AGENDA COMMUNICATIONS AND LEGISLATIVE LIAISON COMMITTEE MEETING WITH BOARD OF DIRECTORS* ORANGE COUNTY WATER DISTRICT 18700 Ward Street, Fountain Valley, CA (714) 378-3200 Thursday, September 8, 2016, 8:00 a.m. - Conference Room C-2

*The OCWD Communications and Legislative Liaison Committee meeting is noticed as a joint meeting with the Board of Directors for the purpose of strict compliance with the Brown Act and it provides an opportunity for all Directors to hear presentations and participate in discussions. Directors receive no additional compensation or stipend as a result of simultaneously convening this meeting. Items recommended for approval at this meeting will be placed on the September 21, 2016 Board meeting Agenda for approval.

ROLL CALL

ITEMS RECEIVED TOO LATE TO BE AGENDIZED

RECOMMENDATION: Adopt resolution determining need to take immediate action on item(s) and that the need for action came to the attention of the District subsequent to the posting of the Agenda (requires two-thirds vote of the Board members present, or, if less than two-thirds of the members are present, a unanimous vote of those members present.)

VISITOR PARTICIPATION

Time has been reserved at this point in the agenda for persons wishing to comment for up to three minutes to the Board of Directors on any item that is not listed on the agenda, but within the subject matter jurisdiction of the District. By law, the Board of Directors is prohibited from taking action on such public comments. As appropriate, matters raised in these public comments will be referred to District staff or placed on the agenda of an upcoming Board meeting.

At this time, members of the public may also offer public comment for up to three minutes on any item on the Consent Calendar. While members of the public may not remove an item from the Consent Calendar for separate discussion, a Director may do so at the request of a member of the public.

CONSENT CALENDAR (ITEM NO. 1)

All matters on the Consent Calendar are to be approved by one motion, without separate discussion on these items, unless a Board member or District staff request that specific items be removed from the Consent Calendar for separate consideration.

1. MINUTES OF COMMUNICATIONS AND LEGISLATIVE LIAISON COMMITTEE MEETING HELD JULY 7, 2016

RECOMMENDATION: Approve minutes as presented

END OF CONSENT CALENDAR

1 MATTERS FOR CONSIDERATION

2. FEDERAL LEGISLATIVE UPDATE

RECOMMENDATION: Agendize for September 21 Board meeting:

1) Add a policy position to OCWD’s 2016 Legislative Platform to advocate for regional sediment management on the federal level to include funding for projects; and

2) Take action as appropriate

3. STATE LEGISLATIVE UPDATE

RECOMMENDATION: Agendize for September 21 Board meeting: Take action as appropriate

4. DEDICATIONS OF COMPLETED PROJECTS

RECOMMENDATION: Agendize for September 21 Board meeting: Take action as appropriate

INFORMATIONAL ITEM

5. PUBLIC AFFAIRS OUTREACH REPORT [JULY-AUGUST 2016]

CHAIR DIRECTION AS TO WHICH ITEMS IF ANY TO BE AGENDIZED AS A MATTER FOR CONSIDERATION AT THE SEPTEMBER 21 BOARD MEETING

DIRECTOR’S ANNOUNCEMENTS/REPORTS

GENERAL MANAGER’S ANNOUNCEMENT/REPORT

ADJOURNMENT

2

Agenda Posting: In accordance with the requirements of California Government Code Section 54954.2, this agenda is posted in the window of the guard shack at the main entrance of the Orange County Water District, 18700 Ward Street, Fountain Valley, CA and on the OCWD website: www.ocwd.com not less than 72 hours prior to the meeting date and time above. All written materials relating to each agenda item are available for public inspection in the office of the Assistant District Secretary. Backup material for the Agenda is available at the District offices for public review and can be viewed online at the District’s website: www.ocwd.com.

Accommodations to the Disabled: Pursuant to the Americans with Disabilities Act, persons with a disability who require a disability-related modification or accommodation in order to participate in a meeting, including auxiliary aids or services, may request such modification or accommodation from the District Secretary at (714)378-3233, by email at [email protected] by fax at (714) 378-3373. Notification 24 hours prior to the meeting will enable District staff to make reasonable arrangements to assure accessibility to the meeting.

Availability of Agenda Material: As a general rule, agenda reports or other written documentation that has been prepared or organized with respect to each item of business listed on the agenda can be reviewed at www.ocwd.com. Copies of these materials and other disclosable public records distributed to all or a majority of the members of the Board of Directors in connection with an Open Session agenda item are also on file with and available for inspection at the Office of the District Secretary, 18700 Ward Street, Fountain Valley, California, during regular business hours, 8:00 a.m. to 5:00 p.m., Monday through Friday. If such writings are distributed to members of the Board of Directors on the day of a Board meeting, the writings will be available at the entrance to the Board of Directors meeting room at the Orange County Water District office.

3

COMMUNICATION AND LEGISLATIVE LIAISON COMMITTEE MEMBERS

Philip Anthony - Chair Jordan Brandman - Vice Chair Dina Nguyen Roman Reyna Steve Sheldon

Alternates Roger Yoh - Alternate 1 Shawn Dewane - Alternate 2 Jan Flory - Alternate 3 Denis Bilodeau - Alternate 4 Cathy Green - Alternate 5

4 1 MINUTES OF BOARD OF DIRECTORS MEETING WITH COMMUNICATIONS AND LEGISLATIVE LIAISON COMMITTEE ORANGE COUNTY WATER DISTRICT July 7, 2016 @ 8:00 a.m.

Director Anthony called the Communications and Legislative Liaison Committee meeting to order in Conference Room C-2 at the District office. The Recording Secretary called the roll as follows:

Committee Members OCWD Staff Philip Anthony Michael R. Markus - General Manager Jordan Brandman (not present) Eleanor Torres - Director of Public Affairs Dina Nguyen Alicia Dunkin - Legislative Affairs Liaison Roman Reyna Christina Fuller - Recording Secretary Steve Sheldon Teleconference Alternates Eric Sapirstein - ENS Resources Roger Yoh (not present) James McConnell - McConnell & Associates Shawn Dewane (not present) Jan Flory (not present) Others Denis Bilodeau (not present) James Petersen, Casey Elliott, Cori Williams – Cathy Green Townsend Public Affairs Stacy Taylor- Mesa Water

VISITOR PARTICIPATION

Mesa Water District representative Stacy Taylor thanked OCWD staff and President Green for participating in Mesa Water District’s Water Issues Study Group Alumni as a panelist.

CONSENT CALENDAR

The Consent Calendar was approved upon motion by Director Green, seconded by Director Reyna and carried [5-0] as follows. [Yes –Anthony, Nguyen, Reyna, Sheldon, Green /No – 0]

1. Minutes of Previous Meeting

The minutes of the June 2, 2016 Communications/Legislative Liaison Committee meeting are approved as presented.

MATTERS FOR CONSIDERATION

2. Federal Legislative Update

Federal legislative advisors Jim McConnell and Eric Sapirstein gave updates on the Water Resources Development Act (WRDA) 2016 bill. Mr. Sapirstein also provided an overview of the Environmental Protection Act (EPA) study, federal drought bills, water recycling bills and budget appropriations. This item was informational and no action was taken. 7/7/2016

3. State Legislative Update

Legislative Affairs Liaison Alicia Dunkin briefed the Committee on the following legislation: AB 2874 Groundwater Sustainability Agencies, AB 2022 Advanced Purified Water, and SB 919 Recycled Water-Energy.

Townsend Public Affairs (TPA) representatives Casey Elliott, James Peterson and Cori Williams provided updates on state legislative activities. Mr. Petersen reported that TPA’s is currently working on the following three priority issues:1) AB 2022; 2) SB 163; and 3) Prop 1. The Committee then took the following actions.

Upon motion by Director Green, seconded by Director Nguyen and carried [5-0], the Committee recommended that the Board at its July 20 Board meeting: Adopt the following positions: Legislation Position AB 2874 (Gaines) Groundwater Sustainability Agencies Watch AB 2022 (Gordon) Advanced Purified Water Informational SB 919 (Hertzberg) Recycled Water- Energy Support [Yes – Anthony, Nguyen, Reyna, Sheldon, Green /No – 0]

4. Multimedia Graphics Designer - Limited Term Agreement

Director of Public Affairs Eleanor Torres reminded the Committee that the District currently has a part time multimedia graphics intern who assists with multimedia graphics needs. She advised that the internship is ending shortly but there is still a need for brand assets that have not yet been developed due to the limited schedule of an internship. Ms. Torres stated that using a consultant is not ideal because consultants are not always cost effective and internships do not allow for the time needed. She recommended hiring a limited term employee multimedia graphics designer for an amount not to exceed $77,240 ($28/hour + benefits). After a brief discussion, the Committee took the following action:

Upon motion by Director Reyna, seconded by Director Nguyen and carried [5-0], the Committee recommended that the Board at its July 20 Board meeting: 1) Authorize an additional $28,016 in the 2016-2017 fiscal year budget to fund a Limited Term Agreement for a multimedia graphics designer; and 2) Authorize staff to hire a multimedia graphics designer under a Limited Term Agreement for an amount not to exceed $77,240 ($28/hour + benefits). [Yes - Anthony, Nguyen, Reyna, Sheldon, Green/No - 0]

5. California Special District Association (CSDA) Board of Directors Election 2016 – Southern Region, Seat B

The Committee briefly discussed this matter and then took the following action:

Upon motion by Director Sheldon, seconded by Director Green and carried [5-0], the Committee recommended that the Board at its July 20 Board meeting: Cast OCWD ballot for Bill Nelson, Orange County Cemetery District. [Yes - Anthony, Nguyen, Reyna, Sheldon, Green/No - 0]

2 7/7/2016 INFORMATIONAL ITEMS

6. Public Affairs FY 2015-2016 Report and Goals for FY 2016- 2017

Ms. Torres advised that an overview of Public Affairs achievements for FY 2015-16 and goals for the FY 2016-17 is in the staff report. She gave an update on tours and social media accomplishments for the year.

7. Public Affairs Outreach Report [June 2016]

Ms. Torres advised that the June 2016 Public Affairs Outreach Report is in the packet.

CHAIR DIRECTION AS TO WHICH ITEMS IF ANY TO BE AGENDIZED AS A MATTER FOR CONSIDERATION AT THE JULY 20 BOARD MEETING

The Committee recommended Items No. 3 - 5 be agendized on the Consent Calendar at the July 20 Board meeting.

GENERAL MANAGER’S COMMENTS

Mr. Markus advised the Committee that staff will issue Requests for Proposals for State and Federal Legislative Advocacy agreements.

ADJOURNMENT

There being no further business to come before the Committee, the meeting was adjourned at 8:45 a.m.

______Philip Anthony, Chairman

3 2 AGENDA ITEM SUBMITTAL

Meeting Date: September 8, 2016 Budgeted: N/A Budgeted Amount: N/A To: Communications/Leg. Liaison Cte Cost Estimate: N/A Board of Directors Funding Source: N/A Program/Line Item No.: N/A From: Mike Markus General Counsel Approval: N/A Engineers/Feasibility Report: N/A Staff Contact: E. Torres/A. Dunkin CEQA Compliance: N/A

POLICY ISSUE: FEDERAL LEGISLATIVE UPDATE

SUMMARY Orange County Water District (OCWD; the District) staff and federal legislative advisors James McConnell and Eric Sapirstein (ENS Resources) are working with Congresswoman Mimi Walters, the Army Corps of Engineers (Corps), and members of the Orange County Congressional Delegation to advance the Prado Basin, CA Study, In addition they are working on the development of the Water Resources Development Act (WRDA) that contains language sought by OCWD and Congresswoman Mimi Walters. Sediment management has been a topic that maybe added to this year’s Act or in a future WRDA bill. Staff and consultants will provide an update on these activities.

Attachment(s): • James McConnell Update – July-August 2016 • Eric Sapirstein (ENS Resources) Washington Update - August 2016

RECOMMENDATION

Agendize for September 21 Board meeting:

1) Add a policy position to OCWD’s 2016 Legislative Platform to advocate for regional sediment management on the federal level to include funding for projects; and

2) Take action as appropriate

WATER RESOURCES DEVELOPMENT ACT (WRDA) (S. 2848/H.R 5303)

Background The House version of Water Resources Development Act (WRDA) of 2016 (H.R. 5303) contains the language sought by OCWD and Congresswoman Mimi Walters that was also reviewed by the legislative services of the US Army Corps of Engineers. Specifically, Section 112 of H.R. 5303 preserves the existing water conservation policy at Prado Dam, without specifically mentioning the facility. It also provides that non-federal interests shall pay only the separable costs associated with the evaluation, implementation, operation and maintenance of an approved water supply conservation measure, which was the primary goal of OCWD’s efforts in the legislation. The House WRDA bill has not yet been moved to the floor for debate.

