BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 1794 (Cristina Garcia) - Central Basin Municipal Water
District
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|Version: June 9, 2016 |Policy Vote: GOV. & F. 5 - 1 |
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|Urgency: Yes |Mandate: Yes |
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|Hearing Date: August 1, 2016 |Consultant: Mark McKenzie |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: AB 1794, an urgency measure, would revise the
composition of the Central Basin Water District's (CBMWD's)
board of directors, as specified, and establish a technical
oversight committee (TOC), comprised of five water purveyors,
that would review and approve certain CBMWD actions.
Fiscal
Impact: Unknown local costs, some of which may be reimbursable
by the state General Fund. Potentially reimbursable costs may
be in the hundreds of thousands annually. 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. See staff comments for a discussion of
potentially reimbursable costs.
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Background: 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
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. 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. The BSA 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
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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.
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.
Proposed Law:
AB 1794 would make changes regarding the composition of
CBMWD's board of directors. Specifically, this bill would:
Require the board of directors to be composed of eight
directors until the November 8, 2018 election by adding
three directors appointed by water purveyors to the
existing five-member elected board, as specified.
Require the board of directors to undergo a process to
divide the district into four divisions (rather than the
current five divisions) that equalizes the populations for
purposes of future board member elections.
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Require the board of directors to be composed of seven
directors after the November 8, 2018 election, composed of
four elected directors and three directors appointed by
water purveyors, as specified.
Specify a process by which water purveyors appoint and
select three directors to serve four-year terms on the
CBMWD board. One director would be selected by large water
purveyors from nominees selected by those purveyors, one
would be selected by all cities that are water purveyors
from nominees by those cities, and one would be selected by
all CBMWD water purveyors from any nominee.
Specify eligibility criteria and other requirements for
appointed directors.
Require that appointed directors are eligible for: (1)
reimbursement for travel and conference expenses; (2) per
diem compensation for up to 10 meetings per month; and
health insurance benefits, if they are not already provided
by the director's employer. An appointed director may
waive reimbursement and compensation, and may be required
to reimburse his or her employer for compensation received.
AB 1794 also requires the CBMWD board of directors to establish
a TOC composed of the representatives of five water purveyors
selected before December 31, 2016, and every two years
thereafter, as specified. One position must be selected by
large water purveyors, one must be selected by cities that are
water purveyors, one must be selected by small water purveyors,
and two must be selected by all water purveyors. The bill
specifies eligibility and other requirements for members of the
TOC, and authorizes those members to request reimbursement for
actual and necessary expenses incurred for TOC duties, up to
$500 per year. AB 1794 also requires the TOC to meet at least
quarterly for the following purposes: (1) to review the
district's budget and projects to provide nonbinding advice to
the general manager and board of directors; (2) review and
approve changes to the administrative code of ethics, director
compensation, and benefits; and (2) review and approve proposed
changes related to procurement.
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Related
Legislation: SB 953 (Lara), which is currently pending in the
Assembly Appropriations Committee, would add two appointed
members to the 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.
Staff
Comments: AB 1794 would impose new duties and costs on the
CBMWD by revising the composition of the board of directors and
expanding board membership, and requiring the board to establish
a TOC, as specified.
Board of directors: This bill would expand the size of CBMWD's
board of directors from five to eight members on a temporary
basis, and to seven members on a permanent basis, as specified.
The CBMWD indicates that it could incur the following annual
expenses related to each new board member: $27,960 in per diem
compensation, $24,000 in health benefits, and $7,000 in
conference and travel expenses. CBMWD also notes, however, that
the bill provides for waivers or reductions of allowable
reimbursements and benefits, which could substantially reduce
those expenses. Staff notes that current law only requires
board member compensation of up to $100 per day for a maximum of
six days per month ($7,200 per year), plus reimbursement of
expenses incurred in the performance of official duties; any
other compensation is provided at the discretion of the board.
