BILL ANALYSIS Ó
SB 789
Page 1
Date of Hearing: July 1, 2015
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Brian Maienschein, Chair
SB
789 (Wieckowski) - As Amended June 8, 2015
SENATE VOTE: Vote not relevant
SUBJECT: Sale of water by local public entities: excise tax.
SUMMARY: Authorizes a local public entity that supplies water
at retail or wholesale to impose an excise tax on an excessive
user of water at a specified rate, subject to two-thirds voter
approval, and requires the revenue to be equally distributed
between the local public entity and the State Water Resources
Control Board. Specifically, this bill:
1)Authorizes a local public entity that supplies water at retail
or wholesale for the benefit of persons within the service
area or area of jurisdiction of that public entity to impose
by ordinance, an excise tax on an excessive user of water, at
a rate not to exceed 300% of the purchase price of the water,
if both of the following conditions are met:
a) The ordinance proposing the tax is approved by
two-thirds of the electors voting on the measure, pursuant
to Article XIII C of the California Constitution; and,
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b) The revenue is equally distributed between the public
entity and the State Water Resources Control Board (State
Water Board) for local water conservations efforts within
the jurisdiction of that public entity. Allows the local
water conservations efforts to have co-benefits with other
regions in the state.
2)Provides that a tax imposed, pursuant to this bill, may be in
addition to any other tax authorized by Division 2 of the
Revenue and Taxation Code.
FISCAL EFFECT: This bill is keyed fiscal.
COMMENTS:
1)Background. A PPIC report, Paying for Water in California,
outlines four sources of funding currently used for water in
California: (1) Fees, which include water and waste water
bills, property assessments or fees, developer or connection
fees, and permitting fees;
(2) Taxes, which include both general and special taxes,
including parcel taxes; (3) Fines
and penalties, which include excessive pumping on groundwater or
directly to customers in violation of rationing restrictions
during drought emergencies; and, (4) Bonds, which include
general obligation and revenue bonds. Local agencies
frequently point to the series of constitutional reforms,
Proposition 13 (1978), Proposition 218 (1996), and Proposition
26 (2010), that have made it increasingly more difficult to
generate the necessary revenue to fund the costs of providing
water and other essential services.
On January 17, 2014, the Governor declared a state of
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emergency in California due to severe drought conditions. On
April 1, 2015, the Governor imposed an executive order to
direct the State Water Board to impose restrictions to achieve
a statewide 25% reduction in potable urban water usage through
February 28, 2016. The executive order also requested that
the California Public Utilities Commission take similar action
with respect to investor-owned utilities that provide water
service. Earlier this month, the State Water Board reported
on water conservation during the first full month of statewide
enforcement efforts, finding that "the amount of water saved
by the state's large urban water agency customers statewide
increased from 3.9% in March to approximately 13.5% in April,
in same month water use comparisons of 2015 to 2013."
In response to mandated conservation, many local public
entities that provide water have utilized existing financial
tools to achieve conservation. For example, the East Bay
Municipal Utility District adopted an Excessive Water Use
Ordinance on April 28, 2015, to encourage customers to
conserve water. According to the ordinance, single-family
residential customers using more than 80 units (59,840
gallons) of water per billing period (55 to 68 days) are
subject to a $2 penalty for each unit over the 80-unit
threshold. Earlier this month, the City of Roseville began
imposing a "drought surcharge" fee to commercial and
residential customers equivalent to 15% of their monthly water
use charge.
2)Bill Summary. This bill authorizes a local public entity that
supplies water at retail or wholesale to impose an excise tax
on an excessive user of water with two-thirds voter approval.
Under this bill, the revenue generated from the excise tax
would be equally distributed between the public entity and the
State Water Resources Control Board for local water
conservation efforts within the jurisdiction of that public
entity. This bill prohibits the rate for an excise tax from
exceeding 300% of the purchase price of the water.
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This bill is author-sponsored.
3)Author's Statement. According to the author, "The bill seeks
to create an additional tool for local water agencies to use
to address overuse by water users in their service territory.
California is in a historical drought with no end in sight.
Reservoir and river levels are low and groundwater pumping is
at an all-time high. The State Water Resources Control Board
has taken extraordinary steps to curtail water use, calling
for a 25% across-the-state reduction.
"Still, many water users continue to waste water or use it
excessively for purposes that do not take the severe nature of
the drought into account. A Rancho Santa Fe resident recently
exclaimed that 'we're not all equal when it comes to water.'
Brett Barbre, a board member with the Metropolitan Water
District of Southern California, a huge water wholesaler
serving 17 million customers, demonstrated his unwillingness
to reduce landscape water, declaring that water authorities
would have to pry the watering hose from his, 'cold, dead
hands.'
"According to the State Water Resources Control Board the
Santa Fe Irrigation District and about twenty-one other
districts representing over 5% of the State's 396 public water
agencies have actually increased water use compared to 2013
levels which was also a bad year for water. Numerous other
agencies were far from reaching their mandated water reduction
goals despite the best efforts of the water managers in those
districts faced with a severe statewide drought emergency.
