Existing law authorizes the furnishing of utility services by publicly owned public utilities, including municipal corporations, which are subject to control by their governing bodies. Existing law authorizes any municipal corporation to acquire, construct, own, operate, or lease any public utility, as defined, to furnish its inhabitants with light, water, power, heat, transportation, or means of communications and to furnish those services outside its boundaries, except within another municipal corporation that furnishes the same service or that does not consent. Existing law authorizes a municipal corporation to sell or dispose of any public utility it owns. Existing law requires that a resolution authorizing the sale of a public utility be passed by ²/₃ of the members of the legislative body of the municipal corporation and be passed by a ²/₃ vote of all voters voting at an election to authorize the sale in the ordinance calling the election. Existing law establishes an alternative procedure whereby a municipal corporation can lease, sell, or transfer that portion of a water utility used for furnishing water service outside the boundaries of the municipal corporation.

This bill would additionally authorize a municipal corporation to utilize the alternative procedures to lease, sell, or transfer that portion of a municipal utility used for furnishing sewer service outside the boundaries of the municipal corporation.

This bill would incorporate additional changes to Section 10061 of the Public Utilities Code proposed by AB 2339 to be operative only if this bill and AB 2339 are enacted and this bill is enacted last.

Existing law authorizes the furnishing of utility services by publicly owned public utilities, including municipal corporations, which are subject to control by their governing bodies. Existing law authorizes any municipal corporation to acquire, construct, own, operate, or lease any public utility, as defined, to furnish its inhabitants with light, water, power, heat, transportation, or means of communications and to furnish those services outside its boundaries, except within another municipal corporation that furnishes the same service or that does not consent. Existing law authorizes a municipal corporation to sell or dispose of any public utility it owns. Existing law requires that a resolution authorizing the sale of a public utility be passed by ²/₃ of the members of the legislative body of the municipal corporation and be passed by a ²/₃ vote of all voters voting at an election to authorize the sale in the ordinance calling the election. Existing law establishes an alternative procedure whereby a municipal corporation can lease, sell, or transfer that portion of a water utility used for furnishing water service outside the boundaries of the municipal corporation.

This bill would additionally authorize a municipal corporation to utilize the alternative procedures to lease, sell, or transfer that portion of a municipal utility used for furnishing sewer service outside the boundaries of the municipal corporation.

This bill would incorporate additional changes to Section 10061 of the Public Utilities Code proposed by AB 2339 to be operative only if this bill and AB 2339 are enacted and this bill is enacted last.

Existing law authorizes the furnishing of utility services by publicly owned public utilities, including municipal corporations, which are subject to control by their governing bodies. Existing law authorizes any municipal corporation to acquire, construct, own, operate, or lease any public utility, as defined, to furnish its inhabitants with light, water, power, heat, transportation, or means of communications and to furnish those services outside its boundaries, except within another municipal corporation that furnishes the same service or that does not consent. Existing law authorizes a municipal corporation to sell or dispose of any public utility it owns. Existing law requires that a resolution authorizing the sale of a public utility be passed by ²/₃ of the members of the legislative body of the municipal corporation and be passed by a ²/₃ vote of all voters voting at an election to authorize the sale in the ordinance calling the election. Existing law establishes an alternative procedure whereby a municipal corporation can lease, sell, or transfer that portion of a water utility used for furnishing water service outside the boundaries of the municipal corporation.

This bill would additionally authorize a municipal corporation to utilize the alternative procedures to lease, sell, or transfer that portion of a municipal utility used for furnishing sewer service outside the boundaries of the municipal corporation.

Existing law authorizes the furnishing of utility services by publicly owned public utilities, including municipal corporations, which are subject to control by their governing bodies. Existing law authorizes any municipal corporation to acquire, construct, own, operate, or lease any public utility, as defined, to furnish its inhabitants with light, water, power, heat, transportation, or means of communications and to furnish those services outside its boundaries, except within another municipal corporation that furnishes the same service or that does not consent. Existing law authorizes a municipal corporation to sell or dispose of any public utility it owns. Existing law requires that a resolution authorizing the sale of a public utility be passed by ²/₃ of the members of the legislative body of the municipal corporation and be passed by a ²/₃ vote of all voters voting at an election to authorize the sale in the ordinance calling the election. Existing law establishes an alternative procedure whereby a municipal corporation can lease, sell, or transfer that portion of a water utility used for furnishing water service outside the boundaries of the municipal corporation.

This bill would additionally authorize a municipal corporation to utilize the alternative procedures to lease, sell, or transfer that portion of a municipal utility used for furnishing sewer service outside the boundaries of the municipal corporation.

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 2179

Author:(Gipson)

As Amended Ver:August 15, 2018

Majority vote

Original Committee Reference: L. GOV.

SUMMARY: Authorizes a municipal corporation to utilize alternative procedures to lease, sell, or transfer a municipal utility used for furnishing sewer service.

The Senate amendments add chaptering out language to avoid potential conflicts with provisions of AB 2339 (Gipson) of the current legislative session.

EXISTING LAW:

1. Defines "municipal corporation" to mean a city or a city and county.
2. Allows a city to purchase, lease, receive, hold and enjoy real and personal property, and control and dispose of it for the common benefit.
3. Establishes, generally, a maximum term of 15 years for the lease of a public utility.
4. Allows a city or a city and county to sell any public utility that it owns, generally, by a two-thirds vote of its legislative body, and subsequently by a two-thirds vote of all voters voting at an election.
5. Allows municipal corporations owning and operating a public utility for furnishing drinking water, which provides water service outside the boundaries of such municipal corporation, to lease, sell or transfer the portion of the utility located outside the boundaries of such municipal corporation to another public entity or utility upon a majority vote of the board, provided there is adequate justification for the sale or transfer.
6. Allows a municipal corporation owning a public utility for furnishing drinking water service to sell the public utility within its boundaries with a majority vote of its legislative body and a majority vote of the electorate.
7. Establishes a policy of the state that every human being has the right to safe, clean, affordable, and accessible water adequate for human consumption, cooking, and sanitary purposes.

AS PASSED BY THE ASSEMBLY, this bill:

1. Allowed a municipal corporation owning and operating a public utility for furnishing sewer service, that provides sewer service outside the boundaries of such municipal corporation, to lease, sell or transfer the portion of the utility located outside the boundaries of such municipal corporation to another public entity or utility upon a majority vote of the board, provided there is adequate justification for the sale or transfer.
2. Authorized a municipal corporation owning a public utility for furnishing sewer service to sell the public utility within its boundaries with a majority vote of its legislative body and a majority vote of the electorate.
3. Required the municipal corporation, public agency, water corporation, or sewer system corporation that is proposing to acquire sewer service from a municipal corporation to disclose to the customers of the system to be acquired, not less than 30 days prior to the date of the election, a written statement which includes a summary of the price and terms of the proposed acquisition; a comparison of the applicable sewer charges before and after the proposed acquisition; and, the estimated savings to be achieved or additional costs to be expected to result, or both, from the proposed acquisition.
4. Authorized a municipal corporation to lease a public utility furnishing sewer service by a resolution adopted by a majority of its legislative body and without lease term or other restrictions.

FISCAL EFFECT: None

COMMENTS:

1. Wastewater treatment and regulation. Wastewater treatment in California centers on the collection, conveyance, treatment, reuse and disposal of wastewater. This process is conducted largely by public agencies, though there are also privatized systems in places where a treatment plant is not feasible. In California, wastewater treatment takes place through 100,000 miles of sanitary sewers and at more than 900 wastewater treatment plants that manage the roughly four billion gallons of wastewater generated in the state each day.

