BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 1383 HEARING: 7/3/12
AUTHOR: Hernandez FISCAL: No
VERSION: 6/20/12 TAX LEVY: No
CONSULTANT: Weinberger
CITY OF EL MONTE'S WATER UTILITY (URGENCY)
Allows the City of El Monte to sell or transfer its public
utility water system, without voter approval, subject to
specified requirements.
Background and Existing Law
State law does not provide a standard procedure for cities
to follow when they sell municipal property, but for more
than 80 years cities have had to follow special procedures
when they want to sell public utilities that supply water,
power, sewer, transportation, or communication services.
By a 2/3-vote, the city council must determine that the
public interest and necessity demand that the public
utility should be sold. By a 2/3-vote, the city council
must explain how the city will spend the proceeds of the
sale and then call an election on selling the public
utility. A successful election requires 2/3-voter
approval. If the proposition passes, city officials must
sell the public utility to the highest and best bidder.
In 1996, the Legislature allowed cities to sell their water
utilities with majority-voter approval instead of 2/3-voter
approval (SB 2111, Beverly, 1996). Further, the
Legislature allowed the Cities of Montebello, Fontana, and
West Covina to sell their water utilities without any voter
approval (SB 248, Montoya, 1987;
AB 2867, Brulte, 1995; AB 1128, Miller, 1997).
The City of El Monte (Los Angeles County) owns and operates
a municipal water system that provides retail water
service, through approximately 3,500 service connections,
to about 20% of the city's residents. The San Gabriel
Valley Water Company is a private, investor-owned water
utility company that provides retail water service to over
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48,000 customers within a 45 square mile service area in
Los Angeles County. The company serves customers in the
City of El Monte, where it is headquartered.
Confronted with fiscal challenges and increasing costs to
operate and maintain its water system, City of El Monte
officials want legislators to grant the City authority to
sell its water utility system, without voter approval, to
the San Gabriel Valley Water Company.
Proposed Law
Senate Bill 1383 allows the City of El Monte,
notwithstanding any other law, to sell or transfer,
pursuant to specified statutes, all or any part of the
public utility for furnishing water service that it owns
and operates. The sale or transfer is subject to the
following requirements:
The El Monte City Council cannot sell the water
utility property for less than its fair market value,
determined in accordance with the Public Water System
Investment and Consolidation Act of 1997, which
defines fair market value as:
o The highest price that would be agreed to
by a willing seller and willing buyer, acting
under no particular or urgent necessity to buy or
sell, and each with full knowledge of all the
uses and purposes for which the property is
reasonably adaptable and available.
The entity acquiring the City of El Monte's water
utility property must be a water corporation, as
defined in state law, that, at the time of the sale or
transfer, is authorized by the Public Utilities
Commission to provide water service to at least 50% of
the area within the corporate limits of the city, and
maintains its corporate headquarters within the
corporate limits of the city.
Upon acquiring the City of El Monte's water system,
the acquiring water corporation assumes the obligation
to provide water service to all persons in the area
formerly served through the water system being sold by
the city on the same terms and conditions that the
Public Utilities Commission has found to be just and
reasonable for the acquiring water corporation's other
customers in the city and that do not unlawfully
SB 1383 -- 6/20/12 -- Page 3
discriminate against the previous customers of the
city's water system.
SB 1383's provisions remain in effect only until January 1,
2014, and as of that date are repealed, unless a later
enacted statute, that becomes operative on or before
January 1, 2014, deletes or extends the date on which it is
repealed.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . The City of El Monte's water
utility is an aging system that needs substantial
investments in maintenance and improvements. In light of
fiscal challenges confronting the City, El Monte city
council members are considering selling El Monte's water
system to another utility provider. The council has been
negotiating the terms of a sale with representatives of the
San Gabriel Valley Water Company, a private utility company
that already provides retail water service to many El Monte
residents. Because the terms of a potential sales
agreement have not yet been finalized, the City may not
have enough time left this year to seek voter approval of a
sale under the majority-vote process enacted by the 1996
Beverly bill. To allow city officials to take advantage of
favorable financial conditions by completing the sales
process soon, SB 1383 grants El Monte an exemption from the
voter-approval requirements that apply to the sale of a
municipal utility.
