BILL ANALYSIS Ó SENATE JUDICIARY COMMITTEE Senator Hannah-Beth Jackson, Chair 2015 - 2016 Regular Session SB 188 (Hancock) Version: April 14, 2015 Hearing Date: April 21, 2015 Fiscal: Yes Urgency: No TH SUBJECT Municipal Utility District: Utility Charges: Delinquencies DESCRIPTION Existing law, until January 1, 2016, authorizes municipal utility districts to file a lien on real property for unpaid water and sewer utility charges rendered to a lessee, tenant, or subtenant, which may be collected on the tax roll in the same manner as property taxes. This bill would eliminate that sunset date, thus extending the lien authority indefinitely. BACKGROUND There are at least two types of public utilities in California: "municipally owned utilities," which are public utilities owned by cities, and "municipal utility districts" (MUDs), which are special districts organized for the purpose of providing utility service. There are hundreds of municipally-owned utilities in the state, but there are only two major MUDs: the East Bay Municipal Utility District (EBMUD), which provides water and sewer service, and the Sacramento Municipal Utility District (SMUD), which provides electrical service. Prior to 1996, municipal utilities and MUDs had the authority to require that a new service account be established in a landlord's or property owner's name rather than a tenant's name when a previous tenant had been delinquent in payment for services under an account established in the tenant's name. The law also authorized MUDs to impose liens against property when a tenant's account for certain services was delinquent. By 1996, SB 188 (Hancock) Page 2 of ? the lien authority of MUDs had been limited so as not to apply to delinquencies for water service to residential property or electrical service. At the time, property owners had complained that it was unfair to require them to assume responsibility for utility services provided to a tenant for delinquent charges to a tenant's account. In 1998, SB 2166 (Costa, Ch. 739, Stats. 1998) further limited the MUDs lien authority to exclude liens based on delinquent charges for sewer service. In a reversal of that longstanding exemption, SB 1035 (Hancock, Ch. 485, Stats. 2010) authorized MUDs, until January 1, 2016, to file liens on residential real property for unpaid water and sewer utility charges rendered to a lessee, tenant, or subtenant. In order to impose such a lien, however, SB 1035 required MUDs to observe certain due process requirements to ensure property owners had notice of and an opportunity to contest proposed liens. This bill would eliminate the January 1, 2016, sunset date enacted in SB 1035, and would extend indefinitely the authority for MUDs to lien residential property for the nonpayment of charges for services rendered to a lessee, tenant, or subtenant for water or sewer service. This bill would not affect the lien exemption in current law for delinquent fees or charges for the furnishing of electrical service, and would not apply to delinquent charges or penalties accrued by residential tenants in nonmaster-metered buildings. CHANGES TO EXISTING LAW Existing law authorizes a municipal utility district to require the owner of record of real property within the district to pay the charges for services rendered to a lessee, tenant, or subtenant, and provides that those delinquent utility charges become a lien once a certificate is filed with the county recorder, as specified. The lien has the force, effect, and priority of a judgment lien. (Pub. Util. Code Sec. 12811.1(a).) Existing law states that a municipal utility district may collect delinquent utility charges, including charges for services rendered to a lessee, tenant, or subtenant, on the tax roll in the same manner as property taxes, provided: the general manager of the district files a report with the district board of directors describing each affected parcel of real property and the amount of the delinquent fees, tolls, SB 188 (Hancock) Page 3 of ? rates, rentals, or other charges, together with interest and penalties thereon, including any delinquent fees, tolls, rates, rentals, or other charges for services rendered to a lessee, tenant, or subtenant for each affected parcel for the year; the general manager of the district gives notice of the filing of the report and of the time, date, and place for a public hearing by publishing the notice in a newspaper of general circulation, and by mailing the notice to the owner of each affected parcel at least 14 days prior to the date of the hearing; the district board of directors, at the hearing, considers objections or protests to the report, and makes a determination on each affected parcel; on or before August 10 of each year following the board's determinations, the general manager files with the county auditor a copy of the final report adopted by the board of directors. (Pub. Util. Code Sec. 12811.1(c).) Existing law provides that a municipal utility district's lien authority does not apply to delinquent fees or charges for the furnishing of electrical service. (Pub. Util. Code Sec. 12811.1(g).) Existing law provides that, except for master-metered apartment buildings, no municipal utility district owning or operating a public utility furnishing services for residential use to a tenant under an account established by the tenant shall seek to recover any charges or penalties for the furnishing of services to, or for the tenant's residential use from, any subsequent tenant or the property owner due to nonpayment of charges by a previous tenant. (Pub. Util. Code Sec. 12822.6.) Existing law provides that, except for master-metered accounts, municipal utility districts shall not recover on the tax roll any delinquent fees, tolls, rates, rentals, or other charges for services for commercial use to a commercial tenant under an account established by the commercial tenant, from any subsequent tenant or the property owner, due to nonpayment of charges by a previous commercial tenant. (Pub. Util. Code Sec. 12811.1(c)(5).) Existing law provides a municipal utility district's lien authority is cumulative and in addition to any other remedy provided by law. (Pub. Util. Code Sec. 12811.1(g).) SB 188 (Hancock) Page 4 of ? Existing law provides that, as of January 1, 2016, a municipal