The State Water Resources Control Board (SWRCB) and the nine Regional Water Quality Control Boards (regional boards) regulate water quality in the state. The Porter-Cologne Water Quality Control Act requires SWRCB and the regional boards to regulate discharges (including those from septic systems and sewer systems) to ensure long-term water quality protection.

1. Consolidation in California. In 2015, the SWRCB was given the authority to order consolidation of a public water system within a disadvantaged community, under specified conditions. In 2016, the SWRCB was given the authority to evaluate the ability of a proposed new public water system's ability to meet drinking water standards for the foreseeable future and to deny a permit if it is determined that the new public water system will not be sustainable into the future. In 1997, the Public Utilities Commission (PUC) was required to use fair market value when setting rates creating a greater incentive for PUC regulated water providers to consolidate. At a November 2017 joint workshop between the PUC and the SWRCB, the SWRCB reported that they sent out approximately 250 letters to small public water systems from September through November recommending consolidation.

In recent years, the Legislature has focused on creating tools to bring clean, reliable drinking water to all of California's communities. This year, the Legislature has expanded that focus to ensuring all communities have reliable sewer service. Besides this bill, SB 1215 (Hertzberg) of the current legislative session, allows the SWRCB to order provision of service to disadvantaged communities served by onsite wastewater treatment systems, similar to its authority to order the provision of drinking water service detailed above.

1. Bill Summary. This bill reduces the voter threshold for cities to sell, lease, or transfer sewer service infrastructure to another provider from a super majority vote to a majority vote. This bill aligns the selling, lease, or transfer of a city sewer system with the existing process that dictates how a city can sell, lease, or transfer its drinking water service to another provider. This bill is sponsored by the author.
2. Author's Statement. According to the author, "Sewer systems are utilities that consist of pipes, chambers, manholes, and other infrastructure that convey sewage or storm water to treatment facilities or into the environment. California has hundreds of these systems that vary considerably in size and quality. In many cities, water and sewer services are not provided by the same agency.

"Severe constraints are applied to sewer systems, which may result in premature deterioration. These include root intrusion, joint displacement, cracks, and hole formations that can lead to a significant volume of leakage with an overall risk for the environment and public health. Conveying sewage in a safe and affordable manner can be particularly challenging for small municipal sewer systems that lack the resources to fund the ongoing cost of maintenance, treatment, and personnel needed to operate what are sometimes very complex systems. Additionally, increasing regulatory compliance and cost infrastructure needs are driving small systems to consider alternatives like regionalization, partnering, and consolidation.

"Specific to consolidation, small sewer systems can overcome these challenges by consolidating with neighboring sewer or overlapping water systems to achieve economies of scale and eliminate duplicated expenses. Consolidated sewer and water systems can share costs such as billing and operational personnel and can purchase time-saving equipment that neither system could afford to purchase alone because they can spread costs over a larger customer base.

"Although some cities may want to voluntarily consolidate their water and sewer system, there are barriers to consolidation. One of those barriers is existing law which requires a city's legislative body to pass a resolution authorizing the sale of a sewer system by a two-thirds majority vote as well as the voters in the city approving the sale by a two-thirds majority vote. Since the cost of an election is prohibitive for many small cities and the voter threshold to successfully sell a sewer system is unreasonably high many local governments are not able to consolidate their sewer systems.

"Additionally, the sale of a water system only requires a majority of its legislative body and a majority of the voters in the city to approve the sale. This bill would therefore allow cities to sell and consolidate their sewer systems if the majority of its legislative body approves of the sale and if the sale is approved by a majority of the city's voters. This bill would normalize the election requirements for water and sewer systems."

1. Prior and Related Legislation. SB 2111 (Beverly), Chapter 169, Statutes of 1996, allowed municipal corporations owning and operating a public utility for furnishing water to sell or transfer all or any part of the utility located inside its municipal boundaries to another public entity or utility, with a majority vote of the legislative board of the municipal corporation and a majority vote of the qualified voters of the municipality.

SB 1268 (Kelley), Chapter 675, Statutes of 1997, required the PUC, when establishing the rate base value for the distribution system of a public water system acquired by a water corporation, to use the standard of fair market value for rate setting purposes.

SB 88 (Committee on Budget and Fiscal Review), Chapter 27, Statutes of 2015, allowed for the SWRCB to order consolidation of a public water system or a small water system within a disadvantaged community, under specified conditions. Additionally, SB 88 limited the liability of any agency in the chain of distribution that delivers water to a consolidated water system.

AB 685 (Eng), Chapter 524, Statutes of 2012, established the human right to water policy that every human being has the right to safe, clean, affordable, and accessible water adequate for human consumption, cooking, and sanitary purposes.

AB 2339 (Gipson), currently pending in the Senate, allows, in limited circumstances, a city to sell its drinking water property without a majority election. The bill was heard in the Local Government Committee on April 11, 2018, and passed with a 7-0 vote.

1. Arguments in Support. This bill encourages the voluntary consolidation of municipal sewer systems to improve infrastructure in California. Conveying sewage in a safe and affordable manner is particularly challenging for small municipal sewer systems that lack the resources to fund the ongoing cost of maintenance, treatment, and personnel needed to operate what can be very complex systems. Additionally, increasing regulatory compliance and cost infrastructure needs are driving small systems to consider alternatives such as regionalization, partnering, and consolidation. Unlike sewer systems, the sale of a drinking water system only requires a majority vote of its legislative body and a majority vote of the residents in the city to approve a sale. This bill would therefore allow a municipality to sell and consolidate its sewer system if the majority of its legislative body approves of the sale and if the sale is approved by a majority of the city's voters. This bill would ultimately normalize the election requirements for city owned water and sewer systems.
2. Arguments in Opposition. None on file.

Analysis Prepared by: Jimmy MacDonald / L. GOV. / (916) 319-3958 FN: 0004063

 THIRD READING  

Bill No: AB 2179

Author:

Amended: in Senate

Vote:

SENATE ENERGY, U. & C. COMMITTEE: 10-0, 6/19/18

AYES: Hueso, Morrell, Bradford, Cannella, Hertzberg, Hill, Skinner, Stern, Vidak, Wiener

NO VOTE RECORDED: McGuire

SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 6/27/18

AYES: McGuire, Nguyen, Beall, Hernandez, Hertzberg, Lara, Moorlach

ASSEMBLY FLOOR: 71-2, 5/29/18 - See last page for vote

SUBJECT:

SOURCE: Author

DIGEST:

This bill authorizes a municipal corporation to utilize the alternative procedures to sell or transfer a municipal utility furnishing sewer service, including providing that a majority vote is needed by the legislative body and the voters of the jurisdiction, instead of the existing requirement of a two-thirds vote by each.

Senate Floor Amendments of 8/15/18 address chaptering issues with AB 2339 (Gipson) which allows the Cities of El Monte, Montebello, and Willows to sell its public water utilities within its boundaries without voter approval for purposes of consolidating with another system. Specifically, both AB 2339 and AB 2179 include amendments to Public Utilities Code Section 10061.

