a review of whether the agencies under review, including any
public water system, are in compliance with the California
Safe Drinking Water Act (SDWA).
8)Authorizes a LAFCO to request information, as part of a
service review, from identified public or private entities
that provide wholesale or retail supply of drinking water,
including mutual water companies and private utilities.
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9)Requires each board member of a mutual water company operating
as a public water system to complete a four-hour course
regarding the duties of board members within six months of
taking office, as specified.
10)Authorizes fines pursuant to the SDWA to be imposed on
directors of a mutual water company if the mutual water
company has received notice of a violation, as specified.
11)Establishes, pursuant to the Mutual Water Company Open
Meeting Act, increased transparency requirements for mutual
water companies that operate a public water system, and allows
mutual water companies to impose liens to collect unpaid
charges.
12)Allows, pursuant to the Joint Exercise of Powers Act (JPA
Act), two or more public agencies by agreement to jointly
exercise any power common to the contracting parties, as
specified,
if authorized by their legislative or other governing bodies.
13)Defines, for purposes of the JPA Act, public agency to mean
"the federal government or any federal department or agency,
this state, another state or any state department or agency, a
county, county board of education, county superintendent of
schools, city, public corporation, public district, regional
transportation commission of this state or another state, a
federally recognized Indian tribe, or any joint powers
authority formed pursuant to the JPA Act by any of these
agencies."
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14)Allows a mutual water company to enter into a JPA with any
public agency for the purpose of jointly exercising any power
common to the contracting parties.
15)Allows two or more local public entities, by a JPA, to
provide insurance coverage or self-insurance, or to obtain
insurance coverage by means of a reciprocal or inter-insurance
exchange. JPAs offer self-insurance coverage on a pooled
basis for a variety of purposes, including liability
(malpractice and officers and directors coverage), workers'
compensation, health insurance and property coverage.
16)Allows a nonprofit hospital corporation affiliated with a
hospital district to participate in a self-insurance pool
formed by two or more hospital districts to pool their
self-insurance claims or losses.
17)Allows two or more local public entities having the same
governing board to be coinsured under a master policy and
allows the total premium to be prorated among those entities.
18)Provides that the pooling of self-insured claims or losses
among local public entities shall not be considered insurance
nor be subject to regulation under the Insurance Code.
19)Allows any liability or loss under a JPA for the pooling of
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self-insured claims or losses to be reinsured to the same
extent and the same manner as insurance provided by an
insurer.
20)Provides that, where a JPA provides for the pooling of
self-insured claims or losses among entities, if any peril
insured or covered under contract has existed, and the JPA or
other parties to the pool have been liable for any period,
however short, the agreement may provide that the party
insured or covered under contract is not entitled to the
return of premiums, contributions, payments, or advances so
far as that particular risk is concerned.
FISCAL EFFECT: This bill is keyed fiscal.
COMMENTS:
1)Bill Summary. This bill allows two or more mutual water
companies, or two or more mutual water companies and one or
more public agencies that operate a public water system, to:
a) Form a JPA for risk-pooling and the provision of
technical support, continuing education, safety
engineering, operational and managerial advisory
assistance;
b) Form a JPA to provide insurance, as specified, and;
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c) Be coinsured under a master policy and to prorate the
total premium among themselves.
This bill is sponsored by the California Association of Mutual
Water Companies.
2)Author's Statement. According to the author, "Over 400 mutual
water companies in California were once eligible for insurance
coverage provided by the Association of California Water
Agencies Joint Powers Insurance Authority (ACWA-JPIA). This
structure afforded mutual water companies relatively
inexpensive insurance, as well as resources through ACWA that
were made possible by residuals of revenue that are exempt
from taxes, and that would have otherwise been assessed
through regular market-based insurance. Due to IRS
regulations, several years ago, the ACWA-JPIA determined that
mutual water companies were no longer eligible to participate
in ACWA-JPIA's insurance programs, and thus mutual water
companies were excluded from the coverage and benefits they
once enjoyed.
"Mutual water companies are not-for-profit public water
systems organized under the state Corporations Code. The vast
majority of mutual water companies in California are small,
with many serving less than 3,000 connections and/or less than
3,000 residents. Many mutual water companies serve
'economically disadvantaged' areas and do not have access to
low cost insurance and other services, such as those available
to special districts under ACWA-JPIA or other joint powers
agency insurance programs. Today, mutual water companies must
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purchase higher cost insurance in the open market, and many
are not provided the opportunity to easily obtain other
services that could assist them in building operational and
managerial capacity."
3)Background. Public water systems that deliver domestic water
generally fall into three categories:
a) Local agencies (cities and special districts). LAFCOs
control the cities and special districts' boundaries and
local officials are responsible to their voters for their
water rates;
b) Investor-owned public utilities. The California Public
Utilities Commission (PUC) controls the companies' service
areas and their water rates; or,
c) Mutual water companies. These private entities, formed
under statutes governing corporations, respond to their
shareholders, usually the landowners who receive water
service. Neither LAFCOs nor the PUC regulate mutual water
companies.
