BILL ANALYSIS Ó
SB 1298
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Date of Hearing: June 29, 2016
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Susan Talamantes Eggman, Chair
SB
1298 (Hertzberg) - As Amended June 13, 2016
SENATE VOTE: Vote not relevant
SUBJECT: Local government: fees and charges.
SUMMARY: Makes numerous changes to the Proposition 218 Omnibus
Implementation Act. Specifically, this bill:
1)Adds the following definitions to the Proposition 218 Omnibus
Implementation Act:
a) "Proportional costs of the service attributable to the
parcel" to mean "when applied to a fee or charge for water
or sewer service, means the share of the total cost of
providing water or sewer service to water or sewer users
within the service area reasonably attributable to the
parcel. The total cost of providing water or sewer service
includes all costs of acquiring water and water rights,
costs of collecting, conveying, treating, and managing
water and wastewater, costs of satisfying all regulatory
requirements lawfully imposed on water and sewer service
providers and costs of providing communitywide water
service in an equitable manner, including the cost of
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lifeline water rates."
b) "Sewer service" to mean "services provided by all real
estate, fixtures, and personal property owned, controlled,
operated, or managed in connection with or to facilitate
sewage collection, treatment, or disposition for sanitary
or drainage purposes, including lateral and connecting
sewers, interceptors, trunk and outfall lines, sanitary
sewage treatment or disposal plants or works, drains,
conduits, outlets for surface or storm waters, and any and
all other works, property, or structures necessary or
convenient for the collection or disposal of sewage,
industrial waste, or surface or storm waters." Prohibits
"sewer system" from including a sewer system that merely
collects sewage on the property of a single owner.
2)Makes changes to the definition of "water" to instead define
"Water service" to mean services provided by any system of
public improvements intended to provide for the production,
storage, supply, treatment, or distribution of water from any
source.
3)Makes findings and declarations including that Proposition 218
was meant to improve transparency and accountability of local
government fees. Some court interpretations of the law have
constrained three important tools that local governments need
to manage water supplies and address water pollution:
stormwater management, rates to encourage water conservation,
and assistance for low-income Californians.
4)Provides that one vote per parcel, filed by an owner or tenant
of the parcel, shall be counted in determining whether a
proposed fee or charge is approved by a majority vote,
pursuant to Article XIII D of the California Constitution,
which establishes voter approval requirements for new or
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increased fees or charges, except for sewer, water, and refuse
collection services.
5)Adds the following findings and declarations to the
Proposition 218 Omnibus Implementation Act:
a) Water service may be used for purposes that are
indispensable to the use of the property, including, but
not limited to cooking, sanitation and reasonable
irrigation;
b) Water service may also be used for purposes that are not
indispensable to the use of property, including, but not
limited to excessive indoor use, unabated leakage,
excessive irrigation, and other activities that constitute
an inefficient use of water;
c) The amount of water that is indispensable to the use of
a property may vary depending on the use to which the
property is put, local conditions, water shortages,
environmental factors, and other factors affecting water
demand and supply availability.
d) Local agencies should have the authority to determine
the amount of water that is indispensable for property use,
pursuant to specified conditions;
e) Charges for water that are not indispensable for
property use are not imposed as an incident of property
ownership and therefore are not property-related charges,
as defined by Article XIII D of the California
Constitution;
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f) Charges for water that is not indispensable for property
use may be either specific benefits or specific government
services under Article XIII C of the California
Constitution; and,
g) Article XIII C of the California Constitution does not
identify the costs that may be associated with water
service, define "a fair or reasonable relationship" between
costs of the service and the burdens or benefits associated
with the service, or prescribe a particular method for
allocating the costs of providing nonproperty-related water
services or benefits.
6)Authorizes an agency, in addition to any property-related fee
or charge imposed, pursuant to Article XIII D of the
California Constitution, and this bill for water service, to
impose or increase a separate and distinct conservation and
efficiency fee or charge for the same service to create price
signals to encourage conservation and increased efficiency in
the use of water.
7)Authorizes a conservation and efficiency fee or charge imposed
pursuant to this bill to be imposed on water that is not
indispensable for property use.
8)Authorizes a conservation and efficiency fee or charge
imposed, pursuant to this bill, to be imposed for purposes,
including, but not limited to:
a) Deterrence of excess consumption of water, as determined
by the local agency;
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b) Encouragement of the adoption of technologies that
support more efficient use of water; and,
c) Encouragement of compliance with the goals of avoiding
waste and unreasonable use of water, pursuant to Section 2
of Article X of the California Constitution.
9)Authorizes a conservation and efficiency fee or charge to
raise revenue as an incident to its intended purposes.