ANALYSIS:

Existing law:

1. Authorizes the furnishing of utility services by publicly owned public utilities, including municipal corporations, which are subject to control by their governing bodies. (Public Utilities Code §10001)
2. Authorizes any municipal corporation to acquire, construct, own, operate, or lease any public utility, as defined, to furnish its inhabitants with light, water, power, heat, transportation, or means of communications and to furnish those services outside its boundaries, except within another municipal corporation that furnishes the same service or that does not consent. (Public Utilities Code §10001et seq.)
3. Authorizes a municipal corporation to sell or dispose of any public utility it owns. Requires that a resolution authorizing the sale of a public utility be passed by two-thirds vote of the members of the legislative body of the municipal corporation and be passed by a two-thirds vote of all voters voting at an election to authorize the sale in the ordinance calling the election. (Public Utilities Code §10051).
4. Establishes an alternative procedure whereby a municipal corporation can lease, sell, or transfer that portion of a water utility used for furnishing water service outside the boundaries of the municipal corporation, including requiring a majority vote of the members of the legislative body of the municipal corporation and be passed by a majority vote of all the voters voting at an election to authorize the sale in the ordinance calling the election. (Public Utilities Code §10061).

This bill reduces the voter threshold for cities to sell, lease, or transfer sewer service infrastructure to another provider from a super majority vote (two-thirds) to a majority vote of its legislative body and the voters. This bill also extends the alternative process dictating how a city can sell, lease, or transfer its drinking water service to another provider, to include sewer system service. Lastly, this bill includes language to address chaptering issues with AB 2339 (Gipson, 2018).

Background

Wastewater treatment and regulation. Wastewater treatment in California centers on the collection, conveyance, treatment, reuse and disposal of wastewater. This process is conducted largely by public agencies, though there are also privatized systems in places where a treatment plant is not feasible. These privatized systems are regulated by the California Public Utilities Commission (CPUC). In California, wastewater treatment takes place through 100,000 miles of sanitary sewers and at more than 900 wastewater treatment plants that manage the roughly four billion gallons of wastewater generated in the state each day. The State Water Resources Control Board (SWRCB) and the nine Regional Water Quality Control Boards (regional boards) regulate water quality in the state. The Porter-Cologne Water Quality Control Act requires SWRCB and the regional boards to regulate discharges (including those from septic systems and sewer systems) to ensure long-term water quality protection.

Super-majority vote required to sell. The sale of a municipal utility requires a two-thirds vote by resolution of the legislative body and a two-thirds vote by the electorate. However, in the case of drinking water systems, statute provides an alternative process to authorize the sale of the service by a majority vote of both the legislative body and the electorate. This bill attempts to authorize municipal operation of a sewer system utility with that available to drinking water systems. As an example, the City of Perris has noted in its support its experience attempting to sell drinking water service and sewer system service, both of which were running a deficit by the city. The City of Perris was successful in selling the drinking water system, but was a few percentage points shy of securing the needed 66 percent vote of the electorate for the sale of the sewer system service. This bill alleviates that situation for cities seeking to sell or transfer their sewer system utility service while maintaining the existing protections for their ratepayers, including providing transparency on the expected savings and rates.

Move towards privatization? Cities form municipal utilities to control the provision of vital public services, such as sewer. Instead of distant private corporations owned by shareholders, municipal ownership of utilities provides public control and accountability: voters know who to call when service is substandard, infrastructure improvements are needed, or rates are too high. State law has required two-thirds governing board and voter approval to allow a sale from the 1920s until the Legislature reduced the thresholds to majorities only for water systems in 1996, which AB 2179 also allows for sales of sewers. The Legislature has recognized the importance of keeping services in public hands when it erased the voter approval requirement for transfers of public utilities to other public agencies when completing the Local Agency Formation Commission process under the Cortese-Knox-Hertzberg Act (SB 558, Cogdill, Chapter 209, Statutes of 2007). However, cities often complain about the lack of revenues to fund their various operations, so privatizing certain enterprises may allow a city to generate some revenue and reduce liabilities. However, such a transfer does not come without risks. Cities must weigh these risks carefully to ensure the benefits to the city and residents are outweighed by the costs.

Related/Prior Legislation

AB 2339 (Gipson, 2018) allows the Cities of El Monte, Montebello, and Willows to sell its public water utilities within its boundaries without voter approval for purposes of consolidating with another system. The bill is pending consideration before the full Senate.

SB 88 (Committee on Budget and Fiscal Review, Chapter 27, Statutes of 2015) allowed for the SWRCB to order consolidation of a public water system or a small water system within a disadvantaged community, under specified conditions. Additionally, SB 88 limited the liability of any agency in the chain of distribution that delivers water to a consolidated water system.

SB 1268 (Kelley, Chapter 675, Statutes of 1997) required the CPUC, when establishing the rate base value for the distribution system of a public water system acquired by a water corporation, to use the standard of fair market value for rate setting purposes.

SB 2111 (Beverly, Chapter 169, Statutes of 1996) allowed municipal corporations owning and operating a public utility for furnishing water to sell or transfer all or any part of the utility located inside its municipal boundaries to another public entity or utility, with a majority vote of the legislative board of the municipal corporation and a majority vote of the qualified voters of the municipality.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT: (Verified 8/15/18)

Association of California Water Agencies

California Water Association

City of Perris

OPPOSITION: (Verified 8/15/18)

None received

ARGUMENTS IN SUPPORT: According to the author, “Although some cities may want to voluntarily consolidate their water and sewer system, there are barriers to consolidation. One of those barriers is existing law which requires a city’s legislative body to pass a resolution authorizing the sale of a sewer system by a two-thirds majority vote as well as the voters in the city approving the sale by a two-thirds majority vote. Since the cost of an election is prohibitive for many small cities and the voter threshold to successfully sell a sewer system is unreasonably high many local governments are not able to consolidate their sewer systems. Additionally, the sale of a water system only requires a majority of its legislative body and a majority of the voters in the city to approve the sale. This bill would therefore allow cities to sell and consolidate their sewer systems if the majority of its legislative body approves of the sale and if the sale is approved by a majority of the city’s voters. This bill would normalize the election requirements for water and sewer systems.”

ASSEMBLY FLOOR: 71-2, 5/29/18

AYES: Acosta, Aguiar-Curry, Arambula, Baker, Berman, Bigelow, Bloom, Bonta, Brough, Burke, Caballero, Calderon, Carrillo, Cervantes, Chau, Chávez, Chen, Chiu, Choi, Chu, Cooley, Cooper, Cunningham, Dahle, Daly, Eggman, Flora, Friedman, Gallagher, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez Fletcher, Gray, Grayson, Holden, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mayes, McCarty, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Obernolte, O'Donnell, Quirk, Quirk-Silva, Reyes, Rodriguez, Rubio, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Voepel, Waldron, Weber, Wood, Rendon

NOES: Travis Allen, Harper

NO VOTE RECORDED: Fong, Frazier, Irwin, Mathis, Patterson

Prepared by:

8/18/18 14:01:17

**** END ****

 THIRD READING  

Bill No: AB 2179

Author:

:

Vote:

SENATE ENERGY, U. & C. COMMITTEE: 10-0, 6/19/18

AYES: Hueso, Morrell, Bradford, Cannella, Hertzberg, Hill, Skinner, Stern, Vidak, Wiener

NO VOTE RECORDED: McGuire

SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 6/27/18

AYES: McGuire, Nguyen, Beall, Hernandez, Hertzberg, Lara, Moorlach

ASSEMBLY FLOOR: 71-2, 5/29/18 - See last page for vote

SUBJECT:

SOURCE: Author

DIGEST:

This bill authorizes a municipal corporation to utilize the alternative procedures to sell or transfer a municipal utility furnishing sewer service, including providing that a majority vote is needed by the legislative body and the voters of the jurisdiction, instead of the existing requirement of a two-thirds vote by each.