The Senate’s WRDA of 2016 (S. 2848) also has not yet been moved to the floor for debate and contains language. Section 1012 of S. 2848 also preserves the policies in the House version of WRDA that OCWD sought, and in addition, provides for reoperation of federal reservoirs and 1 flood protection facilities in Section 1032. OCWD staff and its federal consultants continue to monitor the efforts of Congress to move final passage of a WRDA bill in 2016. In addition to the provisions to WRDA sought by OCWD, staff and its consultants have heard of efforts to add language for federal support and funding of sediment management behind dams for coastal benefits and additional storage behind dams. While specific efforts and position are not yet developed, OCWD staff and its consultants will provide an update on these activities. Below is a summary of the potential WRDA sediment management amendment that OCWD staff and its federal consultants have heard about, but has not yet been included in either the House or Senate WRDA bills:

A Potential California Coast WRDA Amendment – Key Elements • Scope: Identify Regional Sediment Management (RSM) projects for funding through a new Federal Authority specific to the California Coast. Can include a wide array of project purposes associated with coastal issues i.e. storm damage reduction, beneficial reuse of dredged materials, sediment source protection, environmental restoration, and beach restoration. • Funding: California/Federal Government will function as cost share partners which Increases probability for project funding. Promote more active participation on the part of cost share partners. State cost share can be cost shared with regional partners. • Process: An Amendment could provide for a streamlined process for project implementation. Reduces the time for the traditional overly burdensome federal project review and permitting. Blending existing federal authorities for a more cost effective project. Aligns with current federal policy initiatives for regional approaches for project development. • Joint Project Management: Establishes a project office comprised of appointed State and Federal officials to recommend projects for funding and to oversee project implementation. • Integration of existing Federal Authorities: A WRDA Amendment could allow for the integration of existing Federal Authorities for increased project effectiveness and provide for cost savings.

Not only would successful passage of a new WRDA authorized RSM implementation program benefit California, but it will also serve as a national model that can be used by the country’s other seven coastal regions to better address the National RSM program.

Staff Recommendation

• Add a policy position to OCWD’s 2016 Legislative Platform to: Support the development of federal legislation and funding for sediment management behind dams.

AUGUST FEDERAL LEGISLATIVE ACTIVITIES

Greg Woodside and OCWD’s federal consultants have been working with Senator Boxer’s staff and U.S. Army Corps staff on draft versions of potential amendments to S. 2848, Section 1012 WRDA language to ensure it meets OCWD objectives and is communicated with the local U.S. Army Corps office. In addition, Greg Woodside, Alicia Dunkin and OCWD’s federal consultants are working to address sediment management at Prado Dam.

2

JAMES F. MCCONNELL ATTORNEY-AT-LAW 1130 CONNECTICUT AVENUE, N.W. SUITE 300 WASHINGTON, D.C. 20036 917-434-3603 [email protected]

ORANGE COUNTY WATER DISTRICT Washington Report July - August 2016

Congress took an extraordinarily long summer break this year to accommodate for earlier-than-usual presidential nominating conventions in July followed by the traditional August recess, and a late Labor Day on September 5. As a result, the House and Senate have been out of session for seven weeks, planning to return to Washington on September 6. When Congress does return they will have three-plus weeks before the start of Fiscal Year 2017 and the subsequent general election campaign recess.

Before the summer recess began, Senator James Inhofe (R-OK), chairman of the Environment and Public Works (EPW) Committee tried mightily to have the Senate’s Water Resources Development Act (WRDA) (S. 2848) brought to the floor for debate and passage. Scheduling of floor time is the prerogative of Majority Leader Mitch McConnell (R-KY) and he did not acquiesce to Senator Inhofe’s request.

The Senate bill would cost $10.6 billion over the next decade according to the Congressional Budget Office (CBO) in its report to the committee. CBO is required by law to estimate—or “score”—the cost of legislation before a bill can be brought up for debate.

The House version of WRDA (H.R. 5303) is slimmer than the Senate bill and its estimated cost over ten years is approximately $5 billion, half that of S. 2848. The House bill contains language sought by OCWD and Congresswoman Mimi Walters.

Section 112 of the House legislation preserves the existing water conservation policy at Prado Dam, without specifically mentioning that facility. It defines a range of water conservation activities, including storm water capture, releases for groundwater replenishment or aquifer storage and recovery, releases to augment water supply at another federal or non-federal storage facility and other conservation measures that enhance usage of a Corps of Engineers project for water supply.

It also provides that non-federal interests shall pay only the separable costs associated with the evaluation, implementation, operation, and maintenance of an approved water supply conservation measure, which was the thrust of OCWD’s efforts in the House bill. Representatives Mark Sanford (R-SC) and Lois Frankel (D-FL) sent a "Dear Colleague" letter to colleagues the third week of August urging support for Congress to take up WRDA after the summer break. The letter calls on House Members to sign by September 9 a letter to House Speaker Paul Ryan (R-WI) and Majority Leader Kevin McCarthy (R-Bakersfield) in support of passing WRDA before the end of the fiscal year, which ends on September 30. House Transportation and Infrastructure Committee Bill Shuster (R-PA) would like to have the Senate move first on their legislation before the House takes up its version. In any case, a conference between the House and Senate will not take place until a lame duck session after the elections.

Likewise, legislative efforts on drought legislation will also be up for consideration in September. Senator Lisa Murkowski (R-AK), chair of the Energy and Natural Resources Committee, would like to mark up a comprehensive Western States drought bill for consideration by the full Senate. Her efforts are also subject to the Senate schedule and the shortness of time in September before the election recess begins.

M E M O R A N D U M

TO: Eleanor Torres Alicia Dunkin

FROM: Eric Sapirstein

DATE: August 23, 2016

SUBJECT: Washington Update

Congress recessed for an extended August break in late July with plans to return to work September 6, at which time decisions on how to extend federal agency funding through the elections will be made. While Congress was on recess, congressional staff continued to work to find compromises on a number of pending matters. When Congress returns to work in September, it will remain in session until the end of the month and then recess for the month of October to allow members to campaign in the final weeks before the November 8th general election. Based upon the current schedule, Congress will return to work as early as November 14 for a Lame Duck Session. In addition to the priority to complete must do business, the organizing of the next Congress will take place after Thanksgiving. This effort will involve electing leaders and making committee assignments.

With a compressed September schedule in the offing, the following summarizes the key issues of interest to the District that may become subject to congressional and Administration attention.

WRDA Reauthorization and Leveraging Flood Protection Facilities The House and Senate are expected to make serious efforts to secure chamber passage of WRDA (S. 2848 and H.R. 5303) and create the opportunity for a conference to reconcile differences between the two measures. According to committee staff, two routes to passage appear viable. First, is a traditional approach where both versions would be subject to a House Senate conference committee during the Lame Duck session. The second approach involves an informal conference. Under ENS Resources, Inc. 1101 14th Street, N.W. Washington, D.C. 20005 Phone 202.466.3755/Telefax 202.466.3787

this scenario, the Senate, for example, would pass a bill and send it to the House with an understanding on how the House would amend the bill. The House would then pass the amended Senate-passed version and return it to the Senate where it would be passed and avoid the need for a formal conference committee. This approach currently lacks buy-in from House leaders. But if the legislative calendar conspires against a formal conference, this approach holds the attraction of securing final passage.

For OCWD, we worked with OCWD staff and both the House and Senate WRDA committee staff on the Prado Dam-related water conservation language that would allow for the leveraging of federal flood protection facilities to store water. A handful of stakeholders continue to voice concerns that the WRDA language (Section 1012) might lead to the allocation of stored water for nonauthorized purposes. Working with committee staff and stakeholders, we achieved an understanding that circumstances such as those of OCWD’s would not result in such an outcome. As a result, it appears that any attempt to modify Section 1012 would not adversely impact OCWD’s priority to ensure long-term agreements to capture stormwater flows. Additionally, we worked to ensure that provisions (Section 1032), providing for reoperation of federal reservoirs and flood protection facilities would not be amended to preclude OCWD’s ability to rely upon advanced monitoring and data analytics to facilitate enhanced reoperation of such facilities for improved water conservation.

Finally, we continued to monitor discussions related to the SRF provisions contained in the Senate bill. These provisions would elevate efforts to use the SRF to address innovative water supply infrastructure consistent with OCWD’s goals. As of this writing, differences among House and Senate committee members on the appropriateness of incorporating such provisions into WRDA have yet to be resolved. It is unclear if these provisions will be in any final WRDA agreement sent to the president, however, Senator Boxer has made these provisions a priority for final adoption.

WIFIA Program Implementation Advances We met with USEPA officials in the past month to review the status of implementing WIFIA; the new loan and loan guarantee assistance program for water infrastructure needs. In this meeting, we learned that the agency may have unobligated resources from prior years that could be utilized to help expedite the program’s implementation. Even without this funding, it appears that Congress will appropriate as much as $45 million in Fiscal Year 2017, leading to $3 billion in new water project financing. If WRDA is renewed with the Senate-related WIFIA provisions, then another $70 million would be appropriated, and would stimulate another$8 billion in leverage water infrastructure assistance.

Because this program remains a USEPA priority, the agency is planning to conduct a series of outreach meetings. We advised WIFIA officials that ENS Resources, Inc. 1101 14th Street, N.W. Washington, D.C. 20005 Phone 202.466.3755/Telefax 202.466.3787

the upcoming ACWA fall meeting represented an opportunity to reach a number of interested parties. As a result, the agency staff are working with ACWA to determine whether a session might be convened in connection with the Anaheim meeting. The WIFIA program may offer OCWD an alternative financing approach to address some of its CIP needs in the coming year.

Drought Relief Policy Slows and Action on Energy Policy Legislation a Factor The ongoing efforts to find a path to address drought relief needs continues with inconclusive results. First, Senator Feinstein, reportedly, continues to consider approaches to move her drought priorities. The Senate Committee on Energy and Natural Resources mark-up of drought measures failed to include S. 2533. This suggests that Senator Feinstein might need to work to amend any committee bill that could be cobbled together during the Lame Duck Session. At the same time, we continue to anticipate that the budget process may become an avenue to address drought relief needs, if House and Senate drought policy leaders are unable to find common ground. This is especially the circumstance if an omnibus spending bill is packaged with natural resources policies.

At the same time, the ongoing energy policy conference committee on S. 2012 to finalize a new energy-water nexus policy and other energy issues continues to be the subject of speculation as to whether S. 2012 might address drought issues. This situation exists because the House amended S. 2012 with its drought bill, H.R. 2898. According to conference committee staff, staff level discussions on the drought provisions continue to be stalled over regulatory streamlining provisions (among other contentious matters). Therefore, it remains unclear whether any energy bill that might be reconciled will include drought relief provisions. According to staff, a formal kick-off of the conference committee is expected in September. Once this occurs, staff will be directed to work out differences during the months of September and October so that conferees can review and approve during the Lame Duck session.

Fiscal Year 2017 Appropriations

As has been customary for the past several years, Congress is poised to extend current year spending until after the election. The key debate on the budget involves how long the stop gap spending measure should remain in place. Some congressional leaders are seeking a temporary budget, extending into March. Others have come down on the side of extending existing spending levels until December to allow decisions to made in a less politically tense environment after the elections. As of this writing, the uncertainty about which party will control the Senate suggests that the decision on how long any stop gap spending should last will not be settled until after the election returns are known. Nonetheless, for the District, the encouraging point is that for the first time in recent memory, Congress has firmly stated in its various spending ENS Resources, Inc. 1101 14th Street, N.W. Washington, D.C. 20005 Phone 202.466.3755/Telefax 202.466.3787 bills under consideration that federal water infrastructure spending is a critical matter that must be maintained by the federal government.

