BILL ANALYSIS Ó
AB 1794
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Date of Hearing: April 6, 2016
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Susan Talamantes Eggman, Chair
AB 1794
(Cristina Garcia) - As Amended March 17, 2016
SUBJECT: Central Basin Municipal Water District.
SUMMARY: Establishes, in Municipal Water District Law, a
governance structure for the Central Basin Municipal Water
District Board of Directors. Specifically, this bill:
1)Establishes, in Municipal Water District Law, a governance
structure for the Board of Directors (Board) of the Central
Basin Municipal Water District (District) and requires the
Board to establish a Technical Advisory Committee.
2)Requires the Board to be composed of seven (7) directors, as
follows:
a) Four (4) directors elected by division by the voters of
that division. Requires each director to be a resident of
the division he or she is elected from; and,
b) Three (3) directors appointed by the water purveyors of
the District, pursuant to the appointment process described
in 5), below.
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3)Establishes an interim governance structure for the Board
until the directors elected, pursuant to 2), a), above, at the
November 6, 2018 election take office. Requires the Board to
be composed of eight (8) directors, as follows:
a) Five (5) directors in accordance with the Municipal
Water District Law which requires each of the five
directors to be a resident from the division which they are
elected from; and
b) Three (3) directors appointed by the water purveyors of
the District, pursuant to the appointment process described
in 5), below.
4)Requires the Board to divide the District into four divisions
to equalize, as nearly as practicable, the population into
respective divisions, pursuant to the process established in
Municipal Water District Law and the Elections Code.
5)Establishes an appointment process for the three (3) directors
appointed by water purveyors every four years, as follows:
a) One (1) director selected by large water purveyors from
the nominees of large water purveyors. Requires each water
purveyor to have one vote. Terminates the term of an
appointed director if the director is no longer employed by
or a representative of a large water purveyor.
b) One (1) director selected by cities that are water
purveyors of the District from the nominees of cities.
Requires each city to have one vote. Terminates the term
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of an appointed director if the director is no longer
employed by or a representative of a city.
c) One (1) director selected by all water purveyors of the
District from any nominee. Establishes a weighted vote for
each purveyor to reflect their number of service
connections. Terminates the term of an appointed director
if the director is no longer employed by or a
representative of a water purveyor.
6)Requires the District's executive director to notify each
water purveyor and provide a 60-day period to accept
nominations for appointments to the Board.
7)Requires each nominee that receives the highest number of
votes cast for each director as described pursuant to 5),
above, to be appointed to the Board and to take office
pursuant to existing law which requires an appointed director
to qualify and serve in office exactly as
if elected at a general district election. Requires the
District to collect the votes and report the results to the
water purveyors. Provides that the votes for an appointed
director are public records.
8)Requires individuals nominated for an appointment to the Board
to demonstrate eligibility and relevant technical expertise,
and requires each appointed director to live or work within
the District.
9)Requires, in order to ensure continuity of knowledge,
directors appointed at the first purveyor selection to
classify themselves by lot, as follows:
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a) Requires two directors to hold office until the
selection of their successors at the first succeeding
purveyor selection; and,
b) Requires one director to hold office until the selection
of their successor at the second succeeding purveyor
selection.
10)Prohibits an appointed director from holding elected office
or from being a president, vice president, chief financial
officer, or shareholder of a private company that purchases
water from the District.
11)Requires a vacancy for an appointed director to be filled in
accordance with the selection process described in 5), above.
12)Requires the District to establish a Technical Advisory
Committee composed of representatives of five (5) water
purveyors selected by December 31, 2016, and every two-years
thereafter, as follows:
a) One (1) position selected by large water purveyors from
nominated large water purveyors. Provides each large water
purveyor with one vote.
b) One (1) position selected by cities that are water
purveyors of the District from nominated cities. Provides
each city with one vote.
c) Three (3) positions selected by all water purveyors of
the District from nominated water purveyors. Provides each
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water purveyor with a weighted vote to reflect their number
of service connections.
13)Requires the District's executive director to notify each
water purveyor and provide a 60-day period for the District to
accept nominations for appointments to the Technical Advisory
Committee.
14)Requires each nominee that receives the highest number of
votes cast for each position as described, pursuant to 12),
above, to be appointed to the Technical Advisory Committee.
Requires the District to collect the votes and report the
results to the water purveyors. Provides that the votes for a
position on the Technical Advisory Committee are public
records.
