BILL ANALYSIS Ó
SB 953
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Date of Hearing: June 29, 2016
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Susan Talamantes Eggman, Chair
SB
953 (Lara) - As Introduced February 4, 2016
SENATE VOTE: 26-11
SUBJECT: Central Basin Municipal Water District.
SUMMARY: Makes changes to the composition of the Central Basin
Municipal Water District's (District) Board of Directors (Board)
and establishes restrictions on the District's use of sole
source contracting. Specifically, this bill:
1)Requires the Board to consist of seven members to each serve
four-year terms. Requires the members of the Board to be
selected as follows:
a) Five (5) directors elected in accordance with the
Municipal Water District Law, which requires each of the
five directors to be a resident from the division from
which they are elected. Requires the directors elected on
or before January 1, 2018, to continue to serve their term,
pursuant to existing law.
b) Two (2) directors appointed by the Los Angeles County
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Board of Supervisors (Board of Supervisors) in a public
meeting. Requires the Board of Supervisors to consider any
nominations of candidates for appointment made by a water
retailer that purchases water from the District, if any,
and allows the Board of Supervisors to also consider other
qualified candidates for appointment.
2)Requires each appointed director to possess the following
qualifications:
a) Residence within the District's boundaries; and,
b) Knowledge of the water industry and familiarity with the
role and responsibilities of a municipal water district.
3)Requires the Board of Supervisors to appoint a director to
fill a vacancy of any appointed director who is unable to
serve for the duration of his or her term, pursuant to 1b),
above.
4)Prohibits the District from using sole source contracts,
unless one of the following conditions is met:
a) The contract is limited to an emergency circumstance;
or,
b) The circumstances are that only one vender can meet the
District's needs.
5)Requires the District, before executing a sole source
contract, to provide written justification demonstrating the
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reasons for not competitively bidding the services. Requires
the justification to include all of the following information:
a) The background of the purchase;
b) A description of the vendor's uniqueness;
c) An explanation of the consequences of not purchasing
from the vendor;
d) Market research to substantiate a lack of competition;
and,
e) An analysis of pricing and alternatives.
6)Requires the District to rebid a contract if the District
significantly changes the scope of work of the contract.
Provides that significant changes include, but are not limited
to, changes to the nature of the services or work products.
7)Requires the District'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.
8)Prohibits the District from providing any members of the Board
with District funds to conduct community outreach activities.
9)Finds and declares that a special law is necessary because of
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the unique circumstances with the District, as described in
the California State Auditor's December 3, 2015 report.
10)Provides that, if the Commission on State Mandates determines
that this bill contains costs mandated by the state,
reimbursement to local agencies and school districts for those
costs shall be made, pursuant to current law governing state
mandated local costs.
EXISTING LAW:
1)Establishes the Municipal Water District Law, which governs
the formation, internal organization, and elections for
municipal water districts.
2)Requires a municipal water district board of directors to
consist of five members elected by the voters in each of the
five divisions of the district. Requires that each director
elected is a resident of that division.
3)Requires directors to be elected at general district
elections, which means the election of directors held in each
even-numbered year at the time of the general election.
4)Authorizes a municipal water district to contract with other
public agencies, private corporations, or persons to finance
acquisitions, constructions, and operations for the purpose of
carrying out any of the powers of a district.
FISCAL EFFECT: According to the Senate Appropriations
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Committee, this bill contains 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
regarding what expenses incurred by [the District] in
implementing the bill are deemed to be subject to state
reimbursement. See staff comments [in the Senate Appropriations
Committee analysis] for a discussion of potentially reimbursable
costs.
COMMENTS:
1)Bill Summary. This bill establishes a governance structure
for the District. This bill establishes a seven-member Board
composed of five directors elected, pursuant to the Municipal
Water District Law, and two directors appointed by the Local
Angeles County Board of Supervisors in a public meeting. The
two appointed directors must reside within the boundaries of
the District and have knowledge of the water industry and
familiarity with the role and responsibilities of a municipal
water district.
Under this bill, the District may only use sole source
contracts if the contract is limited to an emergency
circumstance or in a circumstance where is there only one
vender that can meet the District's needs. This bill also
establishes requirements that the District must fulfill to
provide specified written justification and reporting on
contracts and costs. This bill also prohibits funds from
being provided to the Board for community outreach activities.
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2)Author's Statement. According to the author, "This bill
amends state laws governing the CBMWD to implement some of the
recommendations made in the audit report published by the
Bureau of State Audits last year. Specifically, this bill
implements the auditor's recommendation for legislation to
change the membership of [District's] governing board. By
requiring the [Board of Supervisors] to appoint two additional
members to [District's] board, this bill seeks to add some
independent participants to the [District's] policymaking
process and make the board more representative and
accountable. The changes this bill makes to state law will
promote public transparency, sound fiscal management, and
improved governance at the [District]."
