BILL ANALYSIS Ó
SB 188
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Date of Hearing: June 30, 2015
ASSEMBLY COMMITTEE ON JUDICIARY
Mark Stone, Chair
SB
188 (Hancock) - As Amended April 14, 2015
SENATE VOTE: 31-4
SUBJECT: Municipal utility district: utility charges:
delinquencies
KEY ISSUE: Should a statute that permits a municipal utility
district to file A lien on real property for unpaiD water and
sewer charges be made permanent by removing the January 1, 2016,
sunset date?
SYNOPSIS
Prior to 2010, a municipal utility district (MUD) had only two
unattractive options for taking action when a customer neglected
to pay water and sewer service bills. The MUD could shut off
water service to the delinquent customer, or it could recover
its losses by charging more to other ratepayers. In 2010,
however, SB 1035 (Hancock) sensibly provided a third, more
attractive, option by authorizing a MUD to record a lien on the
customer's residential real property in the amount of the unpaid
charges, so long as the property owner has proper notice and a
meaningful opportunity to challenge the lien. While there are
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five MUDs in the state, as a practical matter, SB 1035 only
applied to the East Bay Municipal Utility District (EBMUD)
because it is the only MUD which provides both water and sewer
service to residential customers; the others provide other
services as electric, garbage disposal, transportation, and
telephone. Because SB 1035 created a new procedure for
collecting delinquent charges - and indeed in some ways reversed
existing policy - it wisely included a sunset date of January 1,
2016, so that the policy could be revisited. To help evaluate
whether the authorization should continue or be abandoned after
the sunset date, SB 1035 required any MUD that used the
authority (i.e. EBMUD) to provide the Legislature with a report
on the number of liens filed and the overall effectiveness of
the policy. The report by EBMUD suggests that SB 1035 has been
extremely successful, increasing collection rates from 15% to
over 90%. Furthermore, it has eliminated the need for many
disruptions of services. Prior to 2010, EBMUD terminated
service to about 400 master-metered multi-family residential
accounts each year due to non-payment of bills. Since having
the authority granted under SB 1035, EBMUD has not terminated
service to any master-metered multi-family residential
buildings. There is no evidence that EBMUD has abused its
authority, or that property owners have not received adequate
notice or opportunity to challenge liens. This bill removes the
sunset provision in existing law, thereby making permanent
EBMUD's authority to record a lien on real property for
delinquent water and sewer charges. This bill passed off the
Senate Floor by a 31-4 vote and more recently passed out of the
Assembly Local Government Committee on a 9-0 vote. The bill is
sponsored by EBMUD and supported by Alameda County Board of
Supervisors, the Association of California Water Agencies, and
the California Special Districts Association. There is no known
opposition.
SUMMARY: Makes permanent provisions of law that authorize a
municipal utility district (MUD) to file a lien on real property
for unpaid water and sewer utility charges rendered to a lessee,
tenant, or subtenant. Specifically, this bill:
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1)Deletes the January 1, 2016, sunset date that authorizes a MUD
to record a lien against affected real property in the amount
of any delinquent fees or charges for furnishing water or
sewer services to a residential property.
2)Repeals a code section that requires any MUD that places a
lien on a property for water or sewer service on or before
December 31, 2014, to submit to the Assembly and Senate
Committees on Judiciary and Local Government on or before
January 1, 2015, a report containing specified information
detailing the number of liens, the total dollar amount of
those liens, the overall effectiveness of the liens, and any
problems associated with the liens.
3)States that it is the intent of the Legislature to remove the
sunset date in Section 12811.1 of the Public Utilities Code,
relating to the authority of a MUD to collect delinquent water
and sewer charges. Specifies that it is not the intent of the
Legislature 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 MUD from
collecting delinquent charges or penalties from a property
owner accrued by a residential tenant in a non-master-metered
building.
EXISTING LAW:
1)Authorizes a MUD, until January 1, 2016, by resolution or
ordinance, to require the owner of record of real property to
pay the fees, tolls, rates, rentals, or other charges,
including penalties or interest, for services rendered to a
lessee, tenant, or subtenant that have become delinquent.
Specifies that these unpaid charges are a lien on the property
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when filed in the office of the county recorder, as specified,
and that the lien has the force, effect, and priority of a
judgment lien. (Public Utilities Code Section 12811.1 (a).
All subsequent citations refer to the Public Utilities Code,
unless otherwise indicated.)
2)Provides that before a MUD may collect delinquent charges it
must do the following:
a) Prepare and file an annual report of delinquent charges
for each affected parcel;
b) Give published and mailed notice of the filing of the
report and the time and place for a public hearing;
c) Hear and consider objections or protests of the report
at the public hearing and potentially revise the report;
and,
d) Provide, by August 10 of each year, a final report to
the county recorder to be added to the current tax
assessment roll. (Section 12811.1 (c).)
3)Requires the MUD to file a release of the lien within 30 days
of receipt of payment of the delinquent charges. (Section
12811.1 (b).)
4)Prohibits a MUD from recovering on the tax roll any delinquent
fees, tolls, rates, rentals, or other charges for services for
commercial use to a commercial tenant, as specified. (Section
12811.1 (c) (5).)