ANALYSIS:

Existing law:

1. Authorizes the furnishing of utility services by publicly owned public utilities, including municipal corporations, which are subject to control by their governing bodies. (Public Utilities Code §10001)
2. Authorizes any municipal corporation to acquire, construct, own, operate, or lease any public utility, as defined, to furnish its inhabitants with light, water, power, heat, transportation, or means of communications and to furnish those services outside its boundaries, except within another municipal corporation that furnishes the same service or that does not consent. (Public Utilities Code §10001et seq.)
3. Authorizes a municipal corporation to sell or dispose of any public utility it owns. Requires that a resolution authorizing the sale of a public utility be passed by two-thirds vote of the members of the legislative body of the municipal corporation and be passed by a two-thirds vote of all voters voting at an election to authorize the sale in the ordinance calling the election. (Public Utilities Code §10051).
4. Establishes an alternative procedure whereby a municipal corporation can lease, sell, or transfer that portion of a water utility used for furnishing water service outside the boundaries of the municipal corporation, including requiring a majority vote of the members of the legislative body of the municipal corporation and be passed by a majority vote of all the voters voting at an election to authorize the sale in the ordinance calling the election. (Public Utilities Code §10061).

This bill reduces the voter threshold for cities to sell, lease, or transfer sewer service infrastructure to another provider from a super majority vote (two-thirds) to a majority vote of its legislative body and the voters. This bill extends this alternative process that dictates how a city can sell, lease, or transfer its drinking water service to another provider, to also include sewer system service.

Background

Wastewater treatment and regulation. Wastewater treatment in California centers on the collection, conveyance, treatment, reuse and disposal of wastewater. This process is conducted largely by public agencies, though there are also privatized systems in places where a treatment plant is not feasible. These privatized systems are regulated by the California Public Utilities Commission (CPUC). In California, wastewater treatment takes place through 100,000 miles of sanitary sewers and at more than 900 wastewater treatment plants that manage the roughly four billion gallons of wastewater generated in the state each day. The State Water Resources Control Board (SWRCB) and the nine Regional Water Quality Control Boards (regional boards) regulate water quality in the state. The Porter-Cologne Water Quality Control Act requires SWRCB and the regional boards to regulate discharges (including those from septic systems and sewer systems) to ensure long-term water quality protection.

Super-majority vote required to sell. The sale of a municipal utility requires a two-thirds vote by resolution of the legislative body and a two-thirds vote by the electorate. However, in the case of drinking water systems, statute provides an alternative process to authorize the sale of the service by a majority vote of both the legislative body and the electorate. This bill attempts to authorize municipal operation of a sewer system utility with that available to drinking water systems. As an example, the City of Perris has noted in its support its experience attempting to sell drinking water service and sewer system service, both of which were running a deficit by the city. The City of Perris was successful in selling the drinking water system, but was a few percentage points shy of securing the needed 66 percent vote of the electorate for the sale of the sewer system service. This bill alleviates that situation for cities seeking to sell or transfer their sewer system utility service while maintaining the existing protections for their ratepayers, including providing transparency on the expected savings and rates.

Move towards privatization? Cities form municipal utilities to control the provision of vital public services, such as sewer. Instead of distant private corporations owned by shareholders, municipal ownership of utilities provides public control and accountability: voters know who to call when service is substandard, infrastructure improvements are needed, or rates are too high. State law has required two-thirds governing board and voter approval to allow a sale from the 1920s until the Legislature reduced the thresholds to majorities only for water systems in 1996, which AB 2179 would also allow for sales of sewers. The Legislature has recognized the importance of keeping services in public hands when it erased the voter approval requirement for transfers of public utilities to other public agencies when completing the Local Agency Formation Commission process under the Cortese-Knox-Hertzberg Act (SB 558, Cogdill, Chapter 209, Statutes of 2007). However, cities often complain about the lack of revenues to fund their various operations, so privatizing certain enterprises may allow a city to generate some revenue and reduce liabilities. However, such a transfer does not come without risks. Cities must weigh these risks carefully to ensure the benefits to the city and residents are outweighed by the costs.

Related/Prior Legislation

AB 2339 (Gipson, 2018) allows, in limited circumstances, a city to sell its drinking water property without a majority election. The bill is pending consideration in the Senate Committee on Appropriations.

SB 88 (Committee on Budget and Fiscal Review, Chapter 27, Statutes of 2015) allowed for the SWRCB to order consolidation of a public water system or a small water system within a disadvantaged community, under specified conditions. Additionally, SB 88 limited the liability of any agency in the chain of distribution that delivers water to a consolidated water system.

SB 1268 (Kelley, Chapter 675, Statutes of 1997) required the CPUC, when establishing the rate base value for the distribution system of a public water system acquired by a water corporation, to use the standard of fair market value for rate setting purposes.

SB 2111 (Beverly, Chapter 169, Statutes of 1996) allowed municipal corporations owning and operating a public utility for furnishing water to sell or transfer all or any part of the utility located inside its municipal boundaries to another public entity or utility, with a majority vote of the legislative board of the municipal corporation and a majority vote of the qualified voters of the municipality.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT: (Verified 7/3/18)

Association of California Water Agencies

California Water Association

City of Perris

OPPOSITION: (Verified 7/3/18)

None received

ARGUMENTS IN SUPPORT: According to the author, “Although some cities may want to voluntarily consolidate their water and sewer system, there are barriers to consolidation. One of those barriers is existing law which requires a city’s legislative body to pass a resolution authorizing the sale of a sewer system by a two-thirds majority vote as well as the voters in the city approving the sale by a two-thirds majority vote. Since the cost of an election is prohibitive for many small cities and the voter threshold to successfully sell a sewer system is unreasonably high many local governments are not able to consolidate their sewer systems. Additionally, the sale of a water system only requires a majority of its legislative body and a majority of the voters in the city to approve the sale. This bill would therefore allow cities to sell and consolidate their sewer systems if the majority of its legislative body approves of the sale and if the sale is approved by a majority of the city’s voters. This bill would normalize the election requirements for water and sewer systems.”

ASSEMBLY FLOOR: 71-2, 5/29/18

AYES: Acosta, Aguiar-Curry, Arambula, Baker, Berman, Bigelow, Bloom, Bonta, Brough, Burke, Caballero, Calderon, Carrillo, Cervantes, Chau, Chávez, Chen, Chiu, Choi, Chu, Cooley, Cooper, Cunningham, Dahle, Daly, Eggman, Flora, Friedman, Gallagher, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez Fletcher, Gray, Grayson, Holden, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mayes, McCarty, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Obernolte, O'Donnell, Quirk, Quirk-Silva, Reyes, Rodriguez, Rubio, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Voepel, Waldron, Weber, Wood, Rendon

NOES: Travis Allen, Harper

NO VOTE RECORDED: Fong, Frazier, Irwin, Mathis, Patterson

Prepared by:

7/3/18 15:35:56

**** END ****

SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Mike McGuire, Chair

2017 - 2018 Regular

Municipal corporations: public utility service: water and sewer service

Adds sewer service into provisions in state law allowing a municipal corporation to lease, sell, or transfer a municipal utility used for furnishing sewer service.

Background

Cities can purchase, lease, receive, hold and enjoy real and personal property, and control and dispose of it for the common benefit. A city can sell property it owns when its governing board finds the public interest and convenience requires the sale of any public building and site dedicated to a public use, and approves a resolution authorizing the sale with specified contents. Anybody can protest the sale in writing or orally, which the city can override with 4/5 vote of its governing board. If no protests are received, the city can proceed with the sale with majority approval of its governing board. If a protest is received, and the city does not override it, the sale must be approved by a majority of voters.