3)Central Basin Municipal Water District. The District was
formed in 1952 by the voters, pursuant to the Municipal Water
District Act of 1911, to help mitigate the overpumping of
groundwater in southeast Los Angeles County. The District is
a member agency of the Metropolitan Water District of Southern
California (Metropolitan), where it purchases imported water
from Metropolitan to whole to 40 retail water agencies and one
wholesaler that includes cities, water districts, mutual water
companies, investor-owned utilities, and private companies. A
smaller source of the District's incoming revenue is from the
sale of recycled water for municipal, commercial, and
industrial use. The District serves nearly two million people
in 24 cities in southeast Los Angeles County and in some
unincorporated areas of the County.
The District is governed by a five-member Board with each
director representing a division within the District. Voters
within each division elect a director to a four-year term.
There are no term limits for the Board, as some directors are
currently serving their fourth and fifth terms on the Board.
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Directors in three of the five divisions are up for election
in November of 2016.
The District has been under increased scrutiny as news reports
have highlighted the District's misuse of public funds,
inappropriate contracting and employment practices, and
several lawsuits. In June of 2014, the Los Angeles County
Board of Supervisors directed the County Chief Executive
Office, County Counsel, and Department of Public Works to
consult with the District to ensure all necessary steps were
being taken to address and correct their ongoing problems,
investigate options to ensure continued water availability and
service to the District's customers, and report back to the
Board of Supervisors with findings and recommendations. While
the report contained a section discussing the transfer of
ownership of the District to another entity and the
dissolution process outlined in current law, the ultimate
recommendation to the Board of Supervisors was to request a
comprehensive audit of the District by the California State
Auditor.
4)Audit Findings. In December 2015, the Bureau of State Audits
(BSA) issued a report that identified several key findings:
a) The Board has failed to provide the leadership necessary
for the District to fulfill its responsibilities;
b) There are a lack of policies to safeguard the District's
long-term financial viability;
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c) The District's debt coverage ratio is insufficient and
the District's credit rating has been downgraded several
times;
d) The Board's actions caused the District to lose its
insurance coverage;
e) The Board violated state law in 2010, when it approved
the establishment of a legal trust fund without adequate
public disclosure;
f) The District frequently inappropriately avoided its
competitive bidding processes, while awarding contracts to
vendors;
g) The District spent thousands of dollars on purposes
unrelated to its underlying authority; and,
h) The District failed to follow its policies for hiring
employees and failed to ensure stability in its key
executive management position.
To address these findings, the audit made numerous
recommendations, most of which do not require legislation.
Additionally, the audit included an addendum report from the
District, which includes actions to put in place many of the
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recommendations contained in the audit.
The audit only includes one recommendation that requires
legislation: "To ensure the efficient and effective delivery
of imported and recycled water in southeastern Los Angeles
County, the Legislature should pass special legislation to
preserve the district as an independent entity but modify the
District's governance structure. In doing so, the Legislature
should consider a governance structure that ensures the
District remains accountable to those it serves, for example,
by changing the District's board from one elected by the
public at large to one appointed by the District's customers."
5)Related Legislation. AB 1794 (Garcia), pending in the Senate,
also establishes a governance structure for the District. AB
1794 adds three appointed directors to the Board and creates a
technical oversight committee.
6)Policy Considerations. According to the BSA report, "Given
the concerns we raise in this report, a dissolution or
restructuring may become necessary in the future. Should the
board not succeed in maintaining a stable leadership team,
should the district experience additional lawsuits, or should
it lose its insurance coverage again, it will risk not being
able to operate effectively as an independent entity.
However, because of the recent progress, a complete
dissolution may be premature at this time." The Committee may
wish to consider if the internal changes made by the District,
combined with proposed changes to the governance structure,
will be enough to address the multitude of issues identified
by the audit.
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7)Arguments in Support. Supporters argue that this bill creates
greater transparency in the District's contracting process and
that this bill increases public accountability by authorizing
the Board of Supervisors to appoint two additional members to
the Board.
8)Arguments in Opposition. None on file.
REGISTERED SUPPORT / OPPOSITION:
Support
Central Basin Municipal Water District (if amended)
Cities of Lakewood, Lynwood, Maywood, Montebello, Paramount,
Signal Hill, South Gate,
and Vernon
Karina Macias, City Council Member, City of Huntington Park
Opposition
None on file
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Analysis Prepared by:Misa Lennox / L. GOV. / (916)
319-3958