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 ?