The BSA audit report noted that some of the benefits provided to
board members, such as full health benefits and a substantial
automobile allowance, may be overly generous considering board
members essentially work part time. The CBMWD also estimates
that the additional board members may also drive indirect costs
of $50,000 per director for district staff and general counsel
services. Since most of the board member compensation costs
cited by the district are discretionary, except per diem and
reimbursements, they are not likely to be subject to state
reimbursement.
AB 1794 would temporarily add three appointed members to the
existing board, but following the election on November 6, 2018,
the elected membership of the board would be reduced from five
to four directors. As a result, CBMWD would need to undergo a
redistricting process to divide the district into four equalized
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divisions, rather than the current five divisions. CBMWD
estimates that one-time costs associated with this redistricting
process, including public outreach as well as legal,
demographic, and communications consultant contracts, would be
approximately $320,000. Actual costs subject to state
reimbursement would be determined by the Commission, if the
district files a successful reimbursement claim.
TOC: This bill would also require the CBMWD board of directors
to establish a TOC composed of five appointed representatives of
water purveyors, as specified. The TOC would have a number of
administrative tasks, such as reviewing the district's budget
and any district projects and advising the general manager and
board of directors. The TOC would also review and approve any
proposed changes to procurement procedures or any changes to the
administrative code related to ethics, director compensation,
and benefits. CBMWD estimates costs related to the TOC would be
in the range of $22,000 to $54,000 annually, depending on the
number of meetings each year (up to ten). Actual costs subject
to state reimbursement would be determined by the Commission, if
the district files a successful reimbursement claim.
Mandate reimbursement: Under the mandates process, local
governments, including special districts, may file test claims
with the Commission alleging that statutes, regulations, and
executive orders impose new programs or increased levels of
service upon local entities. The Commission primarily relies on
Article XIII of the California Constitution and related case law
to make determinations. Reimbursement is required under Article
XIII B, section 6 only when the local agency is subject to
constitutional tax and spend limitations, and reimbursement is
not required when costs are for expenses that are recoverable
from sources other than tax revenue (service charges, fees, or
assessments).
The CBMWD is an enterprise special district with revenues
derived from water rates. Existing law provides the district
with the authority to set those rates to cover operating
expenses, repairs and maintenance, improvements, and principal
and interest on debt payments.
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Two recent Commission decisions raise questions about whether
any new costs imposed upon CBMWD by AB 1974 would be deemed
eligible for reimbursement. The Commission's Statement of
Decision on AB 1234, Chapter 700, Statutes of 2005, (Case #
07-TC-04) regarding new requirements for local agency officials
to comply with certain ethics training requirements, denied
reimbursement authority for special districts that are not
funded by proceeds of taxes and are not subject to the tax and
spend restrictions of articles XIII A and XIII B of the CA
Constitution. According to special district reports filed with
the State Controller's Office, the CBMWD does not receive any
proceeds of taxes. In addition, the Commission denied
reimbursement to urban retail water suppliers and agricultural
water suppliers in its combined Statement of Decision on SBx7 7,
Chapter 4, seventh extraordinary session of 2009-10 (Case #
10-TC-12), and Agricultural Water Measurement regulations
promulgated by the Department of Water Resources (Case #
12-TC-01). These measures imposed new water conservation
requirements on water suppliers and expanded their duties when
adopting urban water management plans. The Commission found in
this decision that enterprise districts funded exclusively
through user fees, charges, or assessments are ineligible for
mandate reimbursement. As noted above, the CBMWD is also an
enterprise district funded through service charges, fees, or
assessments.
Staff notes, however, that decisions by the Commission are not
precedential, and each test claim is decided on its individual
merits. To the extent that CBMWD is deemed eligible to claim
reimbursement, and successfully files a claim with the
Commission, reimbursable costs could be in the hundreds of
thousands annually. Actual costs would be dependent upon what
the Commission determines are eligible mandated costs subject to
reimbursement.
Recommended
Amendments: The bill should be amended to make the following
correction: On page 3, line 1, strike out "subdivision (b)" and
insert: "subdivision (c)"
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