BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
SB 953 (Lara) - Central Basin Municipal Water District
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|Version: February 4, 2016 |Policy Vote: GOV. & F. 5 - 1 |
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|Urgency: No |Mandate: Yes |
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|Hearing Date: April 18, 2016 |Consultant: Mark McKenzie |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: SB 953 would add two appointed members to the Central
Basin Municipal Water District's (CBMWD's) board of directors,
prohibit the use of district funds for board members to conduct
community outreach, and make specified changes to CBMWD's
contracting practices.
Fiscal
Impact: Unknown local costs, some of which may be reimbursable
by the state General Fund. Potentially reimbursable costs may
exceed $50,000. Actual costs would depend upon a determination
by the Commission on State Mandates (Commission) regarding what
expenses incurred by CBMWD in implementing the bill are deemed
to be subject to state reimbursement. See staff comments for a
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discussion of potentially reimbursable costs.
Background: Existing law, the Municipal Water District Law of 1911,
governs the formation, internal organization, and elections for
municipal water districts. That law requires the board of
directors of a municipal water district to consist of five
members elected by voters in each of five divisions of the
district, and requires each board member to be a resident of the
division that he or she represents. Existing law requires board
members to receive compensation of up to $100 per day, up to six
days per month, for attendance at board meetings or other
service rendered as a board member, plus expenses incurred in
the performance of official duties. Municipal water districts
have the authority to fix rates at which water is sold, as
specified, to cover operating expenses, repairs and maintenance,
improvements, and principal and interest on debt payments.
The 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,
investor-owned utilities, and private companies within the
district's 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.
An audit report issued in December of 2015 by the Bureau of
State Audits (BSA) 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 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. The BSA 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
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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.
Poor leadership by the board of directors 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 would expand the membership of CBMWD's board of
directors from five to seven members. Five board members of the
board must be elected to four year terms, as specified in
current state law, and two additional board members must be
appointed to four year terms by the Los Angeles County board of
supervisors in a public meeting, as specified. 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 appointed board member must
own a residence within the boundaries of the district, and
possess knowledge of the water industry and familiarity with the
role and responsibilities of a municipal water district.
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SB 953 would prohibit CBMWD from using sole source contracts
unless the contract is limited to an emergency circumstance, or
there is only one vendor that can meet the district's needs.
Before executing a sole source contract, CBMWD must provide
written justification, which must include specified information
demonstrating the reasons for not competitively bidding the
services. In addition, CBMWD would be required to rebid a
contract if the district significantly changes the scope of the
contract. The bill defines "significant changes" to include
changes to the nature of the services or work products.
SB 953 would also require CBMWD's general manager to submit a
quarterly report to the board of directors that details all of
the district's contracts, contract amendments, and contract and
amendment dollar amounts.
Finally, SB 953 would prohibit CBMWD from providing any member
of its board of directors with district funds to conduct
community outreach activities.
Related
Legislation: AB 1794 (Garcia), an urgency measure that is
pending in the Assembly Appropriations Committee, would revise
the governance structure of the CBMWD by specifying a
seven-member board of directors comprised of four elected
directors and three directors appointed by water purveyors. The
bill would also require the board to establish a technical
advisory committee within the CBMWD.
Staff
Comments: SB 953 would impose new duties and costs on the CBMWD
by requiring the appointment of two new members to the board of
directors and requiring changes to the district's contracting
practices.
Board of directors: This bill would expand the size of CBMWD's
board of directors from five to seven members, and require the
two new board members to be appointed by the Los Angeles County
board of supervisors, as specified. The CBMWD indicates that it
expects to incur the following annual expenses related to each
new board member: $27,960 in per diem compensation, $2,400 in
communications expenses, $4,764 in transportation expenses (not
including mileage reimbursements), $24,000 in health benefits,
and $7,000 in conference and travel expenses. Staff notes that
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most of this compensation is provided at the discretion of the
board, and current law only requires compensation of up to $100
per day for a maximum of six days per month ($7,200 per year),
plus reimbursement of expenses incurred in the performance of
official duties. The BSA audit report noted that some of the
benefits provided to board members, such as full health benefits
and a generous automobile allowance, may be overly generous
considering board members essentially work part time. The CBMWD
also estimates that the additional board members may also drive
indirect costs of $50,000 per director for district staff and
general counsel services. Most of these costs are not likely to
be subject to state-reimbursement because they are provided at
the district's discretion, rather than by statutory requirement.