utility district's lien authority shall not apply to delinquent fees or charges for the furnishing of water or sewer service to a residential property. (Pub. Util. Code Sec. 12811.1(i).) This bill would strike the above sunset provision, and would extend indefinitely a municipal utility district's lien authority to include delinquent fees or charges for the furnishing of water or sewer service to a residential property. This bill would make an uncodified statement of the Legislature's intent to remove the sunset date in Section 12811.1 of the Public Utilities Code on the authority of a municipal utility district to collect delinquent fees, tolls, rates, rentals, and other charges on the tax roll, and not to change existing law regarding the protection provided to a property owner pursuant to Section 12822.6 of the Public Utilities Code, which prohibits a municipal utility district from collecting delinquent charges or penalties from a property owner accrued by a residential tenant in a nonmaster-metered building. COMMENT 1.Stated need for the bill The author writes: [East Bay Municipal Utility District]'s authority to collect delinquent residential charges via liens and the property tax rolls is set to expire January 1, 2016. This authority has provided EBMUD with a viable alternative to terminating service and burdening other ratepayers with subsidizing the cost of these delinquent accounts. As indicated in the report to the legislature, since EBMUD has been exercising the SB 1035 authority, collections have increased from about 15 [percent] to over 90 [percent] and EBMUD has not terminated SB 188 (Hancock) Page 5 of ? water service to any master-metered multi-family residential buildings for nonpayment. Prior to the SB 1035, EBMUD terminated the service to about 400 master-metered multi-family residential accounts each year due to non-payment of bills. If this authority sunsets, EBMUD's options for addressing delinquent accounts would be narrowed to terminating service and unfairly burdening other ratepayers to make up the difference for delinquent accounts. SB 188 would remove the January 1, 2016 sunset date on the authority for a municipal utility district to collect delinquent charges and fees using liens and the property tax rolls in a manner that does not change existing law regarding the scope of this authority pursuant to PUC 12811.1 or the protections provided for property owners pursuant to PUC 12822.6 and 12811.1, which prohibit a municipal utility district from collecting from the property owner delinquent charges and fees accrued by a commercial or residential tenant in a non-master-metered structure. 2.Termination of Utility Services As a general matter, when water and sewer bills are not paid, municipal utility districts, such as the East Bay Municipal Utility District (EBMUD), are forced to either shut off water service or subsidize the cost of continued water service by charging more for water services to other ratepayers. When water is not available to maintain landscaped exteriors, neighborhoods begin to take on an unlived, blighted appearance, which in turn causes property values to decline. To respond to the problem of water shutoffs and resulting blighted areas, and to prevent other ratepayers from having to subsidize those utility users who fail to pay for water and sewer service, this bill would permanently authorize municipal utility districts to file a lien against specified property owners for services rendered to lessees, tenants, and subtenants when water and sewer utility bills go unpaid. For almost twenty years, it has been the declared policy of the Legislature that "[e]very citizen of California has the right to pure and safe drinking water." (Health & Saf. Code Sec. 116270(a).) Despite this declared policy, the Legislature has authorized water service providers, including municipal utility districts, to terminate service for nonpayment of utility charges. EBMUD, the sponsor of this bill, is authorized to SB 188 (Hancock) Page 6 of ? disconnect water and sewer service when an account holder fails to pay his or her utility bill. (See e.g. Pub. Util. Code Sec. 12810.) By making permanent the authority for municipal utility districts to lien master-metered residential properties for the nonpayment of water and sewer utility charges, this bill helps ensure that residents of these buildings continue to receive services even though the account holder's utility account has gone into arrears. As noted above, EBMUD was provisionally authorized by SB 1035 (Hancock, Ch. 485, Stats. 2010) to lien specified properties for the nonpayment of water and sewer service charges. Since receiving this authority, EBMUD reports that: the Lien Program has been an effective alternative to terminating water service. Since the inception of the Lien Program, no [multifamily residential] accounts have had service terminated due to delinquent charges. In addition, collection rates have significantly increased. . . . In contrast, prior to the initiation of the Lien Program, [multifamily residential] account delinquencies resulted in termination of service and collection rates were significantly lower. From 2006-2010, an average of 400 [such] accounts had service terminated each year due to unpaid delinquent charges. All available data indicates that EBMUD's lien authority has been an effective means of reducing utility terminations for nonpayment of service charges. 