The State Department of Public Health and some county health
departments monitor the quality of drinking water delivered to
most households, regardless of the type of public water system
that delivers the water.
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Most mutual water companies are organized pursuant to the
General Corporation Law or the Nonprofit Mutual Benefit
Corporation Law. Shareholders in a mutual water company hold
a right to purchase water from the company. Stock in a
company is usually linked to the ownership of a parcel served
by the company and transfers with the land when the parcel is
sold to successive owners. This type of corporate structure
allows landowners to establish, essentially, a customer-owned
water provider to serve their properties.
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.
4)Joint Exercise of Powers Act. JPAs have existed in California
for nearly 100 years, and were originally created to allow
multiple local governments in a region to pool resources to
meet common needs. The Act authorizes federal, state and
local agencies to create and use a joint powers agreement,
which is a legal document that allows the contracting parties
to exercise powers that are common to all of the contracting
parties. A joint powers agreement can be administered by one
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of the contracting agencies, or it can be carried out by a
new, separate public entity called a joint powers authority
(JPA).
Joint powers agreements are an attractive tool for local
governments because they facilitate more efficient service
provision through collaboration, and they allow local entities
to issue bonds without voter ratification. Public officials
have created about 700 JPAs statewide. There are a few,
limited instances in JPA law allowing non-governmental
entities (private hospitals or tribes) to join a JPA with a
public agency partner. There are no instances of JPAs with
only private entities as members.
5)JPAs and Mutual Water Companies. Existing law allows a mutual
water company to enter into a JPA with any public agency for
the purpose of jointly exercising any power common to the
contracting parties. This authority was established by AB
2014 (Cortese), Chapter 250, Statutes of 1994. According to
the Assembly concurrence analysis, "The (bill is) sponsored by
the Association of California Water Agencies. The Association
feels this authority will facilitate arrangements among water
entities to improve the management of the state's water
resources, such as groundwater management, development of
water conservation or reclamation programs, or compliance with
water quality regulatory requirements."
At that time, the proposal was considered unusual. According
to an analysis of the bill by the Senate Committee on
Agriculture and Water, "The proposed joint powers agreements
between public and private entities appear to be without
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substantial precedent and may raise uncertain issues regarding
access to public moneys by private companies and the
applicability of open meeting laws which, in general, do not
apply to private concerns."
Nonetheless, the bill became law, and mutual water companies
have the authority to form a JPA with any public agency for
the purpose of jointly exercising any power common to the
contracting parties.
6)Insurance/Risk-Pooling, JPAs and Local Agencies. Existing law
allows two or more local public entities, by a JPA, to provide
insurance coverage or self-insurance, or to obtain insurance
coverage by means of a reciprocal or inter-insurance exchange
(risk-pooling). JPAs offer self-insurance coverage on a
pooled basis for a variety of purposes, including liability
(malpractice and officers and directors coverage), workers'
compensation, health insurance and property coverage.
The law also allows a nonprofit hospital corporation
affiliated with a hospital district to participate in a
self-insurance pool formed by two or more hospital districts
to pool their self-insurance claims or losses. In addition,
two or more local public entities having the same governing
board may be coinsured under a master policy, with the total
premium to be prorated among those entities.
Any liability or loss under a JPA for the pooling of
self-insured claims or losses can be reinsured to the same
extent and the same manner as insurance provided by an
insurer. When a JPA provides for the pooling of self-insured
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claims or losses, if any peril insured or covered under
contract has existed, and the JPA or other parties to the pool
have been liable for any period, the agreement may provide
that the party insured or covered under contract is not
entitled to the return of premiums, contributions, payments,
or advances so far as that particular risk is concerned.
Pooling of self-insured claims or losses among local public
entities is not considered insurance and is not subject to
regulation under the Insurance Code.
This bill asks for the same authority for mutual water
companies, whether or not they have a public agency partner in
their JPA. According to the sponsor, a JPA is not subject to
insurance regulations or premium taxes so it can set more
competitive premiums and offer expanded coverage. Funds that
would otherwise pay for insurance regulatory compliance and
taxes would remain as "residuals" to be used for support
services for the JPA's members.
7)Recent Legislative History: Mutual Water Companies. In
response to concerns 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 2011. AB 54 established
training requirements for mutual water districts' board
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members regarding the duties of board members, made mutual
water companies liable for specified fines and penalties for
violating the California Safe Drinking Water Act, and expanded
LAFCOs' authority to review matters related to mutual water
companies.
More recently, AB 240 (Rendon), Chapter 633, Statutes of 2013,
increased transparency requirements for mutual water companies
by enacting the Mutual Water Company Open Meeting Act. The
bill also allowed mutual water companies to impose liens to
collect unpaid charges. While the bill's requirements opened
the meetings of mutual water companies to "eligible persons,"
these requirements are far more limited than the requirements
of the Ralph M. Brown Act (Brown Act).