ENS Resources, Inc. 1101 14th Street, N.W. Washington, D.C. 20005 Phone 202.466.3755/Telefax 202.466.3787

3 AGENDA ITEM SUBMITTAL

Meeting Date: September 8, 2016 Budgeted: N/A Budgeted Amount: N/A To: Communications/Leg. Liaison Cte Cost Estimate: N/A Board of Directors Funding Source: N/A Program/Line Item No.: N/A From: Mike Markus General Counsel Approval: N/A Engineers/Feasibility Report: N/A Staff Contact: E. Torres/A. Dunkin CEQA Compliance: N/A

POLICY ISSUE: STATE LEGISLATIVE UPDATE

SUMMARY

Orange County Water District (OCWD; the District) staff and Townsend Public Affairs (TPA) continue to advocate on issues at the state level that impact the District. Staff and the District’s consultants will provide updates on AB 2022 (Gordon). Staff and TPA will also provide a summary of the Little Hoover Commission public hearing held on August 25th.

Attachment(s) • Little Hoover Commission - Written Testimony Submitted by Howard Jarvis • Little Hoover Commission Special District Report 2000 • AB 2022 Advanced Purified Demonstration Water - Engrossed • Townsend Public Affairs Monthly Report (September 2016) • State Legislation Matrix - September

RECOMMENDATION

Agendize for September 21 Board meeting: Take action as appropriate.

LITTLE HOOVER COMMISSION

On August 25, the Little Hoover Commission hosted a public hearing on special districts, which consisted of four panels. The first panel provided an overview of special districts; the second was focused on health care and fire districts; the third panel was focused on LAFCO; and the forth panel looked at property taxes and reserves. The Little Hoover Commission will next collect, review and analyze all of the testimony that was provided at the public hearing, along with the written comments that have been submitted, and will prepare a draft report. The report will be discussed at a second hearing that the Commission will conduct, currently scheduled for late-October. After that meeting, additional information will be incorporated into the report before it is finalized. The finalized report may contain recommendations for the Legislature or other entities, but no specific proposals were discussed in the August 25 meeting.

There has been some concern that the Commission may want to re-examine the reserves held by special districts and whether or not the State should establish rules around them. In the 2000 Special District Report by the Little Hoover Commission, a list of 25 special 1 districts with the highest reserves was included in the report. OCWD was not included in the 2000 report but other special districts in Orange County were included, such as the Irvine Ranch Water District and the Orange County Sanitation District, among others. There were no proposals discussed by the Commissioners to re-examine the reserves held by special districts and numerous speakers, both on panels and during public comment, attempted to address the common misconceptions about special districts’ reserves and their importance for the operation, credit rating and future capital construction projects of special districts.

AB 2022 (GORDON) ADVANCED PURIFIED WATER DEMONSTRATION PROJECT

Assemblymember Gordon (D-Menlo Park) introduced AB 2022 (Advanced Purified Demonstration Water), which would allow the bottling of advanced purified water for educational purposes. OCWD is a co-sponsor of the bill. AB 2022 passed the Legislature on August 28 with no “no” votes. The bill now goes to the Governor for his consideration. Alicia Dunkin, WateReuse, staff to the bill sponsor and TPA met with the Governor’s staff on August 16 and his staff indicated that the Governor will most likely support the bill as staff worked with the State Board to alleviate its concerns with the measure. The Governor will have until September 30 to act on the bill.

Specifically, the State Board requested amendments, which Assembly Member Gordon and the bill’s co-sponsors accepted were to (1) for disbursement of bottled advanced purified water to those under the age of 18 a parental consent form would be required, and (2) existing Health and Safety code requirements for the number of samples of advanced purified water to people per day and calendar year (which OCWD is already in compliance of) is referenced in AB 2022.

AUGUST STATE LEGISLATIVE ACTIVITIES

• August 2, 9, 11 Multiple meetings and conference calls with co-sponsors of AB 2022 to discuss potential amendments to the bill, as requested by the State Water Resources Control Board.

• August 4 Alicia Dunkin participated in the GRA legislative conference call.

• August 5 Alicia Dunkin participated in the WateReuse legislative conference call.

• August 8 Mike Markus, Mike Wehner, Eleanor Torres and Alicia Dunkin worked with AB 2022 co-sponsors regarding the review of proposed State Board amendments.

• August 10 Alicia Dunkin participated in the ACWA Region 10 Legislative call.

2 • August 12 Alicia Dunkin attended the ACWA State Legislative Committee.

• August 16 In preparation for the Governor’s signature of AB 2022, Alicia Dunkin, WateReuse, Assembly Member Gordon’s staff and TPA met with staff to the Governor’s office.

• August 16 Alicia Dunkin participated in the National WateReuse legislative call.

• Alicia Dunkin and TPA drafted a letter to the Governor in support of his signature of AB 2022. • Alicia Dunkin and TPA researched information on the Little Hoover Committee. • Alicia Dunkin participated in SAWPA weekly legislative conference calls. • Various meetings were held in preparation for the Appropriations Committee hearing on AB 2022 Alicia Dunkin and TPA met with the following offices: o Senator Ricardo Lara, Chair o Senator Pat Bates, Vice Chair o Senator Jerry Hill o Senator Mike McGuire o Senator Jim Nielsen o Senator Tony Mendoza

3 HOWARD JARVIS, Founder (1903-1986) SACRAMENTO OFFICE: JON COUPAL, President 92111th Street, Suite 1201 TREVOR GRIMM, General Counsel Sacramento, CA95814 TIMOTHY BITTLE, Director of Legal Affairs (916) 444-9950, Fax:(916) 444-9823 HOWARD JARVIS www.hjta.org TAXPAYERS ASSOCIATION

Written Testimony on Special Districts

Jon Coupal, President, Howard Jarvis Taxpayers Association

Little Hoover Commission Hearing

Thursday August 25, 2016, State Capitol, Rm, 437

INTRODUCTION

Members of the Commission, thank you for the opportunity to address you on the topic of special districts.

From the perspective of California taxpayers, special districts are neither inherently good nor inherently bad. However, it is a tenet of good government that services should be provided at the level of government closest to the people. While some special districts cover large geographic areas, most are fairly localized which we view as positive.

However, on the negative side of the ledger, many special districts are governed by political appointees rather than having a board that is directly elected. This raises significant issues of accountability. Even when boards are directly elected, many special districts do not receive the same level of scrutiny as do cities and counties.

Because broad pronouncements on special districts generally are unproductive, this paper will address more specific concerns.

STATEMENT OF INTERESTS

The Howard Jarvis Taxpayers Association (HJTA} was formed in 1978, following the passage of Proposition 13 which received nearly two-thirds of the popular statewide vote, Proposition 13 remains very popular today and has frequently been referred to as the "third rail" of California politics. California Little Hoover Commission Hearing on Special Districts Testimony of Jon Coupal, HJTA Page 2

HJTA's mission statement states that the organization "is dedicated to the protection of Proposition 13 and the advancement of taxpayers' rights, including the right to limited taxation, the right to vote on tax increases and the right of economical, equitable and efficient use of taxpayer dollars."

Notwithstanding the popularity of Proposition 13, both the courts and the California legislature began creating loopholes in the new law almost immediately. As a result of these actions, HJTA passed two additional measures, Proposition 62 in 1986 and Proposition 218 in 1996. Both were intended to ensure that property owners and voters would be the ultimate arbiters of new or higher taxes, fees, charges and assessments.

For example, in the 1980's, municipalities began disguising broad based parcel taxes as "benefit assessments" well beyond the original limited nature of that financing mechanism. Under Proposition 218, benefits assessments must now be carefully tailored to provide direct special benefits to the specific parcels being assessed. Moreover, benefit assessments must now be specifically approved via a ballot process given to the property owners.

SPECIAL DISTRICTS

HJTA's involvement with special districts is generally no different than our interaction with other local government entities. Philosophically, we support local control, "home rule" and autonomy for local public agencies, especially when:

1. In those instances where local entities seek additional revenue they comply with all constitutional requirements, especially those enacted for taxpayer protection including, but not limited to, Propositions 13 and 218.

2. Local governments maintain maximum transparency, follow the Brown Act, undertake common sense solutions to increase voter turnout, post required fiscal transparency information on their respective websites and maintain an adequate reserve that neither abuses taxpayers nor provides an incentive for unethical behavior.

In HJTA's long history interacting with local government entities, our experience has been that most make good faith efforts to comply with the law. On some occasions, California Little Hoover Commission Hearing on Special Districts Testimony of Jon Coupal, HJTA Page 3

non-compliant actions are simply oversights and quickly corrected when the nature of the violations are brought to their attention. But unfortunately, in some instances, local governments also willfully violate the law. For that reason, HJTA maintains a fulltime, in-house legal presence and has a strong winning record in litigation.

However, one problem with our efforts to seek compliance is that special district activities are often "under the radar." We are aware of instances of long term non­ compliance that escape the attention of citizens and even the district itself. For example, in 2014 it was discovered that a fire district was illegally collecting tax proceeds from property owners outside the district and that practice had been ongoing for several years. It took a special act of the Legislature to reimburse property owners for the taxes they had paid illegally.

LITTLE HAS CHANGED SINCE THE 2000 REPORT

Not much has changed from the Commission's report back in 2000. Reserves remain high, voter turnout remains low, and awareness is limited. Dozens of special districts, notably healthcare districts, should be phased out of existence. But many taxpayers being assessed may not even realize that their health care district doesn't even operate a hospital.

One recent development is especially troubling to HJTA. Local government associations are now actively seeking to weaken important taxpayer protections. Adding insult to injury, they expend taxpayer dollars to lobby against the interests of taxpayers. For example, the California Special Districts Association, as well as other local government associations, have ramped up their lobbying for constitutional amendments eliminating Proposition 13's two-thirds vote protections to provide various infrastructure services and dropping it to 55 percent. CSDA and others claim that with cities and counties able to approve general taxes on a majority vote, and with school bonds subject to a 55 percent threshold, that they should be treated the same way and not be subject to a two-thirds vote. However, special districts, by their very nature, provide specific and limited service. They can do this either through a majority vote special assessment, or a two-thirds vote special tax. Moreover, other revenue raising avenues are available without doing violence to Propositions 13 or 218. California Little Hoover Commission Hearing on Special Districts Testimony of Jon Coupal, HJTA Page 4 I I Over a dozen legislative attempts to diminish Proposition 13 have been made over the last ten years in the form of proposed constitutional amendments, with none actually appearing on the ballot. Even if that were to occur at some point in the future, the odds of it being approved are low. The last statewide measure that sought to do away with ! the legislative two-thirds vote for taxes failed by a 2:1 margin.

RESERVE FUNDS

HJTA has consistently supported the idea that government entities maintain prudent reserves. For example, we supported the Gann Spending Limit (Cal.Const., art. XIIIB) which exempted appropriations into a reserve account from being classified as appropriations subject to limitation. More recently, we supported Proposition 1 on the 2014 ballot to establish a rainy day fund with California's General Fund.

However, few can deny that many government entities have abused the public trust by hoarding vast sums of money. The problem remains, as it did in 2000, especially acute with enterprise districts. In 2000, the Commission listed the top 25 enterprise districts with the largest retained earnings and fund balances. For the Imperial Irrigation District, the fund balance jumped from $560 million to 1.6 billion in 15 years on current revenues of $600 million. All of this $1.6 billion is in retained funds, with $1.5 billion falling in the "reserved" retained fund category. For Eastern Municipal Water District, the fund balance has more than doubled to 1.6 billion on annual revenues of $284 million. And yet, retained earnings (reserved and unreserved) on the State Controller's website only total $110 million in 2015.

This raises an issue as to how these funds are being reported. For Sacramento County Regional Sanitation, revenues doubled since 1999 and the fund balance increased to just over a billion dollars on annual revenues of $245 million. Among retained earnings, reserved ($782 million) and unreserved ($307 million) totaled over $1 billion. In our cursory analysis of the Commission's original 25 districts, we found that fund balances have continued to increase dramatically in the range of anywhere from $30-$50 million annually.

It should be noted that during the recession of 2008-2012, reserve fund balances continued to climb across most districts. On paper at least, the economic slowdown appears to not have hampered those districts with the largest reserves. One would California Little Hoover Commission Hearing on Special Districts Testimony of Jon Coupal, HJTA Page 5 think they would have taken advantage of the weak economy to invest in capital improvements (when construction labor is less expensive} or perhaps return that money to ratepayers struggling with double-digit unemployment. Perhaps the former did occur in some districts, but there can be no denying that, even factoring in capital spending and other expenses that reserves have continued to increase for these 25 districts. Retained earnings as a percentage of revenue that are 400%, 500%, or in the case of Irvine Ranch Water District, over 600% percent higher (1.2 billion on revenues of $185 million) are commonplace.