15)Requires, in composing the Technical Advisory Committee, a
person and an alternate from each water purveyor selected to a
position, pursuant to 12), above, to serve on the Technical
Advisory Committee.
16)Authorizes a water purveyor to change their appointed
position or alternate on the Technical Advisory Committee at
any time.
17)Requires those selected to serve on the Technical Advisory
Committee to demonstrate eligibility and relevant technical
expertise.
18)Prohibits a person selected to represent a water purveyor on
the Technical Advisory Committee from being a president, vice
president, chief financial officer, or shareholder of a
private company that purchases water from the District.
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19)Prohibits a water purveyor from holding more than one seat on
the Technical Advisory Committee or from serving on the
Technical Advisory Committee if the water purveyor has an
individual employed by or representing them on the Board.
20)Requires the Technical Advisory Committee to meet on a
quarterly basis for the following purposes:
a) To review the District's budget and projects for the
purpose of providing nonbinding advice to the District's
general manager;
b) To review and approve proposed changes to the
administrative code relating to ethics, director
compensation, and benefits; and,
c) To review and approve proposed changes relating to
procurement.
21)Prohibits the Board from voting on a proposed change
described in 20) b), or c), above, until the Technical
Advisory Committee approves the change by a majority vote.
22)Defines the following terms:
a) "District" to mean the Central Basin Municipal Water
District; and,
b) "Large Water Purveyor" to mean one of the top five
purveyors of water as measured by the total purchase of
water from the District for the three prior fiscal years.
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23)Provides that, if the Commission on State Mandates determines
that this bill contains costs mandated by the state,
reimbursement to local agencies and school districts for those
costs shall be made, pursuant to current law governing state
mandated local costs.
EXISTING LAW:
1)Establishes the Municipal Water District Law, which governs
the formation, internal organization, and elections for
municipal water districts.
2)Requires a municipal water district board of directors to
consist of five members elected by the voters in each of the
five divisions of the district. Requires that each director
elected is a resident of that division.
3)Requires directors to be elected at general district
elections, which means the election of directors held in each
even-numbered year at the time of the general election.
FISCAL EFFECT: This bill is keyed fiscal.
COMMENTS:
1)Central Basin Municipal Water District. The District was
formed in 1952 by the voters, pursuant to the Municipal Water
District Act of 1911 to help mitigate the overpumping of
groundwater in southeast Los Angeles County. The District is
a member agency of Metropolitan Water District of Southern
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California (Metropolitan) and purchases imported water from
Metropolitan to wholesale to 40 retail water agencies and one
wholesaler, which includes cities, water districts, mutual
water companies, investor-owned utilities, and private
companies. A smaller source of the District's incoming
revenue is from the sale of recycled water for municipal,
commercial, and industrial use. The District serves nearly
two million people in 24 cities in southeast Los Angeles
County and in some unincorporated areas of the County.
The District is governed by a five-member Board with each
director representing a division within the District. Voters
within each division elect a director to a four-year term.
There are no term limits for the Board as some directors are
currently serving their fourth and fifth terms on the Board.
Directors in three of the five divisions are up for election
in November of 2016.
The District has been under increased scrutiny as news reports
have highlighted the District's misuse of public funds,
inappropriate contracting and employment practices, and
several lawsuits. In June of 2014, the Los Angeles County
Board of Supervisors directed the County Chief Executive
Office, County Counsel, and Department of Public Works to
consult with the District to ensure all necessary steps were
being taken to address and correct their ongoing problems,
investigate options to ensure continued water availability and
service to the District's customers, and report back to the
Board of Supervisors with findings and recommendations. While
the report contained a section discussing the transfer of
ownership of the District to another entity and the
dissolution process outlined in current law, the ultimate
recommendation to the Board of Supervisors was to request a
comprehensive audit of the District by the California State
Auditor.
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2)Audit Findings. In December 2015, the Bureau of State Audits
(BSA) issued a report that identified several key findings: 1)
the Board has failed to provide the leadership necessary for
the District to fulfill its responsibilities; 2) a lack of
policies to safeguard the District's long-term financial
viability; 3) the District's debt coverage ratio is
insufficient and the District's credit rating has been
downgraded several times; 4) the Board's actions caused the
District to lose its insurance coverage; 5) the Board violated
state law in 2010 when it approved the establishment of a
legal trust fund without adequate public disclosure; 6) the
District frequently inappropriately avoided its competitive
bidding processes while awarding contracts to vendors; 7) the
District spent thousands of dollars on purposes unrelated to
its underlying authority; and, 8) the District failed to
follow its policies for hiring employees and failed to ensure
stability in its key executive management position. To
address these findings the audit made numerous recommendations
most of which do not require legislation. Additionally, the
audit included an addendum report from the District which
includes actions to put in place many of the recommendations
contained in the audit.
