BILL ANALYSIS                                                                                                                                                                                                    



                                                                    SB 1298


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          SENATE THIRD READING


          SB  
          1298 (Hertzberg)


          As Amended  August 11, 2016


          Majority vote  


           SENATE VOTE:  39-0


           ------------------------------------------------------------------ 
          |Committee       |Votes|Ayes                  |Noes                |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |----------------+-----+----------------------+--------------------|
          |Local           |5-3  |Eggman, Bonilla,      |Waldron, Beth       |
          |Government      |     |Chiu, Cooley, Gordon  |Gaines, Linder      |
          |                |     |                      |                    |
          |                |     |                      |                    |
           ------------------------------------------------------------------ 


          SUMMARY:  Makes changes to the Proposition 218 Omnibus  
          Implementation Act.  Specifically, this bill:   


          1)Adds a definition for "sewer" to the Proposition 218 Omnibus  
            Implementation Act, to mean "services and systems 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  








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            connecting sewers, interceptors, trunk and outfall lines,  
            sanitary sewage treatment or disposal plants or works, drains,  
            conduits, outlets for surface water 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 water or storm waters."   
            Prohibits "sewer system" from including a sewer system that  
            merely collects sewage on the property of a single owner.  


          2)Makes findings and declarations pertaining to Proposition 218  
            and storm water and drainage runoff.  


          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 Public Policy Institute of  
            California (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.  








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            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  
            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  








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            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  
            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, the California Constitution Article XIII D,  
            Section 6, subdivision (c) 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 adds a definition for "sewer" to the  
            Proposition 218 Omnibus Implementation Act.  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.  This bill is sponsored by the Water  








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            Foundation.  


          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 important tools we  
            need to manage water supplies and address water pollution...  
            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.  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."  


          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  
            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  








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            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)Arguments in Support.  The Water Foundation argues, "While  
            hundreds of California's cities, counties, and stormwater  
            districts face federal mandates to reduce stromwatr 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."   


          7)Arguments in Opposition.  The Howard Jarvis Taxpayers  
            Association argues, "SB 1298 will only lead to unnecessary  
            litigation against municipalities.  Should SB 1298 be signed  
            into law and adopted by local agencies, a precedent setting  
            victory invalidating this clearly unconstitutional bill would  
            be followed by copycat lawsuits that impose retroactive  
            refunds and attorney fees on public treasuries all across  
            California."    




          Analysis Prepared by:                                             








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                          Misa Lennox / L. GOV. / (916) 319-3958  FN:  
          0004200