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,
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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,
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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).)
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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
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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
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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
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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 . . .
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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.
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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)
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