Sales of water utilities. Cities can own and operate public utilities. The city can sell its public utility when the public interest and necessity demand with 2/3 vote of the governing board and voters when it provides any authorized service. However, the Legislature provided that cities can lease, sell, or transfer their water utilities with majority governing board and voter approval instead (SB 2111, Beverly, 1996). The supermajority vote continues to apply to sales of other types of public utilities such as power, sewage, drainage, and transportation.

Under SB 2111, the requirements to sell or transfer a municipal water utility depend on where the utility is located. If the utility is located inside the city's boundaries, then the city council and the acquiring entity's governing board must agree to the terms of the sale and the sale must be approved by a majority of the city's voters, if:

• The city determines that the utility is not necessary for supplying water to its own inhabitants, or that its inhabitants will be provided with equal or better service by the acquiring entity on terms that are just and reasonable and do not discriminate against the customers of the acquired entity.
• The city submits the issue to the qualified voters of the municipality at a special or general election, and a majority of voters approve it,
• The acquiring agency concurs,
• The acquiring agency discloses to the customers they are seeking to acquire within 30 days of the election a summary of the price and terms of the proposed acquisition, a comparison of the applicable water charges, and the estimated costs or savings resulting from the acquisition.

The city can sell all or any portion of a utility that provides services a part or all of which are outside its boundaries to another public entity or utility upon a majority vote of the board, if:

• The city finds adequate justification for the sale or transfer ,
• The city determines that the utility is not necessary for supplying water to its own inhabitants,
• The acquiring agency concurs, and,
• The acquiring entity is bound to render water service to the persons formerly served through the system being sold on terms and conditions which are just and reasonable, and which do not unreasonably discriminate against the customers of the acquired entity.

Wastewater treatment. Wastewater treatment in California centers on the collection, conveyance, treatment, reuse and disposal of wastewater, mostly by public agencies, though there are also privatized systems in places where a treatment plant is not feasible. In California, wastewater treatment takes place through 100,000 miles of sanitary sewers and at more than 900 wastewater treatment plants that manage the roughly four billion gallons of wastewater generated in the state each day.

The State Water Resources Control Board (SWRCB) and the nine Regional Water Quality Control Boards (regional boards) regulate water quality in the state. The Porter-Cologne Water Quality Control Act requires SWRCB and the regional boards to regulate discharges (including those from septic systems and sewer systems) to ensure long-term water quality protection.

Seeking to encourage consolidation of sewer systems, the author wants to add sewer service into provisions in state law allowing a municipal corporation to lease, sell, or transfer a municipal utility used for furnishing sewer service.

Proposed Law

Assembly Bill 2179 adds sewer service into provisions in state law allowing a municipal corporation to lease, sell, or transfer municipal water service. As a result, sewer systems will be subject to either city council or city council and voter approval, depending on whether they are located without or within a city’s boundaries, respectively.

State Revenue Impact

No estimate.

Comments

1. Purpose of the bill. According to the author, “Sewer systems are utilities that consist of pipes, chambers, manholes, and other infrastructure that convey sewage or storm water to treatment facilities or into the environment. California has hundreds of these systems that vary considerably in size and quality. Severe constraints are applied to sewer systems, which may result in premature deterioration and lead to a significant volume of leakage with an overall risk to public health. Conveying sewage in a safe and affordable manner can be particularly challenging for small municipal sewer systems that lack the resources to fund the ongoing cost of maintenance, treatment, and personnel needed to operate what are sometimes very complex systems. Small sewer systems can overcome these challenges by consolidating with neighboring systems to achieve economies of scale and eliminate duplicated expenses. Consolidated systems can share costs such as billing and operational personnel and can purchase time-saving equipment that neither system could afford to purchase alone because they can spread costs over a larger customer base. Although some cities may want to voluntarily consolidate, there are barriers to consolidation. One of those barriers is existing law which requires a city’s legislative body to pass a resolution authorizing the sale of a sewer system by a two-thirds majority vote as well as the voters in the city approving the sale by a two-thirds majority vote. Since the cost of an election can be prohibitive for many small cities and the voter threshold to successfully sell a sewer system is unreasonably high many local governments are not able to consolidate their sewer systems. Moreover, the sale of a water system only requires a majority of its legislative body and a majority of the voters in the city to approve the sale. This bill would therefore allow cities to sell and consolidate their sewer systems if the majority of its legislative body approves of the sale and if the sale is approved by a majority of the city’s voters. This bill would normalize the election requirements for water and sewer systems.”

2. Voter requirements. Current law requires a two-thirds majority vote of a city council and its electorate before approving any sale of part or all of its sewer service within the city's jurisdiction. AB 2179 reduces the voter approval requirement to simple majority. The Committee may wish to consider whether reducing the super-majority vote requirement is justified.

3. Move towards privatization? Cities form municipal utilities to control the provision of vital public services, such as sewer. Instead of distant private corporations owned by shareholders, municipal ownership of utilities provides public control and accountability: voters know who to call when service is substandard, infrastructure improvements are needed, or rates are too high. State law has required 2/3 governing board and voter approval to allow a sale from the 1920s until the Legislature reduced the thresholds to majorities only for water systems in 1996, which AB 2179 would also allow for sales of sewers. The Legislature has recognized the importance of keeping services in public hands when it erased the voter approval requirement for transfers of public utilities to other public agencies when completing the Local Agency Formation Commission process under the Cortese-Knox-Hertzberg Act (SB 558, Cogdill, 2007). However, cities often complain about the lack of revenues to fund their various operations, so privatizing certain enterprises may allow a city to generate some cash. The Committee may wish to consider whether the current approval requirements unduly inhibit a city's ability to privatize water services, or if such a hurdle is appropriate to encourage public control of important services.

4. Related legislation. Earlier this year, the Committee approved SB 1215 (Hertzberg) by a vote of 5 to 0 earlier this year, which allows the SWRCB to order provision of service to disadvantaged communities served by onsite wastewater treatment systems, similar to its authority to order the provision of drinking water service detailed above. Additionally, the Committee will also consider AB 2339 (Gipson) at its 6/27 hearing, which allows a city to sell its public water system without voter approval for purposes of consolidation under specified circumstances.

5. With or without you. As mentioned above, the requirements for a city to sell or transfer a municipal water utility, or a part thereof, depend on whether the utility or part is wholly within or without the city’s boundaries. A city with a utility wholly without its borders need only obtain governing board approval to sell; however, if any part of the utility serves citizens inside the city’s boundaries, those individuals must vote to approve the sale. This treatment creates an interesting situation when a city that seeks to sell its utility with connections both inside and outside the city. In that case, those within the city can vote, but those outside do not; instead, the governing body vote is sufficient to sell the asset.

6. Incoming! On June 19^th, the Committee on Energy, Utilities, and Communications approved AB 2179 by a vote of 10 to 0. The Governance and Finance Committee is hearing the measure as the committee of second reference.

Assembly Actions

Assembly Local Government Committee: 9-0
Assembly Floor: 71-2

Support and Opposition

(6/15/18)

Support: Association of California Water Agencies, California Water Association, City of Perris

Opposition: Unknown.

-- END --

SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS

Senator Ben Hueso, Chair

2017 - 2018 Regular

Bill No: AB 2179 Hearing Date: 6/19/2018

SUBJECT: Municipal corporations: public utility service: water and sewer service

DIGEST: This bill would authorize a municipal corporation to utilize the alternative procedures to sell or transfer a municipal utility furnishing sewer service, including providing that a majority vote is needed by the legislative body and the voters of the jurisdiction, instead of the existing requirement of a two-thirds vote by each.

