BILL ANALYSIS Ķ
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |AB 1794 |Hearing |6/22/16 |
| | |Date: | |
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|Author: |Cristina Garcia |Tax Levy: |No |
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|Version: |6/9/16 |Fiscal: |Yes |
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|Consultant|Weinberger |
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Central Basin Municipal Water District
Adds appointed directors to the Central Basin Municipal Water
District's governing board and creates a technical advisory
committee to perform specified functions for the District.
Background
The Central Basin Municipal Water District (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, investorowned
utilities, and private companies within the districts
boundaries. Those water retailers in turn provide water to
residents and businesses within their respective service areas.
CBMWD serves a population of more than two million people living
in 24 cities and some unincorporated areas within the district's
approximately 227 square mile service area. The five members of
CBMWD's board of directors are each elected by voters residing
in one of five divisions within the district's boundaries.
An audit report issued in December of 2015 by the Bureau of
State Audits identified numerous concerns with various aspects
of CBMWD's operations, including deficiencies in the district's
contracting practices, a pattern of expenditures that may have
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constituted gifts of public funds, and inadequate leadership by
the board of directors. Specifically, the audit report found
that:
CBMWD often inappropriately circumvented its competitive
bidding processes when it awarded contracts to vendors
during the period that was audited. In support of this
finding, the audit report noted that the district did not
use competitive bidding for 13 of the 20 contracts reviewed
by auditors and did not adequately justify why it failed to
competitively bid for 11 of those 13 sole source contracts.
CBMWD spent thousands of dollars of district money on
purposes unrelated to its underlying authority, some of
which likely constitute gifts of public funds. For
example, the audit report noted that CBMWD provided
thousands of dollars in community outreach funds to each
board member annually, which various board members had the
district donate on their behalf to golf tournaments, a
legislator's breakfast panel, religious organizations, high
school sports programs, pageants, and car shows.
The board of director's poor leadership 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.
Proposed Law
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Assembly Bill 1794 adds appointed directors to CBMWD's governing
board and creates a technical advisory committee to perform
specified functions for the District.
Governing Board Structure. Assembly Bill 1794 requires that,
when the CBWMD directors elected at the November 6, 2018
election take office, CBWMD's board of directors must be
composed of seven directors as follows:
Four directors must be elected by the voters in each of
four divisions established by CBWMD's board pursuant to
specified requirements. Each director must be a resident of
the division from which he or she is elected and the
election must be in accordance with the Uniform District
Election Law.
Three directors must be appointed by the water purveyors
of the district, as specified.
Until the directors elected at the November 6, 2018 election
take office, AB 1794 requires CBMWD's board of directors to be
composed of eight directors, with five directors elected in
accordance with the statute establishing the board's current
structure, and three directors appointed by the water purveyors
of the district, as specified.
AB 1794 requires CBWMD to be subject to a specified statute in
the Political Reform Act imposing limits on, and requiring
disclosure of, contributions to public officials.
Appointed Directors. AB 1794 establishes the process by which
water purveyors must appoint and select three directors to serve
four-year terms on CBMWD's board and specifies that:
One director must be selected by all large water
purveyors, as defined, from the nominees of large water
purveyors. Each large water purveyor must have one vote.
One director must be selected by all cities that are
water purveyors of the district from the nominees of
cities. Each city must have one vote.
One director must be selected by all of the water
purveyors of the district from any nominee. The vote of
each purveyor must be weighted to reflect the number of
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service connections of that water purveyor within the
district.
AB 1794 prohibits the appointment of directors from resulting in
any of the following:
The appointment of three directors that are all employed
by or representatives of entities that are all large water
purveyors.
The appointment of three directors that are all employed
by or representatives of entities that are all cities.
The appointment of three directors that are all employed
by or representatives of entities that are all small water
purveyors.
The bill requires that if the selection process for directors
would result in a violation of any of these prohibited outcomes,
the first eligible candidate receiving the next highest number
of votes must be selected.
AB 1794 specifies the manner in which CBMWD must stagger the
term served by appointed directors.
AB 1794 requires that an appointed director's term is terminated
if the appointed director is no longer employed by, or a
representative of, a water purveyor or city, as specified. The
bill specifies the manner in which a vacancy in an office of
appointed director must be filled.
AB 1794 requires that appointed directors must:
Live or work within CBMWD's boundaries.
Not hold an elected office.
Not hold more than 0.5% ownership in a company regulated
by the Public Utilities Commission.
Be subject to all applicable conflict-of-interest and
ethics provisions and to recuse himself or herself from
participating in a decision that could have a direct
material benefit on the financial interests of the
director.
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AB 1794 requires that an appointed director must be eligible for
specified reimbursement, compensation, and benefits, and allows
an appointed director to waive these sources of reimbursement
and compensation subject to specified conditions.
AB 1794 prohibits an appointed director from receiving
communication or car allowances, with a specified exception.
Technical Oversight Committee. AB 1794 requires CBWMD's board
of directors to establish a technical oversight committee
composed of the representatives of five water purveyors selected
before December 31, 2016, and every two years thereafter, as
follows:
One position must be selected by the large water
purveyors from nominated large water purveyors, each large
water purveyor having one vote.
One position must be selected by the cities that are
water purveyors of the district from nominated cities, each
city having one vote.
One position must be selected by the small water
purveyors from nominated small water purveyors, each small
water purveyor having one vote.
Two positions must be selected by all water purveyors of
the district from nominated water purveyors with the vote
of each purveyor weighted to reflect the number of service
connections of that water purveyor.