To reiterate, large reserve funds consisting of multiples of a district's annual budget can only be justified if there is a real plan for major capital investment accompanied by realistic timeline for construction. Ambiguous or undefined projects would be insufficient and, in fact, may be illegal. Proposition 218 states that property-related fees can only be imposed to cover the cost of providing the service. Large reserves suggest excess fees are being imposed above the cost of service.

HJTA recognizes that there has been at least some enhanced transparency as it relates to special district reserves. As a result of legislation passed after the Commission's Report on Special Districts in 2000, the State Controller now lists the top 250 special districts sorted by reserve fund amount. While valuable, this information fails to paint a complete picture of the true liquidity of a district. For instance, one example highlighted in the Commission's 2000 report involved the Metropolitan Water District of Southern California. It reported retained earnings in 1999 of just over $4 billion on operating revenues of $708 million. In 2015, retained earnings jumped to over $6.6 billion ($6 billion reserved) on annual revenues of $1.7 billion.

A more complete breakdown of these reserved retained earnings, perhaps as a result of an audit, would be helpful. This data should be consolidated onto one website. If they don't already, districts should also publish their retained earnings figures on their own websites.

Recommendation: The Legislature should strengthen guidelines, or directly regulate, special district reserve funds as well as mandating periodic reporting and publication of reports on line. California Little Hoover Commission Hearing on Special Districts Testimony of Jon Coupal, HJTA Page 6

SPECIAL DISTRICTS AND PROPERTY TAXES:

The Commission has requested a discussion regarding the simultaneous receipt of property taxes and fee revenue by special districts. It is important to note at the outset that Proposition 13 has an extraordinary stabilizing effect on the property tax revenue stream. It does this by preventing taxation of unrealized paper gains in the value of real estate so that when the inevitable economic downturn occurs, there is a significantly lessened "shock" to revenue.

We highlight this point because it serves to introduce a fact that the Commission made clear in its 2000 report, namely that property taxes continue to flow to districts with large reserves even when the economy is doing poorly. 15 of the 25 districts that had the largest reserve funds also received the most property tax dollars. The percentage of revenue received by Santa Clara Water District via property taxes nearly doubled and the actual amount increased by $40 million between 1996 and 2014. In that same period, the fund equity jumped from 391 million to 2.4 billion, or 600 percent. Increases in property tax revenue alone accounted for at least one-third of this amount. There were $650 million in retained earnings on annual revenues of $320 million. For the Central Contra Costa Sanitation District, property tax revenues more than doubled to 13 million annually while its fund equity figure jumped more than 300%, from 214 million to 644 million. In San Diego, property tax revenues jumped from $4 million to $12 million for the county water authority while the fund equity increased by over $900 million to $1.5 billion.

As with the reserve fund issue, the "double dipping" of revenue sources remains largely unresolved. There is little doubt that some enterprise special districts which, by their nature, have access to fee revenue, may also be receiving property tax revenue that might more appropriately be allocated elsewhere - especially to entities which do not have the authority to collect fees or other non-tax revenue.

ALLOCATION OF PROPERTY TAX PROCEEDS:

In 2000, the Commission wrote at length about the inequity of how local property taxes are distributed among local agencies. It especially highlighted why enterprise special districts receive a larger share of funds then other special districts (libraries) that do not collect fees. We agree with this assertion, and do believe that using 37 year old California Little Hoover Commission Hearing on Special Districts Testimony of Jon Coupal, HJTA Page 7 formula's to dictate how property tax revenue is dispersed is both unfair and problematic.

This problem is not just limited to special districts. Even among cities, there are significant fluctuations in their receipt of property tax revenues. However, the California courts have ruled that, while unfair, a city that received no property tax revenue at all under the AB 8 formula did not have a viable legal theory under the California Constitution.

Similarly, there are inequities among special districts that are disadvantaged under antiquated property tax allocation formulas. But the fact remains that all property tax revenue received by special districts, regardless of type, has doubled to nearly $5 billion between 1999 and 2011. Money for non-enterprise special districts receives the lion share of this money at $3.5 billion. However, considering these represent 70% of all special districts, the proportional share provided to enterprise districts which already receive fee revenue is far greater. Property tax revenue to these districts increased by almost $800 million in these 12 years.

Recommendation: The inequities in the distribution of property tax revenues among all local government entities is not the result of Proposition 13. Indeed, the expressed language of that measure states that such revenues are to be allocated "according to law." This vests all the discretion in the California Legislature which has, for 38 years, permitted these inequities to continue.

It is easy to identify the cause of legislative intransigence. There can be no reallocation of the one percent property tax without creating losers as well as winners. Nonetheless, the Commission should do all in its power to prod the California Legislature to perform a top to bottom review of all the statutes allocating property tax revenue.

CONSOLIDATING SPECIAL DISTRICTS WITH A FOCUS ON HOSPITAL DISTRICTS

The Commission also requested input regarding the consolidation of special districts. Much of the Commission's earlier report discussed the 25 (one-third) of hospital districts that continue to collect property tax revenue (usually regressive parcel taxes) without operating a hospital. All of the healthcare districts specifically referenced in the report, many without hospitals, continue to exist. Especially without a hospital, or if that hospital is being leased by a private company, should an independent government California Little Hoover Commission Hearing on Special Districts Testimony of Jon Coupal, HJTA Page 8

entity like a healthcare district continue to provide services? We question whether this is in the best interests of taxpayers. Of course, there's no question that services are still being rendered by these districts. For instance, the Bloss Memorial Healthcare District, an entity without a hospital, provides healthcare at rural clinics, operates an Adult Day health facility, and a women's health center, using a combination of fees and parcel tax revenue. We believe these services are duplicative and unnecessary. Many counties already provide the same services out of their General Fund. Further, many of the people served in the Central Valley community may also qualify for Medi-Cal under the Affordable Care Act.

We note that parcel taxes are exceptionally regressive in the sense that individuals pay the same amount of tax annually regardless of the size of their house, or how often they use the healthcare services. Without a hospital, it would seem like taxpayers would be best served if these healthcare districts folded into other municipal entities and any parcel taxes were repealed.

In the California Legislature, HJTA confronts many issues related to struggling healthcare districts and usually in a negative way. In 2015, HJTA opposed Assembly Bill 72 (Banta) that authorized the Eden Township Healthcare District to establish a special tax, which could have included a parcel tax. Prior to this, the District received money by leasing out its medical buildings. They have not operated a hospital in years, pay their part­ time CEO $156,000 annually and awarded $186,000 in grants in 2014 while paying $364,000 in salary and benefits. Eden Township claimed they needed the money to settle a $20 million judgment against Sutter Health, which ran one of their hospitals. However, they have $40 million in assets and their combined salaries far outpace their annual grant amounts. Thankfully, Assembly Bill 72 failed in the Legislature, but the Healthcare District still remains active.

Other examples, such as Sequoia Healthcare district, abound as well. This district also fails to operate a hospital and is upheld by $9 million in property tax revenue, largely consisting of a parcel tax of about $90 per property owner. Of some concern is the fact that the District has spent millions of dollars on grants and nurses training programs, but ultimately those services have not benefitted taxpayers, either because the nurses don't stay in the area or the grants are provided to entities outside of the District. According to taxpayers, the local LAFCO has placed a "transitional" tag on the district, but legislative authorization is needed to force a vote on potential dissolution of the District. California Little Hoover Commission Hearing on Special Districts Testimony of Jon Coupal, HJTA Page 9

Finally, the Western Contra Costa Healthcare District, which ran the Doctor's Medical Center (previously known as Doctor's Hospital) before closing its doors due to insolvency in 2015, continues to levy a $52 annual parcel tax to pay off Certificate of Participation bond debt until 2027.

Recommendations: As the 2000 Commission made clear, LAFCO's need to be empowered to take action on behalf of the taxpayers they represent. Legislative authorization should not be needed to place a measure on a ballot requesting dissolution of the district and elimination of parcel taxes. LAFCO's should be allowed to unilaterally place questions on the ballot pertaining to dissolution when the healthcare district in question no longer owns a hospital. LAFCO's should also be required to do an immediate review of any healthcare district that doesn't own a hospital, requesting important details including what the revenues and expenditures are in the district, and how many overlapping services are already offered by another municipal entity. In addition, if any of the districts receive funds under Proposition 13's one percent cap, these funds should be returned to local government entities, not to the state, for appropriate distribution. Every possible measure should be taken to ensure that local government is incentivized to enhance the use of special districts so more taxpayers benefit.

Conclusion

HJTA applauds the Commission for the manner in which it executes its mission to achieve greater efficiency, economy and transparency in California state and local governments. We remain willing and able to assist the Commission in this and future efforts. State of California LITTLE HOOVER COMMISSION

May 3, 2000

The Honorable Gray Davis Governor of California

The Honorable John Burton The Honorable James Brulte President pro Tempore of the Senate Senate Minority Leader and members of the Senate

The Honorable Robert Hertzberg The Honorable Scott Baugh Speaker of the Assembly Assembly Minority Leader and members of the Assembly

Dear Governor and Members of the Legislature:

Serious attention is being given to how California organizes and funds local governments. In this report, the Commission examines a number of issues involving more than 2,200 independent special districts that provide important services to virtually every community in the state.

Ironically, these governments that are physically closest to their communities are oftentimes unknown to the people they serve. And in the absence of community involvement, the mechanisms for public accountability are dulled and the value of public scrutiny is lost.

It also is ironic that when they were created, these districts were tailored to the needs of their communities. But as those communities have grown and changed, the districts themselves have been slow to change their boundaries, functions and governance to reflect their communities.

When we began this study, we found that many people had a story about special districts – some praised them, while others reviled them. But few had good information with which to assess fairly and accurately their contribution to California. Recognizing that need, the Commission gathered data that had not been pulled together before to provide a clearer picture of these districts and their attributes.

The picture reveals areas of concern and areas of promise.

Most districts provide modest compensation packages to board members. But the taxpayers and ratepayers in some districts pay for significantly higher meeting stipends and health and life insurance benefits. The Commission found that many independent special districts have accumulated significant reserves. In addition, some of the well-heeled districts – and particularly those that charge customers fees for the services they provide – continue to receive property tax revenues. Because of the diversity of districts, it is difficult to generalize how these resources are being used. And based on the Commission’s inquiry, much of these revenues are committed in the short term, either legally or by time-honored practice. But these funds are a public resource, that over the long term should be scrutinized like all public resources to determine if they are being put to the highest and best use.

Unlike the special districts they are supposed to scrutinize, many of the Local Agency Formation Commissions (LAFCOs) do not have the resources to be the catalysts for improvement that state policy-makers envisioned. LAFCOs are often unwilling or unable to challenge the status quo, even when it is clear that with a little pushing special districts could be reorganized in ways that lower costs or improve the quality of service.

In some cases, consolidating small districts that offer the same service or large districts offering similar services could be expected to yield efficiencies and other improvements. In other cases, communities might find that special districts have the resources and expertise to meet needs that were not identified when the districts were formed. In all cases, local officials need technical assistance, proven methodologies and the facilitation skills to overcome the barriers to change.

In this examination, the Commission did not judge the performance of individual special districts. One of the Commission’s early discoveries was that the districts are very diverse – in what they do and how well they do it. Rather, the Commission hopes its examination of the overarching issues – along with the implementation of its recommendations – will encourage and enable community leaders, voters and customers to judge the performance of their districts for themselves.

With scrutiny, will come improvement. Where districts need more resources, let the community decide. Where districts have too many resources, let the community decide.

Sincerely,

Richard R. Terzian Chairman Special Districts: Relics of the Past or Resources for the Future?