ANALYSIS:

Existing law:

1. Authorizes the furnishing of utility services by publicly owned public utilities, including municipal corporations, which are subject to control by their governing bodies. (Public Utilities Code §10001)
2. Authorizes any municipal corporation to acquire, construct, own, operate, or lease any public utility, as defined, to furnish its inhabitants with light, water, power, heat, transportation, or means of communications and to furnish those services outside its boundaries, except within another municipal corporation that furnishes the same service or that does not consent. (Public Utilities Code §10001et seq.)
3. Authorizes a municipal corporation to sell or dispose of any public utility it owns. Requires that a resolution authorizing the sale of a public utility be passed by two-thirds vote of the members of the legislative body of the municipal corporation and be passed by a two-thirds vote of all voters voting at an election to authorize the sale in the ordinance calling the election. (Public Utilities Code §10051).
4. Establishes an alternative procedure whereby a municipal corporation can lease, sell, or transfer that portion of a water utility used for furnishing water service outside the boundaries of the municipal corporation, including requiring a majority vote of the members of the legislative body of the municipal corporation and be passed by a majority vote of all the voters voting at an election to authorize the sale in the ordinance calling the election. (Public Utilities Code §10061).

This bill would reduce the voter threshold for cities to sell, lease, or transfer sewer service infrastructure to another provider from a super majority vote (two-thirds) to a majority vote of its legislative body and the voters. This bill extends this alternative process that dictates how a city can sell, lease, or transfer its drinking water service to another provider, to also include sewer system service.

Background

Wastewater treatment and regulation. Wastewater treatment in California centers on the collection, conveyance, treatment, reuse and disposal of wastewater. This process is conducted largely by public agencies, though there are also privatized systems in places where a treatment plant is not feasible. These privatized systems are regulated by the California Public Utilities Commission (CPUC). In California, wastewater treatment takes place through 100,000 miles of sanitary sewers and at more than 900 wastewater treatment plants that manage the roughly four billion gallons of wastewater generated in the state each day. The State Water Resources Control Board (SWRCB) and the nine Regional Water Quality Control Boards (regional boards) regulate water quality in the state. The Porter-Cologne Water Quality Control Act requires SWRCB and the regional boards to regulate discharges (including those from septic systems and sewer systems) to ensure long-term water quality protection.

Super-majority vote required to sell. The sale of a municipal utility requires a two-thirds vote by resolution of the legislative body and a two-thirds vote by the electorate. However, in the case of drinking water systems, statute provides an alternative process to authorize the sale of the service by a majority vote of both the legislative body and the electorate. This bill attempts to authorize municipal operation of a sewer system utility with that available to drinking water systems. As an example, the City of Perris has noted in its support its experience attempting to sell drinking water service and sewer system service, both of which were running a deficit by the city. The City of Perris was successful in selling the drinking water system, but was a few percentage points shy of securing the needed 66 percent vote of the electorate for the sale of the sewer system service. This bill would alleviate that situation for cities seeking to sell or transfer their sewer system utility service while maintaining the existing protections for their ratepayers, including providing transparency on the expected savings and rates.

Double referral. Should this bill be approved by this committee, it will be re-referred to the Senate Committee on Governance and Finance for their consideration.

Prior/Related Legislation

AB 2339 (Gipson, 2018) allows, in limited circumstances, a city to sell its drinking water property without a majority election. The bill is scheduled to be heard by the Senate Committee on Governance and Finance.

SB 2111 (Beverly, Chapter 169, Statutes of 1996) allowed municipal corporations owning and operating a public utility for furnishing water to sell or transfer all or any part of the utility located inside its municipal boundaries to another public entity or utility, with a majority vote of the legislative board of the municipal corporation and a majority vote of the qualified voters of the municipality.

SB 1268 (Kelley, Chapter 675, Statutes of 1997) required the CPUC, when establishing the rate base value for the distribution system of a public water system acquired by a water corporation, to use the standard of fair market value for rate setting purposes.

SB 88 (Committee on Budget and Fiscal Review, Chapter 27, Statutes of 2015) allowed for the SWRCB to order consolidation of a public water system or a small water system within a disadvantaged community, under specified conditions. Additionally, SB 88 limited the liability of any agency in the chain of distribution that delivers water to a consolidated water system.

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

SUPPORT:

Association of California Water Agencies

California Water Association

City of Perris

OPPOSITION:

None received

ARGUMENTS IN SUPPORT: According to the author:

“Although some cities may want to voluntarily consolidate their water and sewer system, there are barriers to consolidation. One of those barriers is existing law which requires a city’s legislative body to pass a resolution authorizing the sale of a sewer system by a two-thirds majority vote as well as the voters in the city approving the sale by a two-thirds majority vote. Since the cost of an election is prohibitive for many small cities and the voter threshold to successfully sell a sewer system is unreasonably high many local governments are not able to consolidate their sewer systems. Additionally, the sale of a water system only requires a majority of its legislative body and a majority of the voters in the city to approve the sale. This bill would therefore allow cities to sell and consolidate their sewer systems if the majority of its legislative body approves of the sale and if the sale is approved by a majority of the city’s voters. This bill would normalize the election requirements for water and sewer systems.”

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 2179

Author:(Gipson)

As Introduced Ver:February 12, 2018

Majority vote

SUMMARY: Authorizes a municipal corporation to utilize alternative procedures to lease, sell, or transfer a municipal utility used for furnishing sewer service. Specifically, this bill:

1. Allows a municipal corporation owning and operating a public utility for furnishing sewer service, that provides sewer service outside the boundaries of such municipal corporation, to lease, sell or transfer the portion of the utility located outside the boundaries of such municipal corporation to another public entity or utility upon a majority vote of the board, provided there is adequate justification for the sale or transfer.
2. Authorizes a municipal corporation owning a public utility for furnishing sewer service to sell the public utility within its boundaries with a majority vote of its legislative body and a majority vote of the electorate.
3. Requires the municipal corporation, public agency, water corporation, or sewer system corporation that is proposing to acquire sewer service from a municipal corporation to disclose to the customers of the system to be acquired, not less than 30 days prior to the date of the election, a written statement which includes all of the following:
   1. A summary of the price and terms of the proposed acquisition;
   2. A comparison of the applicable sewer charges before and after the proposed acquisition; and,
   3. The estimated savings to be achieved or additional costs to be expected to result, or both, from the proposed acquisition.
4. Authorizes a municipal corporation to lease a public utility furnishing sewer service by a resolution adopted by a majority of its legislative body and without lease term or other restrictions.

EXISTING LAW:

1. Defines "municipal corporation" to mean a city or a city and county.
2. Allows a city to purchase, lease, receive, hold and enjoy real and personal property, and control and dispose of it for the common benefit.
3. Establishes, generally, a maximum term of 15 years for the lease of a public utility.
4. Allows a city or a city and county to sell any public utility that it owns, generally, by a two-thirds vote of its legislative body, and subsequently by a two-thirds vote of all voters voting at an election.
5. Allows municipal corporations owning and operating a public utility for furnishing drinking water, which provides water service outside the boundaries of such municipal corporation, to lease, sell or transfer the portion of the utility located outside the boundaries of such municipal corporation to another public entity or utility upon a majority vote of the board, provided there is adequate justification for the sale or transfer.
6. Allows a municipal corporation owning a public utility for furnishing drinking water service to sell the public utility within its boundaries with a majority vote of its legislative body and a majority vote of the electorate.
7. Establishes a policy of the state that every human being has the right to safe, clean, affordable, and accessible water adequate for human consumption, cooking, and sanitary purposes.

FISCAL EFFECT: None

COMMENTS:

1. Wastewater treatment and regulation. Wastewater treatment in California centers on the collection, conveyance, treatment, reuse and disposal of wastewater. This process is conducted largely by public agencies, though there are also privatized systems in places where a treatment plant is not feasible. In California, wastewater treatment takes place through 100,000 miles of sanitary sewers and at more than 900 wastewater treatment plants that manage the roughly four billion gallons of wastewater generated in the state each day.

