BILL ANALYSIS Ó SB 953 Page 1 SENATE THIRD READING SB 953 (Lara) As Amended August 15, 2016 Majority vote SENATE VOTE: 26-11 ------------------------------------------------------------------ |Committee |Votes|Ayes |Noes | | | | | | | | | | | | | | | | |----------------+-----+----------------------+--------------------| |Local |6-3 |Eggman, Alejo, |Waldron, Beth | |Government | |Bonilla, Chiu, |Gaines, Linder | | | |Cooley, Gordon | | | | | | | |----------------+-----+----------------------+--------------------| |Appropriations |14-6 |Gonzalez, Bloom, |Bigelow, Chang, | | | |Bonilla, Bonta, |Gallagher, Jones, | | | |Calderon, Daly, |Obernolte, Wagner | | | |Eggman, Eduardo | | | | |Garcia, Holden, | | | | |Quirk, Santiago, | | | | |Weber, Wood, McCarty | | | | | | | | | | | | ------------------------------------------------------------------ SB 953 Page 2 SUMMARY: Establishes restrictions on the Central Basin Municipal Water District's (District) use of sole source contracting. Specifically, this bill: 1)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 vendor can meet the District's needs. 2)Requires the District, before executing a sole source contract, to provide written justification demonstrating the 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. SB 953 Page 3 3)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. 4)Requires the District's general manager to submit a quarterly report to the District's Board of Directors (Board) detailing all of the District's contracts, contract amendments, and contract and amendment dollar amounts. 5)Prohibits any ordinance, motion, or resolution relating to ethics, compensation, or benefits of the members of the District's Board to be passed or become effective without the affirmative votes of two-thirds of the members of the Board. 6)Provides that the enactment of this bill is contingent upon the enactment of AB 1794 (Garcia) of the current legislative session. 7)Finds and declares that a special law is necessary because of the unique circumstances with the District, as described in the California State Auditor's December 3, 2015 report. 8)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. FISCAL EFFECT: According to the Assembly Appropriations Committee, there are minor costs to the District. SB 953 Page 4 COMMENTS: 1)Bill Summary. 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 vendor 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 the Board from adopting any ordinance, motion or resolution, relating to the ethics, compensation, or benefits of Board members without a two-thirds vote of the Board. 2)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 2 million people in 24 cities in southeast Los Angeles County and in some unincorporated areas of the County. 3)Audit Findings. 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 December 2015, the Bureau of State Audits (BSA) issued a report that identified several key findings: SB 953 Page 5 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; 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. SB 953 Page 6 Additionally, the audit included an addendum report from the District, which includes actions to put in place many of the 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." 4)Related Legislation and Contingent Enactment. AB 1794 (Garcia), pending in the Senate, establishes a governance structure for the District. This bill and AB 1794 (Garcia) contain language that requires contingent enactment. 5)Policy Consideration. 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 Legislature may wish to consider if the internal changes made by the District, combined with proposed changes in this bill, will be enough to address the multitude of issues identified by the audit. SB 953 Page 7 Analysis Prepared by: Misa Lennox / L. GOV. / (916) 319-3958 FN: 0004193