May 2000 Table of Contents

Executive Summary i Introduction 1 Background 5 Toward Visibility and Accountability 17 Strengthening LAFCOs 29 To Provide Information and Training 43 Understanding Special District Reserves 53 Property Tax Allocations to Enterprise Districts 67 Conclusion 79 Appendices & Notes 81 Appendix A: Little Hoover Commission Public Hearing Witnesses 83 Appendix B: Special Districts Survey Questionnaire 85 Appendix C: Health Care Districts Survey Questionnaire 89 Appendix D: Enterprise Districts with the Largest Retained Earnings 93 Notes 95 Table of Sidebars Independent Special Districts 7 Independent Special Districts in Sacramento & Contra Costa Counties in 1998 19 Public Meetings on the Internet 22 Public Notice is Inadequate 23 Riverside County Special District Meeting Times 23 American River Fire Protection District 24 San Diego Citizen’s Budget 25 A LAFCO Executive Officer’s “Other Hats” 29 As LAFCOs Become Involved, Public Disclosure is Needed 33 Special Districts Survey 34 Smart Growth 45 School/Law Enforcement Partnership 46 Lake County 47 Ailing Health Care Districts 48 How Districts Report Reserves 54 Water District Retained Earnings 57 Coachella Valley County Water District 58 GFOA Fund Balance Guideline 62 International City Managers Assn. 63 How Districts Use the Property Tax 70 Property Tax Allocation Policy Questions 75 Table of Charts & Graphs Annual Compensation to Board Members vi Property Tax Allocated to Independent Enterprise Districts xi Number of Special Districts in Each County 6 The Majority of Special Districts are Independent 8 Special District Revenue & Expenditures 9 Local Governments per 100,000 Population 11 Seats Filled Through Contested Elections 20 Candidates per Seat 20 Incumbency Patterns: Seats Contested by Incumbents 21 Incumbency Patterns: Incumbents Beginning As Appointees 21 Average Voter Participation 22 Independent & Dependent LAFCOs: Map 30 LAFCO Budget Ranges 30 Percent of Budgets Returned Through Fees 31 Board Members Who Receive Benefits & Compensation 35 Board Member Compensation, by District and Benefit Type 35 Annual Compensation Per Board Member: Community Services Districts 36 Annual Compensation Per Board Member: Fire Protection Districts 36 Annual Compensation Per Board Member: Park & Recreation Districts 37 Annual Compensation Per Board Member: Sanitary Districts 37 Annual Compensation Per Board Member: Water Districts 37 Annual Compensation Per Board Member: Community Services Districts 36 Enterprise Retained Earnings 56 Non-Enterprise Fund Balances 56 Property Tax Allocations, 1997-1998 67 Property Tax Allocated to Independent Enterprise Districts 68 15 Districts are in the “Top 25” for Both Retained Earnings & Property Tax Revenue 71 EXECUTIVE SUMMARY

Executive Summary

Turn the tap and the water flows. On Thursdays the garbage gets collected. When it gets dark, the streetlights go on.

In many communities these are government services that are taken for granted. But democratic government is not designed to function in obscurity or anonymity. Absent citizen involvement, government agencies of all sizes are prone to inefficiencies and public resources are vulnerable to abuse.

The Little Hoover Commission found that independent special districts often lack the kind of oversight and citizen involvement necessary to promote their efficient operation and evolution. And without robust mechanisms of public accountability, inefficiency can become routine and the occasional scandal inevitable. Some examples: q Independent special districts, according to the most recent information available, have $19.4 billion in reserves – nearly 2½ times their annual gross revenues. Yet in many cases, community and state leaders do not know the size of these reserves and why they are being held – and as a result, these resources are often not integrated into regional and statewide plans for fortifying the State’s infrastructure.i q Twenty-four health care districts in California no longer operate hospitals. Most continue to receive property taxes, which might be better spent on other community needs. Some provide services that could be administered by other agencies. Most of the districts report that they have not considered dissolution. q Consolidations, even when they make sense, are hard to accomplish. It took five years of intense pressure from the Orange County Local Agency Formation Commission to merge three small water purveyors into one. The reorganization, within three to five years, is expected to save more than $1 million a year. Similar opportunities for savings can be found throughout the state, but are lost because the mechanisms for reform are thwarted by the power of the status quo.

California has 58 counties, 474 cities – and more than 3,800 special districts. About two-fifths of those districts are considered “dependent” because they are governed by a larger entity, such as a county board of supervisors. But more than 2,200 of these districts are “independent,”

i LITTLE HOOVER COMMISSION

governed by their own elected bodies, including park districts, water districts, hospital districts and sanitation districts.

Many independent districts also are “enterprise” districts, like water and sewer agencies, which directly charge customers fees for the services they provide. Others, such as library and park districts, are “non- enterprise” districts, which rely mostly on property tax revenues to serve their communities.

The Commission focused on independent districts – both fee-based enterprise districts and tax-dependent non-enterprise districts.

Many of these independent special districts were created to extend public services – such as drinking water or parks – to rural and slowly developing communities that were beyond the reach of incorporated cities. But many, such as the water districts in Orange County, survive as separate government agencies even after urbanization has paved over the economic or geographic reasons for their independence.

Some districts have evolved in ways that cities and counties cannot – to manage consolidated fire protection services and regional parklands. Others, such as the health care districts, were created to provide a unique service, but persist after that service is provided by another public or private organization. Very few districts close their doors on their own initiative.

If no news is good news, the vast majority of districts are successful, and clearly many are. But most Californians would be hard pressed to identify the providers of some of their most basic services or to assess whether the fees are appropriate and the quality is what it should be.

The essential lesson of the last decade is that successful enterprises – public or private – are those that understand the needs of their customers and continuously strive to improve the services they offer. Similarly, successful organizations evolve to capture efficiencies and to align their core competencies with customer needs. Bigger is not always better, and sometimes smaller is.

But most special districts were formed when California looked different than it does today. Nothing ensures that these districts evolve to whatever size, shape and governance structure makes the most sense – given contemporary technologies, economics and social considerations. Local Agency Formation Commissions (LAFCOs) were created to be the venue for these discussions and catalysts for change. If strengthened, LAFCOs hold the best promise for individual communities to shape their government.

ii EXECUTIVE SUMMARY

The Commission believes its reforms would yield improvements in three areas: q Improved public involvement and scrutiny. The complexity and pace of modern life has diminished the electoral process as a mechanism for ensuring that government – and special districts in particular – provide greater value with fewer resources. Special districts need to be more visible to the public they serve and to community and business leaders who can influence decisions. q The efficient evolution of independent special districts. Fiscal and political pressures have brought about some consolidations and reorganizations of small special districts that collectively serve large urban areas. But Local Agency Formation Commissions can be fortified to more effectively facilitate prudent changes. q More vigorous review of public resources. Some 195 independent enterprise districts have reserves greater than five times their 1996-97 gross revenue. But these resources are often not incorporated into community and statewide discussions about how to improve infrastructure or reduce the cost of living and doing business in California. Similarly, nearly 600 enterprise districts continue to receive more than $400 million in property tax revenue, while many other districts providing the same services rely solely on fees. State and community leaders need to openly reconsider how these resources are being used.

To accomplish these reforms, special districts need to be more visible and Local Agency Formation Commissions need to become advocates for improvement. To challenge the status quo, policy-makers need a better understanding of the potential benefits of reorganizing special districts. State and community leaders need to know more about the assets held by special districts, and they must reassess the lingering reliance of some enterprise districts on property taxes.

Many of the Commission’s recommendations for special districts should become standards for all governments – making themselves more understood and relevant to their constituents. The recommendations in this report concern independent special districts because that was the focus of the Commission’s study – not because other local governments and state agencies are immune to inefficiency.

These recommendations are offered to state policy-makers for formal consideration and some would require state direction and support. But many of these practices could be voluntarily adopted by independent

iii LITTLE HOOVER COMMISSION

special districts and Local Agency Formation Commissions working with civic and business leaders in their communities.

A fundamental question facing California is how it will be governed in the 21st Century. The government closest to the people is often times a special district. Sorting out the problems and the potential of these districts will help state and community leaders in what should be a continuous pursuit of improved services at lower costs. In that spirit the Commission finds and recommends the following:

Finding 1: Special districts are often invisible to the public and policy-makers, compromising oversight and accountability.

In contrast to general-purpose local governments, special districts often operate in relative obscurity, hidden from the scrutiny of the public they were created to serve. The accountability mechanisms that do exist – financial information filed with the State Controller and the electoral process – are often inadequate. Districts submit financial information to the State Controller that is not easily accessed or understood by the public or policy-makers.

Research conducted by the Commission found that in Sacramento and Contra Costa counties the electoral process for special districts is less vigorous than for city council elections. It found that fewer races were competitive, more seats were filled with appointments and fewer voters participated in special district elections than other local elections. Sacramento County did increase participation in special district elections when it consolidated those elections in even years – but not even that effort brought special district elections in line with city councils.

Equally important, the media, interest groups and active citizens who frequently observe the actions of city and county governments understandably do not participate at the same level in special district governance. The city manager of a small Southern California coastal city, speaking in support of a city takeover of a water district, compared an average turnout of 75 people at city council meetings to no citizen attendance at water district meetings.1

For this and other reasons, when problems or abuses do occur, they often do not come to the attention of the public or policy-makers until they are egregious and the remedies drastic. In the controversy involving the Water Replenishment District of Southern California, officials from the cities served by the district were shocked to learn the size of the district’s reserve funds that took several years to amass. Relationships

iv EXECUTIVE SUMMARY with other local governments, as well as broad citizen participation, would enhance the visibility and accountability of special districts.

Recommendation 1: The Governor and Legislature should enact legislation that would make special districts more visible and accountable. Specifically, the legislation should: q Require special districts to actively make their activities visible to the public. To help the public – as citizens, consumers and voters – to participate effectively, independent special districts should annually develop and publicize the following information, stated in easily understood terms:

3 District mission and purpose 3 Summary financial information presented in a standard format and simple language, including reserve funds and their purpose 3 District policy on the accumulation and use of reserves 3 Plans for the future, including anticipated revenues, expenditures, reserves and trends in user rates 3 Per capita tax contributions of property owners 3 Performance and quality of service indicators 3 Board member benefits and compensation

Financial information should be posted on Web sites, provided in property tax bills, customer billing statements, and be available from cities, counties and libraries. Districts should be required to publicly notice all meetings in local newspapers, invite coverage by local cable television and conduct annual mailings to district residents. q Require special districts to submit information to other local governments. Independent special districts also should annually and publicly present financial information to county boards of supervisors and city councils, which represent the broader community of interests. Districts also should submit budgets and financial audits to their Local Agency Formation Commission, which could then determine which districts warrant closer scrutiny. q Encourage special district elections to be held as part of even year general elections. To increase voter participation in special district elections, counties should be encouraged to consolidate special district elections in even-year general elections.

v LITTLE HOOVER COMMISSION

Finding 2: Local Agency Formation Commissions, by not aggressively scrutinizing the organization of special districts, have failed to promote the efficient and effective evolution of independent special districts.

The State created LAFCOs in counties and charged them with fostering the rational and orderly evolution of local government. It subsequently gave them the authority to initiate special district consolidations. But LAFCOs often lack the technical skills or political will to make change. LAFCO officials report that the commissions are often ineffective because they lack independence, clear direction from the State and funds to conduct studies. Another longstanding concern is that compensation paid to board members discourages them from giving up their seats in the name of efficiency. The Commission found evidence that this could be the case in some districts.

These problems are exemplified by California’s 24 health care districts that no longer operate hospitals. Having sold, leased or closed their hospitals, the districts endure. Nearly half of Annual Compensation to Board Members them pay meeting stipends or benefits to 50% 45% 45% 40% elected board members. But LAFCOs 40% consistently fail to examine these districts to 35% 30% determine whether they should be 25% 20% eliminated. 15% 8% 10% 3% 2% 5% 0% 1% Where consolidations have occurred, 0% None $1 to $5,001 to $10,001 $15,001 $20,001 more particularly in urbanizing communities, $5,000 $10,000 to to to than services have been improved and costs $15,000 $20,000 $25,000 $25,000 reduced. Water and sanitary districts in Orange County reduced administrative overhead by eliminating two general managers, cut the number of board members from 17 to five, improved customer service and integrated infrastructure as a result of consolidation. Over time, they expect to save $1 million annually.

Following a decades-long trend toward a regional fire service, districts in Sacramento County merged to create an agency that will cover nearly 400 square miles and serve 600,000 people. They will save money through lower overhead costs, a reduction in the number of management positions, economies of scale in purchasing equipment and supplies, and a reduction in the number of elected officials.

