BILL ANALYSIS Ó AB 1794 Page 1 Date of Hearing: April 27, 2016 ASSEMBLY COMMITTEE ON APPROPRIATIONS Lorena Gonzalez, Chair AB 1794 (Cristina Garcia) - As Amended April 11, 2016 ----------------------------------------------------------------- |Policy |Local Government |Vote:|8 - 0 | |Committee: | | | | | | | | | | | | | | |-------------+-------------------------------+-----+-------------| | | | | | | | | | | | | | | | |-------------+-------------------------------+-----+-------------| | | | | | | | | | | | | | | | ----------------------------------------------------------------- Urgency: Yes State Mandated Local Program: YesReimbursable: Yes SUMMARY: This bill revises the governance structure of the Central Basin Municipal Water District (CBMWD) by specifying a seven-member board of directors comprised of four elected directors and three AB 1794 Page 2 directors appointed by water purveyors. The bill provides for an interim board structure until the permanent board, elected at the November 6, 2018 election, takes office. The bill also requires the board to establish a technical advisory committee within the CBMWD. FISCAL EFFECT: 1)One-time costs to the District in the range of $200,000 to establish the technical advisory committee and implement other requirements in the bill. 2)On-going costs to the District, likely in the range of $350,000 per year, some of which may be reimbursable by the state General Fund. Actual costs would depend upon a determination by the Commission on State Mandates (Commission) regarding what expenses incurred by CBMWD in implementing the bill are deemed to be subject to state reimbursement. COMMENTS: 1)Purpose. 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, AB 1794 Page 3 the purveyors of the [District]." This bill implements changes to the District's governance structure recommended by the audit. 2)Central Basin Municipal Water District. Existing law, the Municipal Water District Law of 1911, governs the formation, internal organization, and elections for municipal water districts. That law requires the board of directors of a municipal water district to consist of five members elected by voters in each of five divisions of the district, and requires each board member to be a resident of the division that he or she represents. Existing law requires board members to receive compensation of up to $100 per day, up to six days per month, for attendance at board meetings or other service rendered as a board member, plus expenses incurred in the performance of official duties. Municipal water districts have the authority to fix rates at which water is sold, as specified, to cover operating expenses, repairs and maintenance, improvements, and principal and interest on debt payments. The CBMWD was established by voters in 1952 to help mitigate groundwater overpumping in southeast Los Angeles County. CBMWD purchases imported water from the Metropolitan Water District of Southern California for sale to retail water suppliers, including cities, other water districts, mutual water companies, investor-owned utilities, and private companies within the district's boundaries. Those water retailers in turn provide water to residents and businesses within their respective service areas. CBMWD serves a population of more than 2 million people living in 24 cities and some unincorporated areas within the district's approximately 227 square mile service area. An audit report issued in December of 2015 by the Bureau of State Audits (BSA) identified numerous concerns with various AB 1794 Page 4 aspects of CBMWD's operations, including deficiencies in the district's contracting practices, a pattern of expenditures that may have constituted gifts of public funds, and inadequate leadership by the board of directors. Among other issues, the audit report found that: "Poor leadership by the board of directors has impeded CBMWD's ability to effectively meet its responsibilities. In support of this finding, the audit report cited the board's failure to provide stability in the district's general manager position, lack of essential policies necessary to safeguard the district's long-term financial viability, inability to maintain the district's insurance coverage, and failure to disclose the district's establishment of a legal trust fund and transfers of money into the trust fund." All but one of the more than two dozen recommendations contained in the audit report are the CBMWD's responsibility to implement. However, one recommendation in the audit report is directed to the Legislature. Specifically, the audit report suggests a change in state law that would preserve the district as an independent entity but modify the district's governance structure to ensure that the district remains accountable to those it serves. 3)Related Legislation. SB 953 (Lara), pending on the Suspense file in the Senate Appropriations Committee, would add two appointed members to the Central Basin Municipal Water District's (CBMWD's) board of directors, prohibit the use of district funds for board members to conduct community outreach, and make specified changes to CBMWD's contracting practices. AB 1794 Page 5 Analysis Prepared by:Jennifer Swenson / APPR. / (916) 319-2081