5)Requires any MUD that places a lien on a property for water or
sewer service on or before December 31, 2014, to submit to the
Assembly and Senate Committees on Judiciary and to the
Assembly and Senate Committees on Local Government, on or
before January 1, 2015, a report containing the following
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information:
a) The total number of liens created under this section for
water or sewer service and the total dollar amount of those
liens; and,
b) The overall effectiveness of the liens and any problems
associated with the use of those liens.
6)Specifies that the authorization and procedures for recording
a lien for unpaid charges shall only apply to a MUD providing
water or sewer to residential property and shall not apply to
delinquent charges for the furnishing of electrical services.
(Section 12811.1 (h).)
FISCAL EFFECT: As currently in print this bill is keyed fiscal.
COMMENTS: The Municipal Utilities Act authorizes the creation
of special districts that are authorized to acquire, construct,
own, and operate works providing electrical, heat, water, sewer,
garbage disposal, and various transportation and communication
services. These special districts, known as Municipal Utility
Districts (MUDs), should not be confused with the much more
common "municipally owned utilities" (MOUs), which are
city-owned utilities rather than special districts. Currently
there are only five MUDs in the state. Only two of these
provide basic services to residential users. The Sacramento
Municipal Utility District (SMUD) provides electricity, while
the East Bay Municipal Utility District (EBMUD) provides water
and sewer services. Because this bill only applies to
residential water and sewer services, EBMUD, the sponsor, is the
only district which is affected by its provisions.
Background on SB 1035 of 2010. Although the original Municipal
Utilities Act authorized MUDs to impose liens against real
property to recover delinquent charges, MUDs lost that authority
in 1996 when they were prohibited from imposing liens on
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property owners whose tenants were delinquent for water or
electrical services. In 1998, the same limitation on lien
authority was extended to sewer services. The apparent
rationale for these limitations was that property owners should
not be liable for their tenants' failure to pay their bills.
The problem with this approach, however, is that it left the MUD
with two unattractive options when a customer neglected to pay
water and sewer service bills: shut off water service to the
delinquent customer, or recover its losses by charging more to
other ratepayers. However, in 2010, SB 1035 (Hancock, Chapter
485, Statutes of 2010) provided a third, more attractive, option
by authorizing a MUD to record a lien on residential real
property in the amount of any unpaid charges.
SB 1035 did a number of things. First, it authorized a MUD to
collect delinquent charges by charging the delinquent amount to
the property owner's tax roll and placing a lien on the property
for unpaid water and sewer charges. (It left in place a
restriction against using liens for unpaid electrical service
charges, which is why SB 1035 only affected EBMUD, and not
SMUD.) Second, SB 1035 authorized a MUD to collect unpaid water
and sewer charges, including any penalties or interest, in the
same manner as property taxes were collected, unless the account
had been established by the tenant. Third, where the delinquent
account was in the name of a tenant, SB 1035 authorized the MUD
to record a lien on the affected real property in the amount of
the delinquent charges, plus interest and penalties, and
specified that the lien would have the force, effect, and
priority of a judgment lien.
EBMUD Report. In order to help evaluate whether the lien
authority should continue after a sunset date of January 1,
2016, SB 1035 also required any MUD that used the authority
(i.e. EBMUD) to submit to the relevant committees of
Legislature, no later than January 1, 2015, a report on the
number of liens recorded for water and sewer delinquencies, the
dollar amount of those liens, the overall effectiveness of the
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liens, and any problems associated with the use of those liens.
EBMUD submitted the required report on November 25, 2014.
EBMUD's report shows that between January 2011 and June 2013,
EBMUD filed 1,195 liens representing $1,384,000 in delinquent
charges. It collected $1,298,000, or roughly 94% of the
delinquent amount, either directly from the property owners, or
via property tax rolls. Between July 2013 and July 2014, EBMUD
filed 1,784 liens representing $1,263,000 in delinquent charges.
EBMUD has collected $306,000 of the latter amount directly from
property owners, and it predicts, based on the prior three
years, that it will collect about $899,000 of the remaining
$957,000 from the tax rolls. These numbers reflect a high
degree of success compared to past years. EBMUD estimates that,
overall, it has increased its collection rates from a paltry 15%
to over 90% since SB 1035 went into effect. This has also been
beneficial to residents, in terms of disruptions to service.
Prior to 2010, EBMUD terminated service to about 400
master-metered multi-family residential accounts each year due
to non-payment of bills. Since using the authority granted
under SB 1035, EBMUD has not terminated service to any
master-metered multi-family residential buildings. There is no
evidence that EBMUD has abused its authority, or that property
owners failed to receive adequate notice and an opportunity to
challenge.
In light of this clear success, this bill removes the sunset
provision in existing law, thereby making permanent EBMUD's
authority to record a lien on real property for delinquent
charges for residential water and sewer services. All existing
procedural requirements and protections remain unchanged in
existing law.
REGISTERED SUPPORT / OPPOSITION:
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Support
East Bay Municipal Utility District (sponsor)
Alameda County Board of Supervisors
Association of California Water Agencies
California Special Districts Association
Opposition
None on file
Analysis Prepared by:Thomas Clark / JUD. / (916)
319-2334