BILL ANALYSIS Ó SENATE COMMITTEE ON GOVERNANCE AND FINANCE Senator Robert M. Hertzberg, Chair 2015 - 2016 Regular ------------------------------------------------------------------ |Bill No: |SB 953 |Hearing |4/6/16 | | | |Date: | | |----------+---------------------------------+-----------+---------| |Author: |Lara |Tax Levy: |No | |----------+---------------------------------+-----------+---------| |Version: |2/4/16 |Fiscal: |Yes | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant|Weinberger | |: | | ----------------------------------------------------------------- Central Basin Municipal Water District Changes the membership of the Central Basin Municipal Water District's board of directors and imposes restrictions on the district's use of sole source contracts. Background The Central Basin Municipal Water District (CBMWD) was established by voters in 1952 to help mitigate groundwater overpumping in southeast Los Angeles County. CBMWD purchases imported water from the Metropolitan Water District of Southern California for sale to retail water suppliers, including cities, other water districts, mutual water companies, investorowned utilities, and private companies within the districts boundaries. Those water retailers in turn provide water to residents and businesses within their respective service areas. CBMWD serves a population of more than 2 million people living in 24 cities and some unincorporated areas within the district's approximately 227 square mile service area. The five members of CBMWD's board of directors are each elected by voters residing in one of five divisions within the district's boundaries. An audit report issued in December of 2015 by the Bureau of State Audits identified numerous concerns with various aspects of CBMWD's operations, including deficiencies in the district's contracting practices, a pattern of expenditures that may have SB 953 (Lara) 2/4/16 Page 2 of ? constituted gifts of public funds, and inadequate leadership by the board of directors. Specifically, the audit report found that: CBMWD often inappropriately circumvented its competitive bidding processes when it awarded contracts to vendors during the period that was audited. In support of this finding, the audit report noted that the district did not use competitive bidding for 13 of the 20 contracts reviewed by auditors and did not adequately justify why it failed to competitively bid for 11 of those 13 sole source contracts. CBMWD spent thousands of dollars of district money on purposes unrelated to its underlying authority, some of which likely constitute gifts of public funds. For example, the audit report noted that CBMWD provided thousands of dollars in community outreach funds to each board member annually, which various board members had the district donate on their behalf to golf tournaments, a legislator's breakfast panel, religious organizations, high school sports programs, pageants, and car shows. The board of director's poor leadership has impeded CBMWD's ability to effectively meet its responsibilities. In support of this finding, the audit report cited the board's failure to provide stability in the district's general manager position, lack of essential policies necessary to safeguard the district's long-term financial viability, inability to maintain the district's insurance coverage, and failure to disclose the district's establishment of a legal trust fund and transfers of money into the trust fund. All but one of the more than two dozen recommendations contained in the audit report are the CBMWD's responsibility to implement. However, one recommendation in the audit report is directed to the Legislature. Specifically, the audit report suggests a change in state law that would preserve the district as an independent entity but modify the district's governance structure to ensure that the district remains accountable to those it serves. Proposed Law SB 953 (Lara) 2/4/16 Page 3 of ? Senate Bill 953 expands the membership of CBMWD's board of directors from five to seven members. Five members of the board must be elected to four year terms pursuant to specified provisions of current state law. Two additional members of the governing board must be appointed to four year terms by the board of supervisors of the County of Los Angeles in a public meeting. The board of supervisors must consider any nominations of candidates for appointment made by a water retailer that purchases water from the district, if any, and may also consider other qualified candidates for appointment. Each member of the board of directors appointed by the board of supervisors must possess the following qualifications: Residence within the boundaries of the district. Knowledge of the water industry and familiarity with the role and responsibilities of a municipal water district. SB 953 specifies the manner in which the board of supervisors must appoint a member to fill a vacancy if a member of CBMWD's board of directors appointed by the board of supervisors is unable to serve for the duration of his or her term. Senate Bill 953 prohibits CBMWD from using sole source contracts unless one of the following conditions is met: The contract is limited to an emergency circumstance. The circumstances are that