The audit only includes one recommendation that requires
legislation: "To ensure the efficient and effective delivery
of imported and recycled water in southeastern Los Angeles
County, the Legislature should pass special legislation to
preserve the district as an independent entity but modify the
District's governance structure. In doing so, the Legislature
should consider a governance structure that ensures the
District remains accountable to those it serves, for example,
by changing the District's board from one elected by the
public at large to one appointed by the District's customers."
3)Bill Summary. This bill builds upon the recommendation of the
BSA audit and establishes a new governance structure for the
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District's Board. This bill requires a seven-member Board:
four directors elected by residents within their divisions,
and three directors appointed by water purveyors of the
District. Prior to the November 8, 2018 election, this bill
adds an additional three appointed seats to the existing
five-member elected Board. Under this bill, the District must
change the division boundaries to establish four divisions
instead of the existing five divisions for the elected
positions.
This bill establishes an appointment process for the three
directors and requires that one director is appointed by large
water purveyors, one director is appointed by cities that are
water purveyors and one director is appointed by all water
purveyors. The three appointed directors must have technical
expertise, be employed by or be a representative of their
respective purveyor category, and live or work within the
District. This bill prohibits the appointed directors and
members of the Technical Advisory Committee from holding
office or from being a president, vice president, chief
financial officer, or shareholder of a private company that
purchases water from the District.
Additionally, this bill requires the Board to establish a
Technical Advisory Committee and specifies its composition and
purpose. The Technical Advisory Committee will be composed of
representatives of five water purveyors within the District.
The appointment process, similar to the Board, is separated
into three categories, one position selected by large water
purveyors, one position selected by cities, and three
positions selected by all water purveyors. The Technical
Advisory Committee must review the District's budget and
review and approve proposed changes relating to procurement
and to the administrative code relating to ethics, director
compensation, and benefits. This bill prohibits the Board
from making any proposed changes to those issues in the
administrative code or to procurement without the Technical
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Advisory Committee first approving the change by a majority
vote. This bill is author-sponsored.
4)Author's Statement. According to the author, "In the last
decade, [the District] has lost credibility with the
communities it serves, as it battled other water agencies in
its region and its directors' actions were questioned. An
auditor report from 2015 highlights the problems of leadership
and ethics within the Board that governs the District. While
Central Basin has responsibilities to respond to the auditor
report over the next year, permanent changes in governance are
needed for real long-term reform. One of the biggest
conclusions of the auditor is that the change in governance
needs [to] make the Central Basin . . . more accountable to
its direct customers, the purveyors of the [District].
"The California Auditor report detailed a number of poor or
unethical practices that occurred between July 2010 and June
2015 within the [District]. A lack of leadership on key
decisions has led to the District having issues meeting its
responsibilities. High turn-over in the positions of general
manager and finance director helped lead to a lack of
strategic planning and two credit rating downgrades. The
District hired unqualified staff, which lead to legal suits,
and had poor management of contracts. The District made 134
amendments to 65 contracts, which increased the cost from 14
million dollars to 30 million dollars. Many of the board
members lacked technical expertise and the benefits given to
board members were too generous. Members also created a legal
trust fund containing $2.75 million without adequate public
disclosure and did not ensure these monies were spent
properly. The District now ends up paying more for general
liability and employment practices liability insurance
coverage.
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"While the District has made strides to address the questions
raised by the auditor report, it is important to have a
governance structure that will protect consumers moving
forward. In order to increase accountability a new governance
structure is needed that balances input from the purveyors,
who are the direct customers, with input from the public
through elections. AB 1794 creates a new governance structure
to ensure that the [District] will effectively fulfill its
responsibilities moving forward. The strategies that will be
implemented by this bill reflect the input from working groups
with the purveyors led by an independent auditor. In
combination these two major changes will provide the mix of
oversight, expertise, and accountability to protect the more
than two million people served by Central Basin."