"Local water agencies are prohibited from using pricing
mechanisms or 'tiered rates' to provide incentives to water
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users to modify behavior. Many public water agencies have
imposed severe water use and watering restrictions and have
imposed severe penalties. Despite those extraordinary
measures, excessive use and abuse of water in a severe public
emergency continues.
"SB 789 authorizes a local retail or wholesale water supply
entity to impose up to a 300% tax on excessive water use. The
bill allows the local agency or water district to choose the
appropriate level of the tax. The revenue from the tax is to
be used for efficiency and conservation programs, with half
going to the State Water Resources Control Board and the other
half staying with the local agency."
4)Policy Considerations. The Committee may wish to consider the
following:
a) What Is Excessive? Opposition argues that there is no
definition of an "excessive user of water" in the bill and
note that "several classes of water users exist such as
residential, agricultural, commercial, industrial, and
institutional. Each uses water in varying ways and at
varying prices depending on their water purveyors and
necessary water treatment. Many businesses such as
restaurants, food processors, grocery stores, medical
clinics, etc. use water for health and safety purposes
which may not be altered without another agency's approval.
Also, in some instances only a master water meter exists
for several units without the ability to measure individual
unit's usage."
The Committee may wish to ask the author, absent any
clarification in the bill, what types of water use the bill
is aiming to curb. Without further specification in the
bill, local agencies may establish one definition for an
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"excessive user" which would have different impacts based
on the type of water user. For example, what is considered
"excessive use" for a single family home may be very
different than for a farmer who owns hundreds of acres.
b) Who Will Use This Authority? The Committee may wish to
note that there are no local agencies in support of the
bill, nor have any local agencies requested this authority.
c) Distribution of Revenue to State Water Board. The
Committee may wish to ask the author for the policy
reasoning behind the allocation requirement in this bill,
which requires half of the locally-generated revenues to go
to the State Water Board. The Committee may wish to
consider if there are any constitutional issues associated
with the state requiring the allocation of this
locally-imposed revenue.
d) Low-Income Households. The drought has raised new
affordability challenges for both providers and customers.
Many public water providers have increased fixed rates and
fees on monthly bills, which disproportionately impact
lower-income households. While this bill may allow local
agencies to focus on excessive users, there are no
protections for low-income water users. The Howard Jarvis
Taxpayers Association argues, "While clearly meant to
target water wasters, [this bill] could easily apply to
low-income families living at the poverty line who now must
contend with a new regressive tax."
e) Local Agencies Taxing Other Local Agencies? Some local
public agencies wholesale water, but do not sell water to
retail customers. It is not uncommon for one local agency
to provide wholesale water to another local agency. Given
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this common relationship, the Committee may wish to
consider if this bill authorizes local public agencies to
tax one another.
f) New Taxing Authority? This bill requires that the
ordinance proposing the excise tax is approved by
two-thirds of the electors voting on the measure, pursuant
to Article XIII C of the California Constitution. Article
XIII C of the California Constitution defines a "special
tax" to mean any tax imposed for specific purposes,
including a tax imposed for specific purposes, which is
placed into a general fund, and requires local agencies to
impose a special tax with a two-thirds voter approval. One
of the most commonly referenced excise taxes are parcel
taxes, which are levied per parcel at a flat rate or
according to size. The authority granted to local agencies
by this bill is levied on a user, not a parcel, at a
specified rate based on "excessive" use. The Committee may
wish to consider if constitutional challenges may be
raised, regardless of the two-thirds voter requirement
contained in this bill.
g) Too Many Questions, Not Enough Answers. Given the
number of outstanding questions and vague authority granted
by this bill, the Committee may wish to encourage the
author to take more time to flesh out the policy goals.
Local agencies experience many financial barriers due to
Proposition 218 and other legal challenges associated with
tiered water rates to obtain the necessary funding to
provide much needed services while encouraging
conservation. Therefore, the Committee may wish to
encourage the author to work with local agencies to craft
legislation to provide local agencies with badly needed
financial tools that they can and will use.
5)Gut and Amend. Assembly amendments delete the Senate version
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of this bill.
6)Arguments in Support. Supporters, in concept, argue that as
the drought continues, local agencies need increased tools to
curtail excessive users of water. This bill will allow local
agencies to ask voters for increased taxing authority for
those who refuse to cut back on unnecessary water use.
7)Arguments in Opposition. Opposition argues that this bill is
unconstitutional and unworkable. Additionally, there is no
definition of excessive user of water, therefore, no practical
way to determine who or what constitutes an excessive user of
water.
8)Double referral. This bill is double-referred to the Revenue
and Taxation Committee.
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REGISTERED SUPPORT / OPPOSITION:
Support
California League of Conservation Voters (in concept)
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Clean Water Action (in concept)
Sierra Club California (in concept)
Opposition
California Apartment Association
California Business Properties Association
California Chamber of Commerce
California Farm Bureau Federation
California Manufacturers and Technology Association
California Taxpayers Association
Family Business Association
Howard Jarvis Taxpayers Association
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Analysis Prepared by:Misa Lennox / L. GOV. / (916)
319-3958