BILL ANALYSIS Ó
AB 1794
Page 1
ASSEMBLY THIRD READING
AB
1794 (Cristina Garcia)
As Amended April 11, 2016
2/3 vote. Urgency
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|Committee |Votes|Ayes |Noes |
| | | | |
| | | | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Local |8-0 |Eggman, Waldron, | |
|Government | |Mullin, Chiu, Cooley, | |
| | |Beth Gaines, Gordon, | |
| | |Linder | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Appropriations |20-0 |Gonzalez, Bigelow, | |
| | |Bloom, Bonilla, | |
| | |Bonta, Calderon, | |
| | |Chang, Daly, Eggman, | |
| | |Gallagher, Eduardo | |
| | |Garcia, Roger | |
| | |Hernández, Holden, | |
| | |Jones, Obernolte, | |
| | |Quirk, Santiago, | |
| | |Wagner, Weber, Wood | |
| | | | |
| | | | |
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AB 1794
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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 directors, as
follows:
a) Four 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 directors appointed by the water purveyors of the
District, pursuant to the appointment process described in
5) below.
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 directors, as follows:
a) Five 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 directors appointed by the water purveyors of the
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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 directors
appointed by water purveyors every four years, as follows:
a) One 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 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 of an appointed
director if the director is no longer employed by or a
representative of a city.
c) One 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 general manager (general manager) to
notify each water purveyor and provide a 60-day period to
accept nominations for appointments to the Board.
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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 general manager 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:
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
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accordance with the selection process described in 5) above.
12)Requires the Board to establish a Technical Advisory
Committee composed of representatives of five water purveyors
selected by December 31, 2016, and every two-years thereafter,
as follows:
a) One position selected by large water purveyors from
nominated large water purveyors. Provides each large water
purveyor with one vote.
b) One position selected by cities that are water purveyors
of the District from nominated cities. Provides each city
with one vote.
c) Three positions selected by all water purveyors of the
District from nominated water purveyors. Provides each
water purveyor with a weighted vote to reflect their number
of service connections.
13)Requires the general manager 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 general manager 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
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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.
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 general
manager;
b) To review and approve proposed changes to the
administrative code relating to ethics, director
compensation, and benefits; and,
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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 "Large Water Purveyor" to mean one of the top five
purveyors of water as measured by the total purchase of
potable and recycled water from the District for the three
prior fiscal years.
23)Contains an urgency clause.
24)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.
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FISCAL EFFECT: According to the Assembly Appropriations
Committee:
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 regarding
what expenses incurred by the District in implementing the
bill are deemed to be subject to state reimbursement.
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
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
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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.
2)Audit Findings. In December 2015, the Bureau of State Audits
(BSA) issued a report that identified several key findings: a)
the Board has failed to provide the leadership necessary for
the District to fulfill its responsibilities; b) a lack of
policies to safeguard the District's long-term financial
viability; c) the District's debt coverage ratio is
insufficient and the District's credit rating has been
downgraded several times; d) the Board's actions caused the
District to lose its insurance coverage; e) the Board violated
state law in 2010 when it approved the establishment of a
legal trust fund without adequate public disclosure; f) the
District frequently inappropriately avoided its competitive
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bidding processes while awarding contracts to vendors; g) the
District spent thousands of dollars on purposes unrelated to
its underlying authority; and, h) 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
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
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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
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
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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.
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
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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) of the current legislative
session, pending in the Senate, 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.
6)Policy Considerations. The Legislature 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 Legislature 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.
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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 Legislature 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
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
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Legislature 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.
7)Urgency. This bill contains an urgency clause and requires a
two-thirds vote on the Assembly Floor.
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
the water retailers that are responsible for water delivery
directly to the customers.
9)Arguments in Opposition. None on file.
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Analysis Prepared by:
Misa Lennox / L. GOV. / (916) 319-3958 FN:
0003137