8)Recent Legislative History: JPAs. AB 2046 (Gomez) of 2014
would have authorized a JPA to issue bonds and enter into loan
agreements for the financing or refinancing of a private
project located outside of the state under specified
conditions, until January 1, 2021. This bill raised a number
of concerns regarding the appropriate purposes and activities
of JPAs, such as allowing the issuance of tax-exempt bonds for
private projects outside of the state, severing the
geographical nexus between a bond-issuing JPA and the
jurisdiction in which a local agency project is located, and
others. AB 2046 was held in the Senate Appropriations
Committee.
9)Policy Considerations. The Committee may wish to consider the
following:
a) Private Corporations Only. This bill allows two or more
mutual water companies to form a JPA for the purposes
outlined in the bill. There is no other provision in JPA
law allowing private corporations to form a JPA without a
public agency partner. The Committee may wish to consider
the implications of this precedent.
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b) Access to Public Agency Benefits. This bill seeks to
grant mutual water companies the authority to form a JPA
without any public agency partner. If mutual water
companies want the benefits of JPA status, which
historically have been reserved for public agencies, the
Committee may wish to consider applying public agency
transparency and accountability laws - such as the Brown
Act, the Public Records Act, conflict-of-interest
requirements pursuant to Government Code 1090 et al., and
the Political Reform Act, including Form 700 filing
requirements - to mutual water companies that seek to
exercise this bill's authority.
c) Broad Purposes of the JPA. This bill allows mutual
water companies to form a JPA to provide risk-pooling and
technical support, continuing education, safety
engineering, and operational and managerial advisory
assistance to the members of that JPA (emphasis added).
These terms are not defined in the bill, and could
encompass any number of activities. The Committee may wish
to consider whether these terms should be defined, or
whether the bill should be narrowed to risk-pooling only.
d) Insurance Services. This bill allows mutual water
companies to get into the business
of insurance, without regulation under the Insurance Code.
The Committee may wish to consider whether this is an
appropriate activity for mutual water companies.
e) Necessity. Existing law allows mutual water companies
to form a JPA with any public agency for the purpose of
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jointly exercising any power common to the contracting
parties. It is not clear that this authority is
insufficient to allow mutual water companies to achieve the
purposes of this bill. In addition, as private
corporations, mutual water companies can already join
together and pool their resources and expertise to effect
whatever legal purposes they devise. The Committee may
wish to ask the author to explain why current law is
deficient.
10)Related Legislation. AB 1077 (Holden), pending in this
Committee, makes a number of changes to the Mutual Water
Company Open Meeting Act.
AB 617 (Perea), pending in the Assembly Water, Parks and
Wildlife Committee, modifies portions of last year's
Sustainable Groundwater Management Act (SGMA), including,
among other things, provisions that allow mutual water
companies to join Groundwater Sustainability Agencies (GSA)
formed by one or more public agencies pursuant to a JPA, and
to exercise all of the GSA powers provided by SGMA.
11)Arguments in Support. The California Association of Mutual
Water Companies, the sponsor of this measure, states, "Under
the proposed legislation?the liability protection product
would not be considered 'insurance' and, thus, would not be
subject to taxation. The residuals from sales of that product
would then revert to the (JPA) to be put to use in providing
management, technical and operational assistance, including
grant writing, legal compliance and financial management
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training, to the participating mutual water companies. While
we are grateful for greater levels of public aid for small
water systems that have been provided recently, this is a
novel measure that will further help mutual water companies
use our own resources to help each other."
12)Arguments in Opposition. None on file.
REGISTERED SUPPORT / OPPOSITION:
Support
California Association of Mutual Water Companies [SPONSOR]
Amarillo Mutual Water Company
Atascadero Mutual Water Company
Bellflower-Somerset Mutual Water Company
Canyon Crest Mutual Benefit Water Company
California Domestic Water Company
California State Firefighters' Association
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Covina Irrigating Company
DiBuduo & DeFendis Insurance Brokers, LLC
5th Avenue Insurance Services
Fluetsch & Busby Insurance
Glenhaven Mutual Water Company
Green Acres Mutual Water Company
Green Valley Mutual Water Company
Insurance Solutions from A to Z
Lakeview Mutual Water Company
Lincoln Avenue Water Company
Maywood Mutual Water Company #1
Maywood Mutual Water Company #2
Midway City Mutual
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Montebello Land & Water Company
Oildale Mutual Water Company
Murphy Slough Association
Raineri Mutual Water Company
Rancho Pauma Mutual Water Company
Reed Ditch Company
Rocky Comfort Mutual Water Company
Rubio Caņon Land and Water Association
San Antonio Water Company
San Gabriel Valley Water Association
Shaver Lake Point #2 Mutual Water Company
South Mesa Water Company
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Support (continued)
Strawberry Tract Mutual Water Company
Sundale Mutual Water Company
SunnySlope Water
The Farm Mutual Water Company
Tucker Acres Water Company
Valencia Heights Water Company
Valley Ag Water Coalition
Valley Water Company
Vinsa Insurance Associates
Walnut Valley Water District
Windflower Point Mutual Water Company
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Wutchumna Water Company
Opposition
None on file
Analysis Prepared by:Angela Mapp / L. GOV. / (916) 319-3958