3.Ensuring Due Process The statutory process for placing a municipal utility district lien on the tax roll includes certain procedures to ensure property owners are given adequate notice and an opportunity to challenge the lien. First, the general manager of the district must file a report with the district board of directors describing each affected parcel of real property as well as the amount of delinquent charges and fees that have accrued. The general manager must then give notice of the filing of the report with the board and of the time, date, and place for a public hearing on the report by publishing a notice in a newspaper of general circulation and by mailing a notice to the owner of each affected parcel at least 14 days prior to the public hearing. At the public hearing, the municipal utility SB 188 (Hancock) Page 7 of ? district's board of directors must consider objections or protests to the report and make determinations on the proposed lien amounts for each affected parcel. Then, on or before August 10th of each year following the board's determinations, the general manager may file with the county auditor a copy of the final report adopted by the board of directors. By providing notice and an opportunity to respond before the lien is placed on the tax roll, this process ensures that affected property owners are able to challenge findings made by the general manager of the district and present their case as to why a lien should not attach to the district's board of directors. Following this process, EBMUD reports that from January 2011 to July 2014, it filed a total of 3,779 liens representing $2,647,000 in unpaid charges. Of these lien filings, approximately $708,000 was paid directly by property owners to EBMUD, and the remaining $1,939,000 was transferred to the property tax roll. Over the four years this authority has been exercised, EBMUD reports that only 10 property owners requested a pre-lien hearing with a hearing officer, and that only one property owner appealed the transfer of the utility lien to the tax roll. 4.Opposition Concerns Five apartment associations, writing in opposition, argue that SB 188 would unfairly allow municipal utility districts to continue placing liens on a property owner's property when a tenant fails to pay his or her water and sewer bill. They state: tenants should be responsible for ensuring prompt payment of their utility bills. If they fall delinquent, they alone should be accountable for any repercussions. . . [we] do not object to liens on property when the landlord or an owner-occupant fails to pay his or her own utility bill. Landlords, however, should not be held responsible for a tenant's delinquent utility bill. Staff notes that it is unlikely a municipal utility district could use this lien authority to impose a lien on a property owner for a tenant's non-payment of his or her utility bills. This lien authority is expressly limited by Public Utility Code Section 12822.6, which states that, except for master-metered apartment buildings, "[n]o municipal utility district . . . SB 188 (Hancock) Page 8 of ? furnishing services for residential use to a tenant under an account established by the tenant shall seek to recover any charges or penalties for the furnishing of services to, or for the tenant's residential use from, any subsequent tenant or the property owner due to nonpayment of charges by a previous tenant." Consequently, this lien authority is limited by its terms to master-metered residential buildings, where all users share a common meter. For these buildings, there is only one utility account and it is typically held in the landlord's or landlord's agent's name (such as a property manager). The only likely way a property owner could have their property liened under this authority for nonpayment of utility charges by a tenant would be situations where the tenant is also the landlord or the landlord's agent. Support : Alameda County; California Special Districts Association Opposition : Apartment Association, California Southern Cities; Apartment Association of Orange County; East Bay Rental Housing Association; Nor Cal Rental Property Association; North Valley Property Owners Association HISTORY Source : East Bay Municipal Utility District Related Pending Legislation : None Known Prior Legislation : SB 1035 (Hancock, Ch. 485, Stats. 2010) authorized, until January 1, 2016, municipal utility districts to file a lien on residential real property for unpaid water and sewer utility charges rendered to a lessee, tenant, or subtenant, and provided that such liens may be collected on the tax roll in the same manner as property taxes. AB 1333 (Hancock, 2008) would have required a mortgagee, trustee, or beneficiary who acquires residential real property by foreclosure to pay for utility services following foreclosure if the foreclosed upon property has tenants who pay the landlord for utility services. This bill would have also allowed municipal utility districts to place liens on real property for the nonpayment of residential water or sewer utility charges. SB 188 (Hancock) Page 9 of ? This bill was vetoed by Governor Schwarzenegger. AB 2586 (Torrico, 2008), among other things, would have required that whenever a public utility, or a corporation that furnishes electrical, gas, heat, or water to residential units, as specified, and where the owner, manager, or operator of the residential units is listed by the corporation as the customer of record, the public utility or corporation would be required to provide written notification to the residential occupants at least 15 days prior to termination, prevent a successor in interest from terminating utility service with the intent to terminate the tenant's tenancy, and extended the notice period required to evict a tenant after a foreclosure. This bill was vetoed by Governor Schwarzenegger. SB 2166 (Costa, Ch. 739, Stats. 1998), among other things, exempted delinquent fees and charges for the furnishing of sewer service to residential real property from an existing authorization for municipal utility districts to attach liens to real property for the nonpayment of non-water service utility charges. AB 1770 (Brewer, Ch. 24, Stats. 1996) prohibited municipally owned utilities and municipal utility districts from seeking any recovery of charges or penalties for the furnishing of services to or the nonpayment of charges by a previous tenant from any subsequent tenant or the property owner. This bill also prohibited public utilities from demanding or receiving security in an amount that exceeds specified amounts, and authorized public utilities, in the event of tenant nonpayment of all or a portion of the utility bill, to apply the deposit to the final bill issued when service is terminated. Additionally, this bill exempted residential property from a municipal utility district's authority to file a lien on the property for the nonpayment of fees, tolls, rates, rentals, or other charges for services rendered to a lessee, tenant, or subtenant, as specified. Prior Vote : Senate Committee on Governance and Finance (Ayes 7, Noes 0) ************** SB 188 (Hancock) Page 10 of ?