Requires any revenue produced to only be used to pay the costs
of providing water service, to lower the rate or rate
structure of the associated property-related fee or charge for
water service, or to provide lower rates or rebates for
disadvantaged households. Prohibits the total amount
collected from the property-related fee or charge for water
service and the conservation and efficiency fee or charge from
exceeding the reasonable costs incurred by the agency to
provide water service.
10)Requires the rate of a conservation and efficiency fee or
charge to bear a fair or reasonable relationship to the burden
imposed on the local agency or the benefits received from the
water service based on the amount of water used by each
customer or class of customers.
11)Authorizes the agency to determine that the burden on, or
benefits derived from, the provision of water service per unit
of water used is greater for customers who use relatively
large amounts of water for their type and size of real
property.
12)Authorizes the agency to establish a water structure for a
conservation and efficiency fee or charge intended to
encourage conservation and increased efficiency of water use
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in order to bring the burdens of providing water service to
customer or classes of customers into reasonable balance.
Authorizes the charge to be structured in a tiered, ascending,
or other incremental manner. Authorizes the agency to
determine that the fairness of the rate structure is enhanced
if it provides for lower rates, known as lifeline rates, for
disadvantaged households.
13)Requires consideration and imposition or increase of a
conservation and efficiency fee or charge to comply with the
notice, hearing, protest, and election requirements, if any,
required by Article XIII D of the California Constitution.
Provides that the requirements in the California Constitution,
which prohibit the amount of a fee or charge imposed on any
parcel or person as an incident of property ownership from
exceeding the proportional cost of the service attributable to
the parcel, does not apply to any conservation and efficiency
fee or charge levied pursuant to this bill.
14)Requires, for the purposes of this bill, "reasonable costs"
of the specific benefit or specific government service to
include, but not be limited to costs that will, directly or
indirectly, enable an agency to meet water demands, reduce
water demands, conserve potable water supplies, procure water
supplies to provide water that is not indispensable to the use
of property, and provide communitywide water service in an
equitable manner, including lifeline water rates. Provides
that the determination of reasonable costs may consider the
relative income of the payer of the fee or charge.
15)Defines, for purposes of this bill and Article XIII C of the
California Constitution, "fair or reasonable relationship" to
include a relationship consistent with principles of equity
that hold that more affluent individuals benefit more from
public services, including water service, than less affluent
individuals receiving the same service.
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16)Provides that the provisions of this bill are severable.
Provides that, if any provision of this bill or its
application is held invalid, the invalidity shall not affect
other provisions or application that can be given effect
without the invalid provision or application.
FISCAL EFFECT: None
COMMENTS:
1)Financing Water Infrastructure. Local governments in
California provide most water related services in the state
which include water service, sewer service, flood control, and
stormwater management. A PPIC report, Paying for Water in
California, outlines four sources of funding currently used
for water in California: a) Fees, which include water and
waste water bills, property assessments or fees, developer or
connection fees, and permitting fees; b) Taxes, which include
both general and special taxes, including parcel taxes; c)
Fines and penalties, which include excessive pumping on
groundwater or directly to customers in violation of rationing
restrictions during drought emergencies; and, d) 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
emergency in California due to severe drought conditions. In
addition to challenges presented by the drought, local
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governments face several barriers to funding for stormwater
and dry weather runoff projects due to the constitutional
requirements for special taxes, benefit assessments, and
property-related fees. Many of the local governments that
operate MS4 (Municipal Separate Storm System) systems differ
from water and wastewater utilities that existed prior to the
passage of Proposition 218, which have in place service fees.
On the other hand, many stormwater programs in cities and
counties are funded by the general fund, primarily through
property and local sales taxes. As regulatory burdens
continue to increase, financially strapped local governments
are forced to examine alternative funding mechanisms and
regional strategies to address MS4 costs, which some cities in
Los Angeles County are citing to be in the millions of
dollars.
2)Proposition 218. Proposition 218 distinguishes among taxes,
assessments and fees for property-related revenues, and
requires certain actions before such revenues may be
collected. Counties and other local agencies with police
powers may impose any one of these options on property owners,
after completing the Proposition 218 process. Special
districts created by statute, however, must have specific
authority for each of these revenue sources.
The Constitution defines a fee (or charge) as any levy other
than an ad valorem tax, special tax, or assessment that is
imposed by a local government on a parcel or on a person as an
incident of property ownership, including a user fee for a
property-related service. The fee imposed on any parcel or
person cannot exceed the proportional cost of the service that
is attributable to the parcel. Prior to imposing or
increasing a property-related fee, the local government is
required to identify the parcels, mail a written notice to all
the property owners subject to the fee detailing the amount of
the fee, the reason for the fee, and the date, time, and
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location of a public hearing on the proposed fee. No sooner
than 45 days after mailing the notice to property owners, the
agency must conduct a public hearing on the proposed fee. If
a majority of owners of the identified parcels provide written
protests against the fee, it cannot be imposed or increased by
the agency.
