BILL ANALYSIS Ó
AB 1794
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB
1794 (Cristina Garcia)
As Amended August 15, 2016
Majority vote
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|ASSEMBLY: |78-0 |(June 2, 2016) |SENATE: |31-4 |(August 19, |
| | | | | |2016) |
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Original Committee Reference: L. GOV.
SUMMARY: Establishes, in Municipal Water District Law, a
governance structure for the Central Basin Municipal Water
District Board of Directors.
The Senate amendments:
1)Remove all provisions relating to the creation and composition
of a Technical Advisory Committee.
2)Revise the election date for the Central Basin Municipal Water
District (District) Board of Directors from November 6, 2018,
to November 8, 2022, to transition from the interim Board.
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3)Require the election of directors to be in accordance with the
Uniform District Election Law.
4)Prohibit the appointment of directors from resulting in any of
the following:
a) The appointment of three directors that are all employed
by or representatives of all large water purveyors;
b) The appointment of three directors that are all employed
by or representatives of all cities; and,
c) The appointment of three directors that are all employed
by or representatives of all small water purveyors.
5)Delete the prohibition on a president, vice president, chief
financial officer or shareholder of a private company that
purchases water from the District from serving as an appointed
director, and instead prohibit an appointed director from
holding more than 0.5% ownership in a company regulated by the
Public Utilities Commission.
6)Prohibit an appointed director from holding more than one
consecutive term of office on the Board.
7)Require an appointed director to be subject to all applicable
conflict-of-interest and ethics provisions and require that
they recuse themselves from participating in a decision that
could have a direct material benefit on the financial
interests of the director.
8)Require an appointed director to be eligible for all of the
following:
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a) Reimbursement for travel and conference expenses
pursuant to the District's Administrative Code;
b) Compensation for up to 10 meetings per month at the per
meeting rate provided in the District's Administrative
Code; and,
c) Health insurance benefits, if those benefits are not
provided by the director's employer.
9)Prohibit an appointed director from being eligible to receive
communication or car allowances. Clarify for the purposes of
this bill car allowances does not include travel expenses, as
specified.
10)Require the District to be subject to a specified statute in
the Political Reform Act which imposes limits on, and requires
disclosure of, contributions to public officials.
11)Add the following definitions:
a) "Public water system" to mean a system for the provision
of water for human consumption through pipes or other
constructed conveyances that have 15 or more services
connections or regularly serves at least 25 individuals
daily at least 60 days out of the year, and includes
specified water systems;
b) "Relevant technical expertise" to mean "employment or
consulting for a total period of at least five years, prior
to the date of first appointment, in one or more positions
materially responsible for performing services relating to
the management, operations, engineering, construction,
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financing, contracting, regulation, or resource management
of a public water system"; and,
c) "Small water purveyor" to mean "a public water system
with less than 5,000 connections".
12)Remove the urgency clause.
13)Provide that this bill only becomes operative if SB 953
(Lara) of this legislative session is enacted and becomes
effective.
EXISTING LAW establishes the Municipal Water District Law, which
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.
AS PASSED BY THE ASSEMBLY, this bill:
1)Established, in Municipal Water District Law, a governance
structure for the Board and required the Board to establish a
Technical Advisory Committee.
2)Required the Board to be composed of seven directors, as
follows:
a) Four directors elected by division by the voters of that
division. Required 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
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District, pursuant to the appointment process described in
4) below.
3)Established an interim governance structure for the Board
until the directors elected, pursuant to 2) a) above, at the
November 6, 2018, election take office. Required the Board to
be composed of eight directors, as follows:
a) Five directors in accordance with the Municipal Water
District Law which required 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
District, pursuant to the appointment process described in
4) below.
4)Established 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. Required each water
purveyor to have one vote.
b) One director selected by cities that are water purveyors
of the District from the nominees of cities. Required each
city to have one vote.
c) One director selected by all water purveyors of the
District from any nominee. Established a weighted vote for
each purveyor to reflect their number of service
connections.
5)Established a nomination process and required each nominee
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that received the highest number of votes cast for each
director to be appointed to the Board.
6)Required individuals nominated for an appointment to the Board
to demonstrate eligibility and relevant technical expertise,
and required each appointed director to live or work within
the District.
7)Prohibited 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.
8)Required the Board to establish a Technical Advisory Committee
composed of representatives of five water purveyors, as
specified, selected by December 31, 2016. Required the
Technical Advisory Committee to meet for specified purposes
regarding the District's budget, changes to the administrative
code, and procurement.
9)Defined "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.
10)Contained an urgency clause.
11)Provided 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.
FISCAL EFFECT: According to the Senate Appropriations
Committee, unknown local costs, some of which may be
reimbursable by the state General Fund. Potentially
reimbursable costs may exceed $100,000. Actual costs would
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depend upon a determination by the Commission on State Mandates
regarding what expenses incurred by [the District] in
implementing this bill are deemed to be subject to state
reimbursement.
See staff comments in the [Senate Appropriations Committee]
analysis from the August 1 hearing for a discussion of
potentially reimbursable costs. Staff notes that the amendments
adopted by this Committee reduce the potentially reimbursable
costs. Specifically, eliminating the technical oversight
committee and delaying the redistricting process until after the
next census (at which time the District would be required to
update district division boundaries anyway) would reduce local
costs that may be subject to 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
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
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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.
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
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
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public at large to one appointed by the District's customers."
2)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, 2022 election, this bill
adds an additional three appointed seats to the existing
five-member elected Board. 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 small 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 is
author-sponsored.
3)Author's Statement. According to the author, "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."
4)Related Legislation. SB 953 (Lara) of the current legislative
session establishes restrictions on the District's use of sole
source contracting. This bill and SB 953 (Lara) contain
language that requires contingent enactment.
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5)Policy Consideration. 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 Legislature
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.
6)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.
7)Arguments in Opposition. None on file.
Analysis Prepared by:
Misa Lennox / L. GOV. / (916) 319-3958 FN:
0004353