5)Related Legislation. SB 953 (Lara), pending in the Senate
Governance and Finance Committee, also establishes a
governance structure for the District. SB 953 establishes a
seven-member Board composed of five directors elected pursuant
to the Municipal Water District Law and two directors
appointed by the Local Angeles County Board of Supervisors in
a public meeting. The two appointed directors must reside
within the boundaries of the District and have knowledge of
the water industry and familiarity with the role and
responsibilities of a municipal water district. SB 953 also
contains language pertaining to the contracting practices of
the District and prohibits funds from being provided to the
Board for community outreach activities.
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6)Policy Considerations. The Committee may wish to ask the
author to consider the following:
a) Eligibility Requirements for Appointed Positions. This
bill defines "large water purveyor," but does not include a
definition for "water purveyor". The Committee may wish to
ask the author to define this term to clarify who is
eligible to vote and serve in the appointed positions on
the Board and Technical Advisory Committee.
This bill prohibits a president, vice president, chief
financial officer, or shareholder of a private company that
purchases water from the District from being appointed to
serve on the Board and the Technical Advisory Committee.
The Committee may wish to consider if this provision
provides adequate protection to ensure that any individual
with a vested financial interest and is not held directly
accountable to the voters pursuant to an elected process
cannot serve on the Board.
b) Compensation. Under this bill, the three appointments
to the Board and five appointments to the Technical
Advisory Committee will be individuals that do not hold
elected office and are instead employed by or a
representative of a water purveyor. This bill is silent on
the issue of compensation provided to these appointed
positions. The Committee may wish to ask the author to
address the issue of compensation for these appointments by
specifying a per diem amount for appointed members of the
Board and a prohibition on compensation for the Technical
Advisory Committee positions.
c) Technical Advisory Committee. This bill does not
require the Technical Advisory Committee to review and
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approve proposed changes to hiring practices or policies
for employees including the general manager. In light of
the audit findings regarding the Board's inability to
follow its own hiring policy, the Committee may wish to ask
the author if this will be addressed in the bill.
d) Elections. Existing law requires that changes in
division boundaries do not affect the term of office of any
director. This bill requires the District to change its
divisions from five to four. Given this protection in
current law and protections provided by the Constitution
regarding changes to a current term of office, the
Committee may wish to ask the author to review the
timelines for elections and provide a more clearly defined
framework for when changes to the governance structure will
occur. Additionally, the Committee may wish to ask the
author to clarify that elections held pursuant to this bill
must be done in accordance with the Uniform District
Elections Law in the Elections Code.
e) Will a change to the governance structure be enough?
According to the BSA report, "Given the concerns we raise
in this report, a dissolution or restructuring may become
necessary in the future. Should the board not succeed in
maintaining a stable leadership team, should the district
experience additional lawsuits, or should it lose its
insurance coverage again, it will risk not being able to
operate effectively as an independent entity. However,
because of the recent progress, a complete dissolution may
be premature at this time." The Committee may wish to
consider if the internal changes made by the District,
combined with proposed changes to the governance structure,
will be enough to address the multitude of issues
identified by the audit.
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7)Amendments and Urgency. Amendments to be adopted in Committee
do the following:
a) Contain an urgency clause;
b) Make changes to the definition of "large water purveyor"
to clarify that the top five purveyors of water are
measured by the total purchase of potable and recycled
water from the District for the three prior fiscal years;
c) Replace references to the District's executive director
with the correct term general manager;
d) Specify the District's general manager shall collect the
votes and report the results to the water purveyors for the
appointed positions on the Board and on the Technical
Advisory Committee;
e) Specify the District's Board shall establish a Technical
Advisory Committee;
f) Add a co-author; and,
g) Make other technical changes.
8)Arguments in Support. Supporters argue that this bill
protects consumers and will improve the District's
effectiveness as a water wholesaler by enhancing the technical
knowledge of the Board and by encouraging the participation of
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the water retailers that are responsible for water delivery
directly to the customers.
9)Arguments in Opposition. None on file.
REGISTERED SUPPORT / OPPOSITION:
Support
California Water Association (if amended)
Central Basin Water Association
Cities of Bellflower, Lakewood, Norwalk, and Paramount
Maywood Mutual Water Company #1
Midland Park Water Trust
Montebello Land and Water Company
Opposition
None on file
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Analysis Prepared by:Misa Lennox / L. GOV. / (916) 319-3958