SB 953 would require the Los Angeles County board of supervisors
to appoint two new board members to the CBMWD. In doing so, the
bill requires the board of supervisors to consider candidates
nominated by water retailers that purchase water from CBMWD,
authorizes the county to consider other qualified candidates,
and requires the appointments to be made at a public hearing.
Staff notes that costs for the board of supervisors to vet
candidates and appoint two new CBMWD board members every four
years should be relatively minor. Actual costs subject to state
reimbursement would be determined by the Commission, if Los
Angeles County files a successful reimbursement claim.
CBMWD contracts: This bill would prohibit CBMWD from using sole
source contracts unless the contract is limited to an emergency
circumstance, or there is only one vendor that can meet the
district's needs. The district would likely incur one-time
administrative costs to update contracting procedures to account
for the elimination of sole source contracts and the new
requirement that the district rebid contracts with significant
scope changes. There would also be ongoing administrative costs
for the district to comply with competitive bidding requirements
when contracting for services. Requiring competitive bidding is
likely to result in lower overall contracting costs, however,
since the district would be required to select the lowest
qualified bidder to perform the contract. The magnitude of
these savings is unknown, but likely to be sufficient to offset
any increased administrative costs.
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Mandate reimbursement: Under the mandates process, local
governments, including special districts, may file test claims
with the Commission alleging that statutes, regulations, and
executive orders impose new programs or increased levels of
service upon local entities. The Commission primarily relies on
Article XIII of the California Constitution and related case law
to make determinations. Reimbursement is required under Article
XIII B, section 6 only when the local agency is subject to
constitutional tax and spend limitations, and reimbursement is
not required when costs are for expenses that are recoverable
from sources other than tax revenue (service charges, fees, or
assessments).
The CBMWD is an enterprise special district with revenues
derived from water rates. Existing law provides the district
with the authority to set those rates to cover operating
expenses, repairs and maintenance, improvements, and principal
and interest on debt payments.
Two recent Commission decisions raise questions about whether
any new costs imposed upon CBMWD by SB 953 would be deemed
eligible for reimbursement. The Commission's Statement of
Decision on AB 1234, Chapter 700, Statutes of 2005, (Case #
07-TC-04) regarding new requirements for local agency officials
to comply with certain ethics training requirements, denied
reimbursement authority for special districts that are not
funded by proceeds of taxes and are not subject to the tax and
spend restrictions of articles XIII A and XIII B of the CA
Constitution. According to special district reports filed with
the State Controller's Office, the CBMWD does not receive any
proceeds of taxes. In addition, the Commission denied
reimbursement to urban retail water suppliers and agricultural
water suppliers in its combined Statement of Decision on SBx7 7,
Chapter 4, seventh extraordinary session of 2009-10 (Case #
10-TC-12), and Agricultural Water Measurement regulations
promulgated by the Department of Water Resources (Case #
12-TC-01). These measures imposed new water conservation
requirements on water suppliers and expanded their duties when
adopting urban water management plans. The Commission found in
this decision that enterprise districts funded exclusively
through user fees, charges, or assessments are ineligible for
mandate reimbursement. As noted above, the CBMWD is also an
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enterprise district funded through service charges, fees, or
assessments.
Staff notes, however, that decisions by the Commission are not
precedential, and each test claim is decided on its individual
merits. To the extent that CBMWD is deemed eligible to claim
reimbursement, and successfully files a claim with the
Commission, reimbursable costs could exceed $50,000. Actual
costs would be dependent upon what the Commission determines are
eligible mandated costs subject to reimbursement.
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