The State Water Resources Control Board (SWRCB) and the nine Regional Water Quality Control Boards (regional boards) regulate water quality in the state. The Porter-Cologne Water Quality Control Act requires SWRCB and the regional boards to regulate discharges (including those from septic systems and sewer systems) to ensure long-term water quality protection.

1. Consolidation in California. In 2015, the SWRCB was given the authority to order consolidation of a public water system within a disadvantaged community, under specified conditions. In 2016, the SWRCB was given the authority to evaluate the ability of a proposed new public water system's ability to meet drinking water standards for the foreseeable future and to deny a permit if it is determined that the new public water system will not be sustainable into the future. In 1997, the Public Utilities Commission (PUC) was required to use fair market value when setting rates creating a greater incentive for PUC regulated water providers to consolidate. At a November 2017 joint workshop between the PUC and the SWRCB, the SWRCB reported that they sent out approximately 250 letters to small public water systems from September through November recommending consolidation.

In recent years, the Legislature has focused on creating tools to bring clean, reliable drinking water to all of California's communities. This year, the Legislature has expanded that focus to ensuring all communities have reliable sewer service. Besides this bill, SB 1215 (Hertzberg) of the current legislative session, allows the SWRCB to order provision of service to disadvantaged communities served by onsite wastewater treatment systems, similar to its authority to order the provision of drinking water service detailed above.

1. Bill Summary. This bill reduces the voter threshold for cities to sell, lease, or transfer sewer service infrastructure to another provider from a super majority vote to a majority vote. This bill aligns the selling, lease, or transfer of a city sewer system with the existing process that dictates how a city can sell, lease, or transfer its drinking water service to another provider. This bill is sponsored by the author.
2. Author's Statement. According to the author, "Sewer systems are utilities that consist of pipes, chambers, manholes, and other infrastructure that convey sewage or storm water to treatment facilities or into the environment. California has hundreds of these systems that vary considerably in size and quality. In many cities, water and sewer services are not provided by the same agency.

"Severe constraints are applied to sewer systems, which may result in premature deterioration. These include root intrusion, joint displacement, cracks, and hole formations that can lead to a significant volume of leakage with an overall risk for the environment and public health. Conveying sewage in a safe and affordable manner can be particularly challenging for small municipal sewer systems that lack the resources to fund the ongoing cost of maintenance, treatment, and personnel needed to operate what are sometimes very complex systems. Additionally, increasing regulatory compliance and cost infrastructure needs are driving small systems to consider alternatives like regionalization, partnering, and consolidation.

"Specific to consolidation, small sewer systems can overcome these challenges by consolidating with neighboring sewer or overlapping water systems to achieve economies of scale and eliminate duplicated expenses. Consolidated sewer and water systems can share costs such as billing and operational personnel and can purchase time-saving equipment that neither system could afford to purchase alone because they can spread costs over a larger customer base.

"Although some cities may want to voluntarily consolidate their water and sewer system, there are barriers to consolidation. One of those barriers is existing law which requires a city's legislative body to pass a resolution authorizing the sale of a sewer system by a two-thirds majority vote as well as the voters in the city approving the sale by a two-thirds majority vote. Since the cost of an election is prohibitive for many small cities and the voter threshold to successfully sell a sewer system is unreasonably high many local governments are not able to consolidate their sewer systems.

"Additionally, the sale of a water system only requires a majority of its legislative body and a majority of the voters in the city to approve the sale. This bill would therefore allow cities to sell and consolidate their sewer systems if the majority of its legislative body approves of the sale and if the sale is approved by a majority of the city's voters. This bill would normalize the election requirements for water and sewer systems."

1. Prior and Related Legislation. SB 2111 (Beverly), Chapter 169, Statutes of 1996, allowed municipal corporations owning and operating a public utility for furnishing water to sell or transfer all or any part of the utility located inside its municipal boundaries to another public entity or utility, with a majority vote of the legislative board of the municipal corporation and a majority vote of the qualified voters of the municipality.

SB 1268 (Kelley), Chapter 675, Statutes of 1997, required the PUC, when establishing the rate base value for the distribution system of a public water system acquired by a water corporation, to use the standard of fair market value for rate setting purposes.

SB 88 (Committee on Budget and Fiscal Review), Chapter 27, Statutes of 2015, allowed for the SWRCB to order consolidation of a public water system or a small water system within a disadvantaged community, under specified conditions. Additionally, SB 88 limited the liability of any agency in the chain of distribution that delivers water to a consolidated water system.

AB 685 (Eng), Chapter 524, Statutes of 2012, established the human right to water policy that every human being has the right to safe, clean, affordable, and accessible water adequate for human consumption, cooking, and sanitary purposes.

AB 2339 (Gipson) of the current legislative session, allows, in limited circumstances, a city to sell its drinking water property without a majority election. The bill was heard in the Local Government Committee on April 11, 2018, and passed with a 7-0 vote. The bill is currently pending in the Assembly Appropriations Committee.

1. Arguments in Support. This bill encourages the voluntary consolidation of municipal sewer systems to improve infrastructure in California. Conveying sewage in a safe and affordable manner is particularly challenging for small municipal sewer systems that lack the resources to fund the ongoing cost of maintenance, treatment, and personnel needed to operate what can be very complex systems. Additionally, increasing regulatory compliance and cost infrastructure needs are driving small systems to consider alternatives such as regionalization, partnering, and consolidation. Unlike sewer systems, the sale of a drinking water system only requires a majority vote of its legislative body and a majority vote of the residents in the city to approve a sale. This bill would therefore allow a municipality to sell and consolidate its sewer system if the majority of its legislative body approves of the sale and if the sale is approved by a majority of the city's voters. This bill would ultimately normalize the election requirements for city owned water and sewer systems.
2. Arguments in Opposition. None on file.

Analysis Prepared by: Jimmy MacDonald / L. GOV. / (916) 319-3958 FN: 0002885

Date of Hearing: May 9, 2018

ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT

Cecilia Aguiar-Curry, Chair

ABPCA Bill Id:AB 2179 (

Author:Gipson) – As Introduced Ver:February 12, 2018

SUBJECT: Municipal corporations: public utility service: water and sewer service.

SUMMARY: Authorizes a municipal corporation to utilize alternative procedures to lease, sell, or transfer a municipal utility used for furnishing sewer service. Specifically, this bill:

1. Allows a municipal corporation owning and operating a public utility for furnishing sewer service, that provides sewer service outside the boundaries of such municipal corporation,
   to lease, sell or transfer the portion of the utility located outside the boundaries of such municipal corporation to another public entity or utility upon a majority vote of the board, provided there is adequate justification for the sale or transfer.
   
2. Authorizes a municipal corporation owning a public utility for furnishing sewer service
   to sell the public utility within its boundaries with a majority vote of its legislative body and a majority vote of the electorate.
3. Requires the municipal corporation, public agency, water corporation, or sewer system corporation that is proposing to acquire sewer service from a municipal corporation to disclose to the customers of the system to be acquired, not less than 30 days prior to the date of the election, a written statement which includes all of the following:
   
   1. A summary of the price and terms of the proposed acquisition;
      
   2. A comparison of the applicable sewer charges before and after the proposed acquisition; and,
      
   3. The estimated savings to be achieved or additional costs to be expected to result, or both, from the proposed acquisition.
      