2. Unnecessary ? Requiring voter approval of a city's
decision to sell a municipal utility gives local residents
a direct role in determining who will own vital public
infrastructure. While the City of El Monte may not have
time, this year, to seek majority voter approval of an
agreement to sell its water system to San Gabrial Valley
Water Company, state law gives the city another option. A
local ballot measure approved by 2/3 of voters could
broadly authorize the city council to sell the city's water
utility and use the proceeds for specified purposes. The
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City could seek approval of such a ballot measure at a
special election called at any time. The measure would not
require the City to sell the water utility and would not
require voters to subsequently approve the terms of any
sales agreement between the city and a purchaser. Earlier
this month, 77% of voters in the City of Hercules approved
Measure N, which granted the city council the power to sell
the City's municipal utility. If Hercules, a city
confronting fiscal challenges like those facing El Monte,
can get a supermajority of its voters to approve the
potential sale of its municipal utility, why should state
law exempt the City of El Monte from the same voter
approval requirement?
3. Picking winners . By specifying that the City of El
Monte's water system can be sold only to a CPUC-regulated,
privately-owned water utility that is authorized to serve
more than 50% of El Monte and already has its corporate
headquarters office in the city, SB 1383 effectively
prohibits the City from selling its water system to any
entity other than the San Gabriel Valley Water Company.
Because SGVWC already serves the area, operates a water
system that is already physically connected to the City's
system, and may be able to operate the City's system at a
lower cost by taking advantage of economies of scale, there
may be good reasons for the City to sell to SGVWC.
However, legislators should be cautious about enacting a
statute that guarantees a specific private corporation will
benefit from a local agency's decision to sell public
assets, particularly if that statute also eliminates
voters' power to approve the sale. El Monte's elected city
council members, not state legislators, should pick a
purchaser for the city's water utility. The Committee may
wish to consider amending SB 1383 to delete any
restrictions on the type of entity that can buy the City of
El Monte's water system.
4. Be specific . SB 1383 states that its provisions
prevail over all other provisions of law. This broad
exemption from existing law may have unintended
consequences. To more narrowly exempt El Monte
specifically from the voter approval requirements that
apply to sales of municipal utilities, the Committee may
wish to consider amending SB 1383 by striking out, on page
2, line 3, "Notwithstanding any other law" and inserting
"Notwithstanding Article 2 (commencing with Section 10051)
SB 1383 -- 6/20/12 -- Page 5
of Chapter 1 of Division 5 of the Public Utilities Code."
5. Section correction . SB 1383 amends language into a new
Government Code section that is adjacent to statutes
relating to the sale of public buildings and sites
dedicated for public use. To clarify El Monte's authority
to sell its entire water utility, including portions that
are neither public buildings nor sites dedicated for public
use, the Committee may wish to consider amending AB 1383 to
move the bill's provisions into a Section of the Government
Code adjacent to Government Code Section 37350, which more
broadly authorizes cities to sell real property.
6. Urgency . Regular statutes take effect on January 1
following their enactment; bills passed in 2012 take effect
on January 1, 2013. The California Constitution allows
bills with urgency clauses to take effect immediately if
they're needed for the public peace, health, and safety.
SB 1383 contains an urgency clause declaring that it is
necessary for its provisions to go into effect immediately
so that the City of El Monte obtains the clear authority to
sell a city-owned water utility while financial conditions
are favorable to the city, and the sale is in the public
interest.
7. Special legislation . The California Constitution
prohibits special legislation when a general law can apply.
SB 1383 contains findings and declarations explaining the
need for legislation that applies only to the City of El
Monte.
Support and Opposition (6/28/12)
Support : Unknown.
Opposition : Unknown.