Additionally, Article XIII D, Section 6, subdivision (c) of
the California Constitution, provides election requirements,
"Except for fees or charges for sewer, water, and refuse
collection services, no property-related fee or charge shall
be imposed or increased unless and until that fee or charge is
submitted and approved by a majority vote of the property
owners of the property subject to the fee or charge or, at the
option of the agency, by a two-thirds vote of the electorate
residing in the affected area." The election for the fee is
required to be conducted no less than 45 days following the
public hearing.
The definition of "water" and "sewer" under the Proposition
218 Omnibus Implementation Act are significant because the
election requirements are on fees for services other than
water, sewer, and trash services.
3)Bill Summary. This bill addresses a number of issues in the
Proposition 218 Omnibus Implementation Act. This bill is
sponsored by the Water Foundation.
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a) Conservation Rates. Tiered rates are common among local
governments to promote water conservation by structuring
the price of water per unit according to the level of use.
An appellate court ruled that the city's tiered rate
violated the proportionality requirements for
property-related fees (Howard Jarvis Taxpayers Association
v. City of Salinas (2002)). In this case, the city failed
to demonstrate that its rate tiers corresponded to the
actual cost of providing service on a parcel basis at a
given level of usage.
This bill authorizes a local agency to impose or increase a
separate and distinct conservation and efficiency fee or
charge for the same services (water service) to create
price signals to encourage conservation and increased
efficiency in the use of water. The conservation and
efficiency fee or charge imposed, pursuant to this bill, is
authorized to be imposed on water that is not indispensable
for property use.
b) Lifeline Rates. Lifeline programs reduce the water and
sewer service rates charged to low-income households in
order to provide them with more affordable services. In
order to backfill a decrease in revenue from lifeline
rates, agencies would need to either charge higher rights
to other households or backfill with other sources of
funding.
This bill prohibits the total amount collected from the
property-related fee or charge for water service and the
conservation and efficiency fee or charge from exceeding
the reasonable costs incurred by the local agency to
provide water service. This bill defines "reasonable
costs" and "fair or reasonable relationship" to provide
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that the determination of a reasonable cost may consider
the relative income of the payer of the fee or charge.
c) Storm Drainage. The definition of "water" and "sewer"
under the Proposition 218 Omnibus Implementation Act is
significant because the election requirements are on fees
for services other than water, sewer, and trash services.
This bill provides a definition of "sewer" in the Act using
the definition of sewer from the Public Utilities Code.
4)Author's Statement. According to the author, "Proposition
218, approved in 1996, was meant to improve transparency and
accountability of local government fees. Some court
interpretations of the law have constrained three important
tools we need to manage water supplies and address water
pollution: stormwater management, rates to encourage water
conservation, and rate assistance for low-income Californians.
These tools are needed now more than ever because California
remains in an historic five-year drought.
"Stormwater is a key source of local water supply, and careful
management is necessary to reduce pollution. Currently,
stormwater and flood control programs must meet a higher
standard than other services to raise capital, thus preventing
many important projects from being built.
"One way to encourage conservation is to charge the largest
water users more per gallon. This is a common practice
throughout the world - and a requirement for California's
private water agencies. Unfortunately, a recent court
decision makes it unclear if local agencies can employ this
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option.
"The US Environmental Protection Agency has found that
drinking water rates exceeding two percent of monthly income
are unaffordable, which is the case for millions of
Californians. Private water and energy utilities are required
to offer programs to make rates affordable to low income
households. Local governments in California, however, are
largely prohibited from doing the same thing.
"SB 1298 addresses these issues by adding missing definitions
and direction on the interpretation of Proposition 218 while
maintaining transparency and accountability.
SB 1298 defines "sewer service" to include stormwater so local
governments can build and finance those projects, and provides
options for water agencies to develop rates that low income
households can afford and that encourage extravagant water
users to conserve. These fixes are urgently needed during the
current drought to safeguard our water supplies and ensure
that all Californians have access to safe, affordable drinking
water."
5)Prior Legislation and Ballot Measures. AB 1362 (Gordon) of
2015, would have provided a definition for "stormwater" to
mean "any system of public improvements, or service intended
to provide for the quality, conservation, control, or
conveyance of waters that land on or drain across the natural
or man-made landscape" in the Proposition 218 Omnibus
Implementation Act. AB 1362 would have only become operative
if a constitutional amendment was approved by the voters. The
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introduced version of AB 1362 was subsequently amended into a
different issue area to address mosquito and vector control
districts.
AB 2403 (Rendon), Chapter 78, Statutes of 2014, expanded the
definition of "water" in the Proposition 218 of 1996 Omnibus
Implementation Act.