The Little Hoover Commission believes that decisions about the form and function of independent special districts in California are best made locally. But it finds that LAFCOs often do not have the capacity or will to make informed and economically sound decisions, particularly regarding independent special districts.

vi EXECUTIVE SUMMARY

Recommendation 2: The State should provide LAFCOs with the direction and resources necessary to make them a catalyst for the effective and efficient evolution of independent special districts. Specifically, the Governor and Legislature should: q Require periodic and specific reviews of independent special districts. The State should require LAFCOs in urbanizing counties, in cooperation with special districts and other local governments, to periodically review services provided by special districts. The reviews should identify areas of duplication and overlap and assess whether services are being provided in the most efficient and cost-effective manner. Where duplication, overlap and inefficiency are identified, LAFCOs should be required to initiate a study. Specific triggers could be established, such as when the fundamental mission of a district changes or reserves exceed defined limits. q Enhance the independence of LAFCOs. The State should encourage LAFCOs in urban counties to appoint their own executive officer and legal counsel, thereby establishing employment relationships free of the real and perceived conflicts that occur when county employees hold those positions. q Require shared funding of LAFCOs. To increase the resources available to LAFCOs, enhance their independence and increase their effectiveness, the State should require counties, cities and special districts to jointly fund LAFCOs. Special districts should contribute whether or not they have opted to sit on a LAFCO. q Identify funds for studies. The State should require special districts that are the subject of a required LAFCO study to fund the study. For financial hardship cases, the State should provide grants or loans, which could be repaid from savings accrued as a result of reorganizations.

Finding 3: Policy-makers and community leaders lack the analytical tools necessary to assess the benefits of consolidation, impeding their ability to advocate effectively for change and overcome the tenacity of the status quo.

Reliable information is needed to aggressively and assertively fuel the evolution and optimize the use of special districts. These tools are especially important as communities strive to efficiently provide housing and transportation in growing urban areas, concepts known as “smart growth.” Research is needed that will help policy-makers and community leaders know when consolidations will achieve improved efficiency and service and identify strategies for facilitating those consolidations. Policy-makers also need guidelines, best practices and

vii LITTLE HOOVER COMMISSION

access to a cadre of experts who can provide technical assistance and training. Absent these resources, even if LAFCOs are independent and have the political will, resistance from board members and the momentum of the status quo will prevent the evolution of independent special districts.

The State can play an important role in building the competence necessary for effective and informed local decision-making. The California Policy Research Center (formerly the California Policy Seminar) was created at the University of California to inform California’s policy- makers about the most pressing issues of the day. The resources of this center, or other private and public institutions like it, could fill the information void that in some communities works to prevent structural reforms.

Recommendation 3: To equip policy-makers and the public with the tools necessary to assess and guide the organization of independent special districts, the Governor and Legislature should establish a program at the California Policy Research Center, or similar institute, to do the following:

q Develop guidelines and protocols for special district consolidations. The consulting research center should conduct research to identify conditions when consolidation or reorganization of special districts will result in cost-savings, improved service and other benefits.

q Study the long-term outcomes of consolidations and reorganizations. The consulting research center should review and quantify the long-term outcomes of special district consolidations and reorganizations.

q Establish a cadre of trainers. The consulting research center should establish a cadre of experts to provide training and technical assistance to LAFCOs, enabling them to perform periodic reviews and analyze and facilitate special district consolidations. They could also be called to advise in instances where conflicts arise between special districts and their customers.

q Develop performance measures. The consulting research center, in cooperation with the California Association of Local Agency Formation Commissions, California Special Districts Association and Special Districts Institute, should develop and encourage special districts to establish and report performance measures as a means of building public understanding and support.

viii EXECUTIVE SUMMARY

Finding 4: Hundreds of independent special districts have banked multi-million dollar reserves that are not well publicized and often not considered in regional or statewide infrastructure planning.

In 1996-97, the most recent year for which data is available from the State Controller, independent special districts reported $19.4 billion in retained earnings and fund balances. Enterprise districts, which charge fees for their services, reported $18.2 billion in retained earnings. Non- enterprise districts, which rely on property taxes, reported $1.2 billion in fund balances. More than 600 districts reported reserves of $1 million or more. More than 1,300 districts have reserves in excess of their gross annual revenue.2 From a state perspective little is known about these funds, including how they are invested or the purposes for which they are earmarked. State law specifies that local government agencies are to make relatively conservative investments. But there is virtually no oversight by the State or other local governments of the investment policies and practices of special districts. And there are no standards guiding the size and use of reserve funds. These issues are of concern, as evidenced by pending legislation that would require all local governments to submit their investment portfolios to the California Debt Advisory Commission in the State Treasurer’s Office.

The size of special district reserves raises a number of important policy issues.

3 Special district reserves represent significant public resources. Many districts have good rationales for maintaining reserves at certain levels, including providing a cushion during lean years and permitting investment in infrastructure. But the size of the reserves and how they are invested are often not understood by community leaders and district customers.

3 The State and local communities are grappling with the need to fund infrastructure that will contribute to California’s continued prosperity. But the resources of special districts frequently are not considered in plans to meet these needs. The resources and capacities of special districts could play a larger role in planning and financing regional and statewide infrastructure.

3 There are no guidelines for accumulating or using reserves and no oversight of the investment practices of special districts. Reserve and investment policies and practices could be improved through the establishment of guidelines and enhanced scrutiny.

A number of steps should be taken to help communities understand and make the best use of special districts and their assets.

ix LITTLE HOOVER COMMISSION

Recommendation 4: The Governor and Legislature should enact policies that will ensure prudent management of special district reserve funds and incorporate these resources into regional and statewide infrastructure planning. Specifically, the State should require:

q Districts to publicize their reserves. Districts should be required to clearly identify and publicly report, in terms understandable to the public, the size and purpose of reserves and how they are invested. The information should be included in budgets and audited financial statements, highlighted on district Web sites, reported to boards of supervisors and city councils and sent to customers, as described in Recommendation 1. Special districts also should be required to adopt and publicize policies for the accumulation and use of reserves by the district.

q Policy-makers to integrate enterprise district reserve information into infrastructure planning. The services and assets of enterprise districts should be included in regional and statewide infrastructure planning. To this end, special districts should be required to coordinate their activities with other districts and general-purpose governments and to participate in the development of county general plans.

q Guidelines for prudent reserves. The Governor and Legislature should appoint a panel including experts in finance, management and government, and community representatives, to recommend guidelines for establishing and maintaining prudent reserves by special districts. The panel also should review the investment policies and practices of districts and determine if additional oversight is warranted.

Finding 5: Property tax allocations to some enterprise districts create inequities among districts and distort the true costs of services. A significant portion of the property tax allocated to all enterprise districts subsidizes districts with the highest reserves.

Those enterprise districts that levied property taxes prior to the 1978 passage of Proposition 13 continue to receive property tax allocations. Those districts also charge customers fees for water, sewer and other services they provide. In 1996-97, independent enterprise districts received $421 million in property tax allocations. Water districts, which generate the highest annual revenues and maintain the largest reserves of all special districts, received 38 percent of that amount, a total of $161 million.

x EXECUTIVE SUMMARY

The allocation formulas may have made sense when they were implemented more than two decades ago. But over time the logic has faded. Significant policy questions are raised by the continuing practice of allocating property taxes to enterprise districts.

3 Property taxes subsidize the cost of Property Tax Allocated to providing services in some districts. This Independent Enterprise Districts practice allows some districts to rely on in millions $200 $181 these revenues to keep rates low or $180 $160 provide a higher quality of services. $140 $120 $99 Other districts offering similar services $100 $74 $80 must rely solely on fees to cover those $60 $39 $40 $9 $14 costs. The property tax subsidy also can $20 $2 $3 exaggerate inequities among classes of $0 airport CSD harbor/ hospital transit utility waste water ratepayers within a district. port Source: State Controller, 1996-97 Property Tax Data, on file. 3 Some districts that continue to receive property tax revenues are among those that have the highest reserves. Meanwhile, non-enterprise districts such as parks and recreation and library districts have seen their revenues dwindle and their ability to provide services diminished.

3 Taxpayers do not understand how their property taxes are allocated among the special districts serving them. And they do not know how these allocations affect their rates or quality of services, preventing them from providing feedback to district officials.

These issues should be explored in any discussion of property tax allocations to enterprise districts. Beyond the dollars involved, policy- makers and the public must understand the consequences of the current policy for taxpayers generally and for some customers specifically. They also need to understand consequences for districts that cannot charge fees and have seen their property tax revenues diminished.

Recommendation 5: Policy-makers should scrutinize the appropriateness of maintaining property tax allocations to enterprise districts. Among the alternatives: q Annually review the level of property tax support. The Controller could annually report the property tax revenue distributed among enterprise districts with the largest reserves. With the assistance of the Legislative Analyst, and as part of the budget process, the Legislature could decide whether to continue or modify this allocation of property taxes.

xi LITTLE HOOVER COMMISSION

q Examine all allocations to enterprise districts. The Legislature could appoint a task force to examine how individual enterprise districts use property tax revenues. The task force could identify districts that should continue to receive the revenues, those that should receive smaller allocations, and those that should no longer receive property tax revenue.

q Require a state audit of some districts. The Legislature could require the State Auditor to examine enterprise districts that receive property taxes and also have the highest reserves. The Legislature could then take specific action to reduce or eliminate the allocations to those districts without a strong rationale for tax funding.

q Allow counties to reclaim and reallocate property tax revenues. The Legislature could provide a mechanism for counties, following a public review process, to reclaim property tax revenues from enterprise districts and reallocate those funds to meet contemporary community needs and priorities.

q Enhance public understanding of property tax allocations. Property tax bills should identify for taxpayers the independent special districts that provide services to them, along with the tax allocation, reserves and other financial information about those districts.

xii INTRODUCTION

Introduction

Californians support and receive services from thousands of special districts. But many Californians do not know what a special district is – let alone which ones serve them.

Special districts provide the most essential of services – water and electricity, fire and flood protection. They also provide amenities that contribute to communities and culture, such as parks and libraries. But because of their sheer numbers, typically narrow focus and low public profiles many districts operate beyond the awareness and scrutiny of their customers and policy-makers. Four retail water districts serve the 80,000 residents of the city of Lake Forest in Orange County. Confused by different rate structures and unable to identify their provider, they contact the city with their complaints.

The Little Hoover Commission has a broad mandate to investigate the operations of state government and its instrumentalities, and to make recommendations for improving service and lowering costs. Special districts, the most numerous of the State’s agencies, usually capture the spotlight when individual cases become controversial. The Commission undertook this study amid allegations of abuse and mismanagement in some special districts that caught the attention of state policy-makers and the public. Because controversies usually involve independent special districts – districts governed by their own elected board – those were the focus of the Commission’s review.

In previous studies, the Commission has looked at state programs that are administered within California communities. In many of these instances a state agency is charged with ensuring that State goals are met. The relationship between the State and its thousands of special districts is far less clear.

On one hand, the State has given Local Agency Formation Commissions the authority to initiate special district reorganizations. But special districts can muster considerable energy to resist change, particularly when the goal is to consolidate or eliminate obsolete districts. In that regard, the State did not give LAFCOs the independence, the guidance, the analytical tools or the resources needed to get the job done. Without state assistance, and in the absence of local leadership, the goals of the LAFCOs are seldom met. And while the State has crafted and implemented laws intended to limit the proliferation of special districts in favor of cities and counties, other statutes thwart that intent.

1 LITTLE HOOVER COMMISSION

In initiating a study of special districts, the Commission saw an opportunity to illuminate an area that affects daily the lives of millions of Californians, and to offer recommendations for optimizing their use and guiding their evolution in the 21 st Century. Specifically, the Commission asked the following questions:

q Are the activities and finances of independent special districts adequately scrutinized and understood by the communities they serve?

q Are Local Agency Formation Commissions effective catalysts for the evolution of special districts when economics, growth patterns or technologies warrant consolidation or dissolution?

q Is there a role for the State in promoting the improved operation and evolution of special districts? And if so, how should those goals be pursued?

As part of this study, the Commission held public hearings in June and August of 1999. A list of the witnesses is included in Appendix A. The Commission also consulted with special district managers and board members and individuals representing the interests of districts, cities, counties and Local Agency Formation Commissions. It reviewed the work of other groups that had studied or were reviewing state and local governance and finance issues, and talked to numerous individuals knowledgeable about the workings of local government.