4. Authorizes a municipal corporation to lease a public utility furnishing sewer service by a resolution adopted by a majority of its legislative body and without lease term or other restrictions.
   

EXISTING LAW:

1. Defines “Municipal corporation” to mean a city or a city and county.
2. Allows a city to purchase, lease, receive, hold and enjoy real and personal property, and control and dispose of it for the common benefit.
3. Establishes, generally, a maximum term of 15 years for the lease of a public utility.
4. Allows a city or a city and county to sell any public utility that it owns, generally, by a two-thirds vote of its legislative body, and subsequently by a two-thirds vote of all voters voting at an election.
5. Allows municipal corporations owning and operating a public utility for furnishing drinking water, which provides water service outside the boundaries of such municipal corporation, to lease, sell or transfer the portion of the utility located outside the boundaries of such municipal corporation to another public entity or utility upon a majority vote of the board, provided there is adequate justification for the sale or transfer.
6. Allows a municipal corporation owning a public utility for furnishing drinking water service to sell the public utility within its boundaries with a majority vote of its legislative body and a majority vote of the electorate.
7. Establishes a policy of the state that every human being has the right to safe, clean, affordable, and accessible water adequate for human consumption, cooking, and sanitary purposes.

FISCAL EFFECT: None

COMMENTS:

1. Wastewater treatment and regulation. Wastewater treatment in California centers
   on the collection, conveyance, treatment, reuse and disposal of wastewater. This process
   is conducted largely by public agencies, though there are also privatized systems in places where a treatment plant is not feasible. In California, wastewater treatment takes place through 100,000 miles of sanitary sewers and at more than 900 wastewater treatment plants that manage the roughly four billion gallons of wastewater generated in the state each day.

The State Water Resources Control Board (SWRCB) and the nine Regional Water Quality Control Boards (regional boards) regulate water quality in the state. The Porter-Cologne Water Quality Control Act requires SWRCB and the regional boards to regulate discharges (including those from septic systems and sewer systems) to ensure long-term water quality protection.

1. Consolidation in California. In 2015, the SWRCB was given the authority to order consolidation of a public water system within a disadvantaged community, under specified conditions. In 2016, the SWRCB was given the authority to evaluate the ability of a proposed new public water system’s ability to meet drinking water standards for the foreseeable future and to deny a permit if it is determined that the new public water system will not be sustainable into the future. In 1997, the Public Utilities Commission (PUC) was required to use fair market value when setting rates creating a greater incentive for PUC regulated water providers to consolidate. At a November 2017 joint workshop between the PUC and the SWRCB, the SWRCB reported that they sent out approximately 250 letters to small public water systems from September through November recommending consolidation.

In recent years, the Legislature has focused on creating tools to bring clean, reliable drinking water to all of California’s communities. This year, the Legislature has expanded that focus to ensuring all communities have reliable sewer service. Besides AB 2179, SB 1215 (Hertzberg) of this year, allows the SWRCB to order provision of service to disadvantaged communities served by onsite wastewater treatment systems, similar to its authority to order the provision of drinking water service detailed above.

1. Bill Summary. AB 2179 reduces the voter threshold for cities to sell, lease, or transfer sewer service infrastructure to another provider from a super majority vote to a majority vote. This bill aligns the selling, lease, or transfer of a city sewer system with the existing process that dictates how a city can sell, lease, or transfer its drinking water service to another provider. This bill is sponsored by the author.
2. Author’s Statement. According to the author, “Sewer systems are utilities that consist
   of pipes, chambers, manholes, and other infrastructure that convey sewage or storm water
   to treatment facilities or into the environment. California has hundreds of these systems that vary considerably in size and quality. In many cities, water and sewer services are not provided by the same agency.

“Severe constraints are applied to sewer systems, which may result in premature deterioration. These include root intrusion, joint displacement, cracks, and hole formations that can lead to a significant volume of leakage with an overall risk for the environment and public health. Conveying sewage in a safe and affordable manner can be particularly challenging for small municipal sewer systems that lack the resources to fund the ongoing cost of maintenance, treatment, and personnel needed to operate what are sometimes very complex systems. Additionally, increasing regulatory compliance and cost infrastructure needs are driving small systems to consider alternatives like regionalization, partnering, and consolidation.

“Specific to consolidation, small sewer systems can overcome these challenges by consolidating with neighboring sewer or overlapping water systems to achieve economies
of scale and eliminate duplicated expenses. Consolidated sewer and water systems can share costs such as billing and operational personnel and can purchase time-saving equipment that neither system could afford to purchase alone because they can spread costs over a larger customer base.

“Although some cities may want to voluntarily consolidate their water and sewer system, there are barriers to consolidation. One of those barriers is existing law which requires a city’s legislative body to pass a resolution authorizing the sale of a sewer system by a two-thirds majority vote as well as the voters in the city approving the sale by a two-thirds majority vote. Since the cost of an election is prohibitive for many small cities and the voter threshold to successfully sell a sewer system is unreasonably high many local governments are not able to consolidate their sewer systems.

“Additionally, the sale of a water system only requires a majority of its legislative body and
a majority of the voters in the city to approve the sale. This bill would therefore allow cities to sell and consolidate their sewer systems if the majority of its legislative body approves
of the sale and if the sale is approved by a majority of the city’s voters. This bill would normalize the election requirements for water and sewer systems.”

1. Prior and Related Legislation. SB 2111 (Beverly), Chapter 169, Statutes of 1996, allowed municipal corporations owning and operating a public utility for furnishing water to sell or transfer all or any part of the utility located inside its municipal boundaries to another public entity or utility, with a majority vote of the legislative board of the municipal corporation and a majority vote of the qualified voters of the municipality.

SB 1268 (Kelley), Chapter 675, Statutes of 1997, required the PUC, when establishing the rate base value for the distribution system of a public water system acquired by a water corporation, to use the standard of fair market value for rate setting purposes.

SB 88 (Committee on Budget and Fiscal Review), Chapter 27, Statutes of 2015, allowed
for the SWRCB to order consolidation of a public water system or a small water system within a disadvantaged community, under specified conditions. Additionally, SB 88 limited the liability of any agency in the chain of distribution that delivers water to a consolidated water system.

AB 685 (Eng), Chapter 524, Statutes of 2012, established the human right to water policy that every human being has the right to safe, clean, affordable, and accessible water adequate for human consumption, cooking, and sanitary purposes.

This year, AB 2339 (Gipson) allows, in limited circumstances, a city to sell its drinking water property without a majority election. This bill was heard in this Committee on April 11 and passed with a 7-0 vote. This bill is currently pending in the Assembly Appropriations Committee.

1. Arguments in Support. Supporters argue that AB 2179 encourages the voluntary consolidation of municipal sewer systems to improve infrastructure in California. Conveying sewage in a safe and affordable manner is particularly challenging for small municipal sewer systems that lack the resources to fund the ongoing cost of maintenance, treatment, and personnel needed to operate what can be very complex systems. Additionally, increasing regulatory compliance and cost infrastructure needs are driving small systems to consider alternatives such as regionalization, partnering, and consolidation. Unlike sewer systems,
   the sale of a drinking water system only requires a majority vote of its legislative body and
   a majority vote of the residents in the city to approve a sale. This bill would therefore allow a municipality to sell and consolidate its sewer system if the majority of its legislative body approves of the sale and if the sale is approved by a majority of the city’s voters. This bill would ultimately normalize the election requirements for city owned water and sewer systems.
2. Arguments in Opposition. None on file.

REGISTERED SUPPORT / OPPOSITION:

Support

California Water Association

Opposition

None on file

Analysis Prepared by: Jimmy MacDonald / L. GOV. / (916) 319-3958