The League of California Cities, California Association of
Counties and Association of California Water Agencies filed a
ballot initiative, California Water Conservation, Flood
Control and Stormwater Management Act of 2016. The proposed
constitutional amendment addressed the same three issues and
this bill seeks to address with a majority vote bill. The
proponents of the initiative declined to move forward after
doing polling research.
6)Policy Considerations and Committee Amendments.
a) History of the Proposition 218 Omnibus Implementation
Act. The creation of and amendments to the Omnibus
Implementation Act have been done on a consensus basis.
The Committee may wish to note that the approach taken by
this bill diverges from that tradition. Historically, if
provisions could not be agreed upon, they were left out of
the Act and litigated in the courts. Proponents argue that
it is the Legislature's job to establish policy and provide
policy guidance to the courts and that this bill addresses
the same important issues that failed ballot initiatives
and constitutional amendments have failed to do.
b) Litigation. Following Proposition 218 there is an
extensive history of litigation involving both tiered rates
and services related to stormwater. Opposition argues that
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this bill will result in additional uncertainty and more
litigation.
c) Committee Amendments. Given the policy considerations,
the Committee may wish to ask the author to narrow the
scope of this bill to address the stormwater issue and
remove all other provisions that have elicited the
strongest opposition. Moving forward, the Committee may
wish to encourage the author to work collaboratively with
the stakeholders on the remaining stormwater provisions in
the bill.
7)Arguments in Support. Supporters argue the following:
Lifeline and Conservation Rates. The Sierra Club argues,
"Water rates that encourage conservation should not be
required to be strictly linked to the specific parcel the
water is being provided to. Taking a broader approach in a
community will allow for better price signals to high users
and lifeline rates consistent with the human right to water.
Pushing for greater conservation can actually lower the total
cost of service for all users, and supply increases and new
infrastructure are not needed."
Stormwater Drainage. The Water Foundation argues, "While
hundreds of California's cities, counties, and stormwater
districts face federal mandates to reduce stormwater pollution
and are under pressure to seek new sources of local water
supply, only a handful of them have been able to collect funds
to meet these needs. Drinking water and sanitary sewer
services, however, have not suffered such problems. SB 1298
simply clarifies that stormwater is an integral part of both
sewer and water systems and that its management should be held
to the same high standards of transparency and
accountability."
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8)Arguments in Opposition. Opposition argues the following:
Lifeline Rates. The League of Cities argues, "Lifeline rates
are unconstitutional under Article XIIID, Section 6 (b)
because the rate imposed on the higher-income user exceeds the
'proportional cost of the service attributable to the user's
parcel.' SB 1298 seeks to address this issue by defining
'cost of service' to include the cost or providing water
services in an 'equitable manner' including the cost of
'lifeline water rates'. This definition of 'cost of service'
does not address Proposition 218's proportionality
requirement."
Conservation Rates. The Association of California Water
Agencies argues, "SB 1298 attempts to provide more flexibility
for voluntary conservation-based pricing. SB 1298's
provisions in this area, however, have legal problems that
would create legal uncertainty and litigation risk for any
local agency which would try to implement them. They also
have policy problems." The League of California Cities
writes, "Unfortunately, SB 1298's water conservation and
efficiency charge does not take into account the cost and
revenue nexus required by Proposition 26."
Stormwater Drainage. The Association of California Water
Agencies argues, "This proposal will create legal uncertainty.
One court has held that unless an agency operates a combined
storm/sewer system, fees for storm water facilities and
services do not fall under the exception in the Article XII D,
Section 6 for sewer and water services."
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REGISTERED SUPPORT / OPPOSITION:
Support
Water Foundation [SPONSOR]
American Rivers
California Coastkeeper Alliance
Humboldt Baykeeper
Inland Empire Waterkeeper
Klamath Riverkeeper
Los Angeles Waterkeeper (LAW)
Monterey Coastkeeper
Orange County Coastkeeper
Planning and Conservation League
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Russian Riverkeeper
San Diego Coastkeeper
San Francisco Baykeeper
San Luis Obispo Coastkeeper
Santa Barbara Channelkeeper
Sierra Club California
South Yuba River Citizens' League (SYRCL)
Ventura Coastkeeper
Concerns
League of California Cities
Opposition
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Association of California Water Agencies
City of Watsonville
Coachella Valley Water District
Cucamonga Valley Water District
Dublin Sam Ramon Services District
East Valley Water District
Great Oaks Water Company
Howard Jarvis Taxpayers Association
Las Virgenes Municipal Water District
Mesa Water District
Monte Vista Water District
Mountain Counties Water Resources Association
Oakdale Irrigation District
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Rowland Water District
Opposition (continued)
San Juan Water District
Vallecitos Water District
Vista Irrigation District
San Diego County Water Authority
Western Canal Water District
Wheeler Ridge Maricopa Water Storage District
Analysis Prepared by:Misa Lennox / L. GOV. / (916)
319-3958
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