only one vendor can meet the district's needs. SB 953 requires that CBMWD, before executing a sole source contract, must provide written justification, which must include specified information, demonstrating the reasons for not competitively bidding the services. SB 953 requires CBMWD to rebid a contract if the district significantly changes the scope of work of the contract. The bill defines "significant changes" to include changes to the nature of the services or work products. SB 953 requires CBMWD's general manager to submit a quarterly report to the district's board detailing all of the district's contracts, contract amendments, and contract and amendment dollar amounts. SB 953 (Lara) 2/4/16 Page 4 of ? SB 953 prohibits CBMWD from providing any member of its board of directors with district funds to conduct community outreach activities. State Revenue Impact No estimate. Comments 1. Purpose of the bill . SB 953 amends state laws governing the CBMWD to implement some of the recommendation made in the audit report published by the Bureau of State Audits last year. Specifically, the bill implements the auditor's recommendation for legislation to change the membership of CBMWD's governing board. By requiring the Los Angeles County Board of Supervisors to appoint two additional members to CBMWD's board, SB 953 seeks to add some independent participants to the CBMWD's policymaking process and make the board more representative and accountable. The changes SB 953 makes to state law will promote public transparency, sound fiscal management, and improved governance at the Central Basin Municipal Water District. 2. Independence vs. responsiveness . SB 953 adds two new members to CBMWD's governing board and specifies relatively broad qualifications that the appointees must fulfill. By making the Los Angeles County Board of Supervisors responsible for appointing the two new district board members, the bill ensures that the appointees will bring some independent perspectives to CBMWD's board. However, placing the appointments in the hands of some county supervisors who don't represent any of the area within CBMWD's boundaries raises questions about whether the appointees will be sufficiently responsive to water purveyors and consumers within the district. To help to achieve a balance between independence and responsiveness, the bill could require appointees to meet more specific and rigorous qualifications that will ensure that they possess sufficient expertise and familiarity with CBMWD's important responsibilities in the communities that it serves. For example, the bill could require that appointees have at least five years of prior service with a SB 953 (Lara) 2/4/16 Page 5 of ? retail water provider as either an elected official or manager. 3. Not just governance . SB 953 goes beyond the auditor's recommendation that state law should change the CBMWD's governance structure to enact several other requirements relating to CBMWD's contracting procedures and a prohibition on board members spending outreach funds. These other provisions reflect audit recommendations that last year's audit report identified as being the district's responsibility to implement. District officials note that they have already implemented approximately two-thirds of the recommendations made in the audit report. Among the many recommendations that have already been adopted, the district has improved contract management by adopting stronger procurement policies and has eliminated board director outreach funds. Although some of SB 953's provisions may not have been suggested as statutory changes by the auditor and may require CBMWD to take actions that it is already in the process of implementing, placing those requirements in state law will provide the public with greater confidence that a future CBMWD governing board could not undo some of the progress that the district has made since the audit's completion. 4. Special legislation . The California Constitution prohibits special legislation when a general law can apply (Article IV, §16). SB 953 contains findings and declarations explaining the need for legislation that applies only to CBMWD. 5. Mandate . The California Constitution requires the state to reimburse local governments for the costs of new or expanded state mandated local programs. Because SB 953 imposes new reporting requirements and other additional duties on CBMWD officials, Legislative Counsel says that it imposes a new state mandate. SB 953 requires the state to reimburse local agencies if the Commission on State Mandates determines that the bill imposes a reimbursable mandate. 6. Related legislation . AB 1794 (Garcia) would alter the membership of CBMWD's board of directors to include seven members, comprised of four directors elected by voters and three directors appointed by water purveyors. The bill would also require CBMWD to establish a technical advisory committee. AB 1794 is scheduled to be considered by the Assembly Local Government Committee at its April 6, 2016 hearing. SB 953 (Lara) 2/4/16 Page 6 of ? Support and Opposition (3/31/16) Support : Central Basin Water Association; Cities of Maywood, Lynwood, Montebello, Signal Hill, South Gate, and Vernon. Opposition : Unknown. -- END --