To further inform its deliberations, the Commission conducted research in the following areas:

q Special district vs. city council elections. The Commission compared special district and city council elections in Sacramento and Contra Costa counties to assess the effectiveness of the electoral process as an accountability mechanism for special districts. Four measures were reviewed: the number of candidates running, contested vs. non-contested elections, incumbency patterns, and voter participation rates.

q Characteristics of LAFCOs. The Commission heard that with few exceptions, LAFCOs are ineffective in pursuing special district reorganizations. In-depth interviews were conducted with six LAFCO executive officers to better understand the characteristics of effective LAFCOs, identify barriers to consolidations and solicit additional recommendations for how the State could bolster their effectiveness.

2 INTRODUCTION q Benefits and compensation to board members. The Commission heard that board member benefits are often effective deterrents to consolidations or reorganizations. A random sample survey was administered to special districts statewide to determine benefits and compensation provided to board members, including stipends for meeting attendance, health care and life insurance. The California Special Districts Association assisted the Commission to develop and administer the survey and encouraged district participation. q Health care districts without hospitals. Of the 74 health care districts in California, 24 no longer operate hospitals. The Commission asked those districts to describe how their missions have changed and whether they have considered dissolution. Financial audits and business plans also were requested. The Association of California Healthcare Districts supported the Commission’s efforts by helping to develop the survey questionnaire and solicit district responses. q Special district reserves and property tax allocations. The Commission heard that some special districts maintain excessive reserves and that property tax allocations to enterprise districts should be reviewed. Data were gathered to quantify reserves held by enterprise and non-enterprise special districts and property tax revenues received by enterprise districts.

Based on the information gathered, the Commission concluded that special districts play a vital role in the health and prosperity of California’s communities. It also concluded that these districts could improve the services, play an even more important role in building the state’s future, and evolve in ways to improve the quality and reduce the costs of service. These conclusions are detailed in five findings and recommendations.

3 LITTLE HOOVER COMMISSION

4 BACKGROUND

Background

The mosaic of special districts reflects the way California developed and the ability of special districts to be tailored to community needs. When created, many districts were innovative solutions to public problems. And those that continue to evolve provide increasing value to Californians.

Prior to special districts, citizens in search of public services – particularly municipal services – formed cities or appealed to county supervisors to assume additional responsibilities. But as California developed, some service needs reached beyond the physical boundaries, the financial capacity, or the core competency of multipurpose local governments. The Legislature, through a number of general and special act laws, allowed for the creation of districts as agencies of the State to provide a local service.3

The first special districts in California were formed by farmers who wanted to use the power of government – principally eminent domain and the ability to efficiently bond for capital improvements – to develop irrigation projects. Empowered by the Wright Act of 1887, farmers in Stanislaus County formed the Turlock Irrigation District to capture and store Sierra runoff and deliver it to valley farms – creating the first special district in the state and displaying a powerful tool for meeting a public need.4

Early in the 1900s, dozens of water districts were formed to develop agricultural and urban water supplies – often reaching far beyond the borders of cities and counties they served. Most of the state’s 74 health care districts were formed between the late 1940s and early 1950s to address a statewide shortage of hospital beds. In the 1950s, the suburbanizing state was swept by a second wave of water district formation. And since much of the development was in unincorporated areas, districts also were created to provide for fire protection, road maintenance, parks and recreation, sewer treatment and waste disposal.

The purpose and size of special districts varies greatly. But most were formed for similar underlying reasons: to provide urban services outside of city limits, to provide regional services that transcend the limits of a single city, to provide services beyond the capacity of existing local governments, or to fill a gap in services between other governmental agencies.

5 LITTLE HOOVER COMMISSION

Number of Special Districts in Each County The rationale for many special districts – the size and shape of the district, the demand for services, and the Del Norte Siskiyou Modoc economics and technology of providing those services – 20 43 29 has changed over time. But the districts themselves often do not evolve to reflect those changes. For instance, many

Trinity Shasta Lassen districts were established to serve geographically distinct Humboldt 16 35 25 48 communities that have long since grown into large urban areas. San Diego, Riverside and Los Angeles counties, for Tehama 33 Plumas example, are each home to 65 or more independent Mendocino 36 41 Glenn Butte special districts. And while there may be good reasons for 37 40 Sierra 14 Nevada each to exist, they are not always the same reasons why Colusa Yuba 25 Placer Lake 40 41 51 the district was created in the first place.

37 Sutter 27 Yolo Sonoma 29 El Dorado 44 Napa Sacra- 49 Alpine 5 mento Amador 3 66 17 Solano Cala- 43 veras Marin 28 San Tuolomne Contra 40 45 Joaquin 13 Mono Costa 102 21 San Francisco 0 Alameda 14 Stanislaus Mariposa San Mateo 28 56 4 Santa Clara Merced Santa Cruz 26 21 63 Madera 9 San Fresno Inyo Benito 100 23 9 Tulare Monterey 111 48 Kings 35

San Luis Obispo Kern 32 100 San Bernardino 56 Santa Barbara 36 Ventura Los Angeles 29 93

Orange Riverside 29 66

San Diego Imperial 65 21

Taxonomy of Special Districts

Some special districts provide one specialized service – managing a cemetery or a memorial hall, or operating a sewer treatment plant. Other districts provide multiple services, taking on the character of a full- fledged city; the Bear Valley Community Services District, for example, maintains roads, provides drinking water, hauls away garbage and provides police protection to a town in the Tehachapi Mountains.

They can be as large as the Metropolitan Water District of Southern California, serving more than 16 million people in six counties, or as small as the Halcumb Cemetery District in Shasta County, which patiently waits for the day it can serve its 5,000 mountain residents.

6 BACKGROUND

The State Controller’s office, which gathers financial data on special districts, puts the count at 4,787. That number includes 659 joint powers agencies and 233 public nonprofit corporations. The Controller’s data reveal an important element: that special districts can be defined and divided in different ways, and the policy issues that surface depend on which groups of special districts are being examined. Special districts are most often delineated by their legal authority, the services they provide, how they are governed and administered, and how they are funded.

By Statutory Authority

Special districts are authorized under either a principal act or a special act. Approximately 60 principal act statutes provide a framework for voters to create a particular type of district anywhere in the state. For example, Health and Safety Code sections 32000-32492 authorize and prescribe the powers of California health care districts: “A local hospital district may be organized, incorporated and managed, as provided in this division and may exercise the powers herein granted….” Statutes provide for cemetery, road maintenance, fire protection, irrigation and resource conservation districts.

The Legislature also has created special act districts when it is persuaded that unique needs require a unique district. The Humboldt Bay Harbor Recreation and Conservation District and the Alameda County Flood Control and Water District are examples of the approximately 125 special act districts.5 Independent Special Districts

By the Services They Provide Air Pollution 7 Maintenance 23 Airport 9 Municipal Improvement 4 A common way of grouping Cemetery/Memorial 279 Parking 3 special districts is by the services Community Services 283 Pest Abatement 61 they provide. Water districts are Drainage 28 Police Protection 3 the most numerous, followed by Fire Protection 342 Recreation & Park 96 fire protection, community Flood 35 Reclamation 132 services, cemetery and memorial Garbage Disposal 1 Resource Conservation 92 districts. There are 47 mosquito Harbor & Port 12 Sanitary/Sanitation 117 abatement districts and eight Healthcare/Hospital 74 Separation of Grade 1 Highway Lighting 4 Utility 55 citrus pest districts.6 Library 14 Water 458

While water districts may be Source: State Controller, 1996-97 financial data, on file. Counts for districts organized under one of a number that reported reserves and gross revenue information to the Controller. Does not include transit districts or 86 districts identified by the Controller as inactive. of different statutes, they have Health district count is from the Association of California Healthcare Districts. long been politically united to pursue common goals of providing reliable water supplies to a growing population in a region with a Mediterranean climate. Similarly, there are

7 LITTLE HOOVER COMMISSION

associations representing the interests of sanitation districts, recreation and park districts and port authorities.

By Their Governance

A major distinction among special districts is between dependent and independent districts. Dependent districts are subdivisions of another multipurpose local government; county boards of supervisors or city councils typically govern dependent districts. Independent districts are those with their own governing board, usually elected directly by voters. A few agencies, like most cemetery districts, are governed by The Majority of Special boards that are appointed by city councils or county boards of Districts are Independent supervisors.

The Controller’s Office reports that there are 1,771 dependent

Dependent districts, including 76 joint powers agencies (JPAs) and 20 1,675 nonprofit corporations. According to the Controller, there are Independent 3,016 independent districts, including 583 JPAs and 215 2,218 nonprofit corporations.7

Regardless of their governance structure, districts have many of Source: State Controller, 1996-97 data. Does not include JPAs or the same governing powers as other local governments. They nonprofit corporations. can enter into contracts, assume debt and levy taxes and assessments. And they can sue and be sued. But the governance structure can determine how districts operate, the visibility of their decisions and how they are held accountable to the public.

By Their Source of Funds

Another factor that determines the nature of districts is their source of revenue. Districts that finance their operations with fees for the services they provide are known as enterprise districts. Special districts that are funded through property taxes are known as non-enterprise districts.

Enterprise districts typically have customers who consume goods or services: electricity, drinking or irrigation water and waste disposal. Some highly specialized agencies also can be enterprise districts, such as port districts. Fees are set by the governing board to recover the costs of providing services from the customers of those services.

Non-enterprise districts typically provide services that indirectly benefit the entire community, whether it is actually consumed or not – such as fire or flood protection, memorial hall and cemetery districts. The costs of these services are often recovered through property taxes.

Some districts are hybrids – collecting fees and providing enterprise services, while also fulfilling non-enterprise functions that are funded

8 BACKGROUND through taxes. In 1996-97 districts reported enterprise activities generating $13.4 billion Special District Revenue & Expenditures dollars in revenue. Non-enterprise districts In billions $14 reported $4.6 billion in revenue.8 Enterprise revenue $12 Enterprise $10 As the chart shows, enterprise districts received expenditures and spent significantly more public funds than $8 $6 non-enterprise districts. The chart also provides Non-enterprise revenue the first glimpse of one issue concerning $4 Non-enterprise enterprise districts in particular – that revenue $2 expenditures consistently exceeds expenditures, providing the $0 91-2 92-3 93-4 94-5 95-6 opportunity for enterprise districts to establish Source: State Controller, 1995-96. reserves. The State’s Role: Financial Reporting

As separate government agencies, virtually all special districts are designed to be accountable directly to the people who elect their leaders – whether those leaders are city council members or county supervisors who occasionally wear the hat of special district board members or whether those directors serve on independent boards.

The State plays a nominal role in gathering and reporting financial information that is intended to aid in this accountability. Regardless of type or size, all districts are required to report their financial transactions to the State Controller. 9 By law, the State Controller annually compiles and publishes these transactions in the Special Districts Annual Report.10 The information reported by the Controller is in most cases not independently verified, because most districts have not completed their audits before the deadline set by the Controller. The Controller’s staff performs a “desk review” of the information submitted by districts, focusing on “consistency, reasonableness and format.” The Controller does not have oversight or audit responsibilities and the Controller’s report does not assess the performance or the fiscal health of the districts. Local Agency Formation Commissions

Concerned about the evolution of local government, the Legislature in 1963 passed the Knox-Nisbet Act, which created a Local Agency Formation Commission (LAFCO) in every county, except the city-county of San Francisco. The act charged LAFCOs with the following:

ü Regulate the formation and boundaries of cities and most special districts. ü Discourage urban sprawl.

9 LITTLE HOOVER COMMISSION

ü Promote logical growth.

The Legislature later revised the procedures for changing boundaries of local governments with the District Reorganization Act of 1967 and the Municipal Reorganization Act of 1977. In 1985, the laws governing local boundary changes were consolidated into the Cortese-Knox Local Government Reorganization Act.

In 1993, the Legislature and the Governor enacted AB 1335 (Gotch), an amendment to Cortese-Knox that gave LAFCOs the authority to initiate boundary change proposals for special districts. The law allows LAFCOs to initiate consolidations, dissolutions, and mergers and create subsidiary districts if the proposals would:

ü Cost the same or less than alternatives. ü Promote public access and accountability. ü Be consistent with the recommendations of a LAFCO study. ü Be discussed at a public meeting within each district that is affected.