AB 1794 establishes the process by which water purveyors are
nominated and selected to each position on the technical
oversight committee. AB 1794 requires that a person and an
alternate from each water purveyor selected to a position must
serve on the technical oversight committee and allows a purveyor
to change the person or alternate who serves on the technical
oversight committee at any time. Those selected must
demonstrate eligibility and relevant technical expertise, as
defined.
AB 1794 prohibits a water purveyor that has an individual
employed by or representing that water purveyor on the board of
directors from being eligible to serve on the technical
oversight committee. A water purveyor cannot hold more than one
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technical oversight committee seat.
AB 1794 prohibits a member of the technical oversight committee
from owning more than 1% of a company regulated by the Public
Utilities Commission.
AB 1794 requires a member of the technical oversight committee
to be subject to all applicable conflict-of-interest and ethics
provisions and to recuse himself or herself from participating
in a decision that could have a direct material benefit on the
financial interests of the member.
AB 1794 allows a member of the technical oversight committee to
request reimbursement from the district for actual, necessary,
and reasonable expenses incurred in furtherance of his or her
duties on the technical oversight committee. The bill limits
reimbursements to no more than $500 during a 12-month time
period.
AB 1794 requires the technical oversight committee to meet on at
least a quarterly basis to:
Review the district's budget and projects for the
purpose of providing nonbinding advice to the district's
general manager and the board of directors.
Review and approve proposed changes to the
administrative code relating to ethics, director
compensation, and benefits.
Review and approve proposed changes relating to
procurement.
Before CBMWD's board of directors votes on any administrative
code changes relating to ethics, director compensation, and
benefits or changes relating to procurement, AB 1794 requires
the technical oversight committee to approve those changes by a
majority vote.
AB 1794 defines several terms that appear in the bill's
provisions.
State Revenue Impact
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No estimate.
Comments
1. Purpose of the bill . AB 1794 implements a recommendation made
in the audit report published by the Bureau of State Audits last
year to improve CBMWD's governance. Specifically, the bill
implements the auditor's recommendation for legislation to
change the membership of CBMWD's governing board. By requiring
the board to include three additional appointed members and
establishing an independent technical oversight committee, AB
1794 adds independent participants to the CBMWD's policymaking
process, allows CBMWD's board to draw upon more technical
expertise, and makes the board more representative and
accountable to a broader range of stakeholders. By requiring
the technical oversight committee to approve changes to CBMD's
ethics, compensation, and benefits policies, AB 1794 makes it
less likely that the district will continue some of the
compensation and spending practices that were criticized in last
year's audit report. The changes AB 1794 makes to state law
will promote public transparency, sound fiscal management, and
improved governance at CBMWD, benefitting the more than 2
million people served by the District.
2. Finding the right balance . AB 1794 adds three new appointed
members to CBMWD's governing board, representing different
categories of water purveyors served by the District. By making
water purveyors responsible for appointing the three new
district board members, the bill ensures that the appointees
will bring some independent perspectives and technical expertise
to CBMWD's board. However, because some water purveyors are
private companies or investor-owned utilities, AB 1794 gives
those purveyors, and the investors who hold them accountable, an
expanded role in the governance of a public agency. The bill
also reduces the number of board seats held by directors who are
elected by voters who reside within the district, which has the
effect of diluting voters' representation on CBMWD's board.
While the water purveyors are most directly affected by CBMWD's
actions, all water consumers within the district's service area
have an interest in ensuring that the district is well-managed
and performing its intended purpose. It is unclear whether AB
1794 strike the right balance between adding new perspectives to
CBMWD's governance without unnecessarily diluting its
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responsiveness to district voters.
3. Special legislation . The California Constitution prohibits
special legislation when a general law can apply (Article IV,
§16). Typically, when a bill's provisions apply only to a
single special district, it would include findings and
declarations to explain the need for the special legislation.
To comply with the Constitution's special legislation
provisions, the Committee may wish to consider amending AB 1794
to add findings and declarations relating to the need for a bill
that applies only to CBMWD.
4. Mandate . The California Constitution requires the state to
reimburse local governments for the costs of new or expanded
state mandated local programs. Because AB 1794 imposes
additional duties on CBMWD, Legislative Counsel says that it
imposes a new state mandate. AB 1794 requires the state to
reimburse local agencies if the Commission on State Mandates
determines that the bill imposes a reimbursable mandate.
5. Urgency . Regular statutes take effect on January 1
following their enactment; bills passed in 2014 take effect on
January 1, 2015. The California Constitution allows bills with
urgency clauses to take effect immediately if they're needed for
the public peace, health, and safety. AB 1794 contains an
urgency clause declaring that it is necessary for its provisions
to go into effect immediately to ensure that the bill's
provisions take effect before the November 8, 2016, election for
the board of directors of the Central Basin Municipal Water
District.
6. Related legislation . Earlier this year, the Senate
Governance & Finance Committee voted 5-1 to approve SB 953
(Lara), which proposes different changes to the membership of
the Central Basin Municipal Water District's board of directors
and imposes restrictions on the district's use of sole source
contracts. SB 953 is set for a hearing on June 29, 2016 in the
Assembly Local Government Committee.
Assembly Actions
Assembly Local Government Committee: 8-0
Assembly Appropriations Committee:20-0
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Assembly Floor: 78-0
Support and
Opposition (6/16/16)
Support : California Association of Mutual Water Companies;
California Domestic Water Company; California Water Association;
Central Basin Municipal Water District; Central Basin Water
Association; Cities of Bellflower, Lakewood, Norwalk, Paramount,
Pico Water District; Maywood Mutual Water Company; Midland Park
Water Trust; Montebello Land and Water Company; Rubio Caņon Land
and Water Association; South Mesa Water Company;.
Opposition : Unknown.
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