In the Cortese-Knox Act, the Legislature stated a bias toward general purpose government:

The Legislature finds and declares that a single governmental agency, rather than several limited purpose agencies, is in many cases better able to assess and be accountable for community service needs and financial resources and, therefore, is the best mechanism for establishing community service priorities.11

The Legislature also intended that LAFCOs proactively push the evolution of special districts. For reasons explored in this report, LAFCOs are often ineffective in this regard. Between 1994, when AB 1335 was implemented, and 1997, only one LAFCO-initiated proposal resulted in a special district reorganization. The Legislature as Super-LAFCO

In the absence of LAFCO-initiated reorganizations, the Legislature occasionally has acted as a “super-LAFCO” and attempted to force special district reorganizations.

q In 1995, in the wake of the Orange County bankruptcy, then- Assembly Speaker Curt Pringle became aware of the amount of money that special districts had in the failing county investment pool. He also learned that 57 elected officials were serving 32,000 people in the Dana Point area of Orange County. He introduced

10 BACKGROUND

legislation to consolidate 25 water and sanitary districts in the county. The legislative efforts, while unsuccessful, put pressure on district officials to merge or be merged.12 q In the same year, then-Senator Bill Lockyer introduced legislation to combine a sanitary district and water district in Alameda County into a single agency. Lockyer withdrew the bill, but not until a study had been conducted that showed that minor cost savings would be offset by higher short-term operational expenses and potentially higher compensation and benefits. Since that time, however, the two districts have developed a joint reclamation master plan to study the feasibility of using recycled water, coordinate employee training to reduce costs, and are exploring the joint use of facilities for some of their operations.13 q In 1995, Senator Polanco considered a proposal to reorganize three water districts in Los Angeles County. However, legislation was not introduced on this subject, as the end of the legislative session was approaching and staff anticipated some objections to the proposal.14

While none of these measures succeeded, they are evidence that the evolution of special districts is not always smooth and rational. The Policy Debate

Periodically some policy-makers have expressed concern about the proliferation and fragmentation of local governments, including special districts. In their eyes, California’s 58 counties, 474 cities and more than 3,800 special districts are evidence of an uncoordinated, unwieldy and complex system of local government. Local Governments per 100,000 Population: California Compared to the Rest of the United States In the wake of Proposition 13 in 1978, there Special School was particular concern that more cities and Counties Cities Districts Districts 1992 special districts would form to capture locally California 0.19 1.49 9.05 3.49 generated revenue. Similarly, there were Other 49 States 1.33 8.39 12.83 5.95 concerns that fiscally strapped counties and 1977 cities might encourage the creation of special California 0.26 1.85 9.96 4.96 districts to shift service obligations to Other 49 States 1.51 9.35 12.02 7.12 Source: Paul G. Lewis, Deep Roots: Local Government Structure in California, Public separate agencies. The evidence, however, Policy Institute of California, 1998. does not support this “conventional wisdom.”

Paul G. Lewis, author of Deep Roots: Local Government Structure in California, found that the number of special districts has increased only gradually since the 1970s.15 Other researchers have found that the total number of districts has changed little – less than 3 percent – since the passage of Proposition 13. The greatest growth has been in the number

11 LITTLE HOOVER COMMISSION

of county service areas and joint powers agencies – governments created by governments. If it were not for the growth in those categories, the total number of special districts would have actually dropped nearly 8 percent since Proposition 13 was enacted.16

Still, there is concern that as communities have developed, the underlying patchwork of special district governments has become unnecessarily redundant, inefficient and unaccountable. Reform advocates argue that many special districts – particularly in urban areas – could be consolidated to reduce duplication and capture economies of scale. In urban areas, districts often provide the same services provided by cities and counties and overlap one another, occasionally creating conflicts and competition. The large numbers of districts make it hard for the public to understand who provides what services and to assess their performance. The narrow focus and low public profiles of many districts diminish the chances that policy-makers and the public will actively monitor the activity of those districts.

Officials with special districts assert that they are an efficient means of providing local public services. They contend special district government is responsive and accountable – through direct elections of board members, open meetings, financial reporting requirements, audits and reviews by county grand juries.

At the same time, election results and academic research show that the public often prefers the government closest to them. Even when presented with more efficient and effective options, the public will often opt to maintain the government that they know, trust and believe can be more responsive to their needs.

These tensions persist in many communities throughout the state, seldom rising to the top of political agendas until particular controversies or scandals put a spotlight on problems. To better understand the issues of visibility, accountability and the evolution of special districts, the Commission reviewed three individual case studies. Several key policy issues emerged from these case studies that guided the Commission’s research and informed its conclusions:

1. Water Replenishment District of Southern California

The controversy involving the Water Replenishment District of Southern California (WRD) contributed to the Commission’s decision to conduct this study. The Commission examined the WRD to learn more about the larger policy issues of governance, efficiency and accountability that are raised among special district governments in other locales.

12 BACKGROUND

Established in 1959, the WRD provides groundwater for 3.5 million residents in 43 cities in southern Los Angeles County. A five-member board, elected by geographical division, governs the district. Prior to 1991, the WRD shared an administrative staff of three with the Central Basin and West Basin municipal water districts, which provide supplemental water to many of the same cities served by the WRD. The WRD broke away from the West Basin and Central Basin districts in 1991 and expanded its staff and the scope of its activities.

In 1998, the district came under fire from a number of the cities it serves for its water rates, contract bidding practices, the size of its reserve, and for allegedly violating the State’s open meeting laws. Dissatisfied with the district’s response to their concerns, the cities of Artesia, Downey, Lakewood, Norwalk, Pico Rivera, Santa Fe Springs, Signal Hill and Cerritos filed four lawsuits against the district and its directors. Policy issues raised by this case are pertinent to other special districts, including: q Obscure and unaccountable. Independent special districts are often criticized as being invisible and unaccountable to the public. Well-managed districts publicize their activities and solicit ideas from customers. Other districts work anonymously and beyond scrutiny until a scandal ensues.

Cities served by the WRD assert the district conducts its business behind closed doors and in violation of the State’s open meeting laws, discussing and acting on matters not appropriately noticed. One tangible consequence was fees set far greater than the cost of providing the service, which resulted in the accumulation of a large cash reserve. q Duplication and Inefficiency. Duplication and inefficiency are common criticisms of special districts. The Commission heard that the WRD is unnecessarily duplicating functions performed by other districts. Several witnesses told the Commission that consolidation, particularly of water and sewer districts in urban areas, results in improved service, infrastructure and efficiency.

2. Sacramento County Fire Districts

As the Commission began its study, the American River and Sacramento County fire protection districts were negotiating a merger for the second time in recent years. Earlier merger talks fell apart over concerns by the Sacramento County fire district about workers’ compensation and retirement plans and the elimination of elected board positions. Subsequently, three new directors were elected to the Sacramento

13 LITTLE HOOVER COMMISSION

County fire board. In June 1999, the new Sacramento County board and American River board voted to renew efforts to merge the two districts that serve 600,000 residents in northern and eastern Sacramento County and a small portion of Placer County.

Representatives from the two districts negotiated several issues: the boundaries for board member districts, composition of the new board, labor issues, and the effect of reorganization on tax revenue.

In October 1999 the districts filed a petition with the county LAFCO to merge. LAFCO and the County Board of Supervisors approved the measure, which will become effective in December 2000. Combining the two districts is expected to save $500,000 in administrative costs and reduce response times. One fire chief position and five elected director positions will be eliminated. Policy issues raised by this case study include:

q Understanding the benefits of consolidation. In spite of their disagreements, officials with both fire districts agreed that reorganization would improve service and reduce costs. But how to credibly calculate the savings that can be expected from mergers – which are essential facts in overcoming the parochial interests of the status quo – is a problem in many similar situations.

q Dependent vs. independent LAFCOs. Sacramento County has had a large number of fire protection and other special districts that have been slow to merge even when it makes economic sense. One factor in the slow evolution of the districts is the county’s Local Agency Formation Commission. The county LAFCO is staffed part-time by county employees with many other responsibilities, reducing its effectiveness as a catalyst for change.

q Overcoming parochial interests. An issue in the districts’ reorganization proposals was the resistance of directors to support a merger that would reduce the number of elected positions. This issue is sometimes voiced as reducing democratic representation. But this problem has been solved elsewhere by “grand-fathering” incumbents onto the new board and phasing the surplus seats out over time, which is an indication that some of the concern is about the continued participation of incumbents rather than representation over the long-term.

3. Orange County Water Districts

In 1993, South Coast Water District was a small water district that realized that to be more efficient it had to be bigger. At the time,

14 BACKGROUND neighboring districts were not interested in a reorganization and there was no political support for consolidating districts.

Following the Orange County bankruptcy, the number of small districts in the county – and the large reserves they had invested in the failing county fund – increased political interest in consolidation. The City of Dana Point applied to take over the South Coast Water, Capistrano Beach Water and Dana Point Sanitary districts. The districts, in turn, each filed alternative consolidation applications. The Orange County LAFCO agreed that consolidating the agencies would increase accountability and improve service. A study funded by the districts concluded that the South Coast Water District was the best provider in Dana Point, and recommended that the smaller districts be merged into it. The LAFCO agreed.

The consolidation eliminated 15 elected board positions. Two general manager positions were eliminated through retirements. The consolidation agreement mandated that all employees keep their jobs and that reductions in staff occur through attrition.

The City of Dana Point, however, remains convinced that citizens would have been better served had the city taken over the services. The city manager believes that the decision was made on political grounds rather than factual ones, asserting the districts hired consultants and public relations specialists who “worked the LAFCO staff, board and public.” He claims the benefits promised by the consolidation have not materialized.17

The consolidation of water and sanitary districts in the Dana Point area of Orange County provided the Commission with important insight on two issues: q Local government turf issues. This case exemplifies the potential for turf issues to become barriers to consolidation. Elected officials from separate local government agencies often claim to represent the same constituents, with animosity between special districts and cities widespread. q Independent vs. dependent LAFCOs. In contrast to Sacramento County, the LAFCO in Orange County has an independent staff and budget. Reform advocates argue that independent LAFCOs have the time, resources and develop the skills necessary to analyze consolidation alternatives and facilitate the negotiations that result in reorganizations.

15 LITTLE HOOVER COMMISSION

Recent Reform Efforts

In 1997, the Legislature enacted AB 1484 (Hertzberg), establishing the Commission on Governance for the 21st Century. The Commission was charged with reviewing and making recommendations for reforms to governance in California. Specifically, it was charged with examining the Cortese-Knox Local Government Reorganization Act of 1985 and Local Agency Formation Commissions governed by the Act.

Having a broader mandate and aware that the Little Hoover Commission was reviewing special districts, the commission did not address specifically the governance, accountability and efficiency of special districts. It did review other issues related to special districts and made, among others, the following recommendations that are relevant to this study:

ü That the Cortese-Knox Act be amended to declare that single purpose agencies have a legitimate role in local governance, while recognizing that multi-purpose agencies may be the best mechanism for service provision, particularly in urban areas. ü That LAFCOs be neutral, independent and provide balanced representation for counties, cities and special districts.

ü That special districts be given the automatic option to select two LAFCO members. ü That special districts not be required to give up their right to exercise their latent powers as a condition of LAFCO membership.18

In its final report, Growth Within Bounds, the Commission on Governance for the 21st Century made additional recommendations for strengthening LAFCO powers and increasing public involvement in government. 19

The Little Hoover Commission conducted its study within the context of the long history of debate over special districts. It understood quickly that while the size and purpose of special districts may change over time, the districts are sure to remain an integral part of the local government landscape. For those reasons, it focused on the visibility, accountability and appropriate evolution of independent districts.

16 TOWARD VISIBILITY AND ACCOUNTABILITY

Toward Visibility and Accountability

Finding 1: Special districts are often invisible to the public and policy-makers, compromising oversight and accountability.

Most independent special districts are single purpose and provide one service, such as water, sanitation or fire protection. Narrow in scope and given little consideration until a problem occurs, these districts rarely evoke public scrutiny. Much of the public may not even realize that they are indeed governments. The traditional oversight and accountability mechanisms – the electoral process, public meetings and financial reporting – have not been effective in promoting the kind of rigorous examination required of democratic institutions. To increase their visibility and accountability, special districts should be required to aggressively publicize information about their finances and activities to policy-makers and the public. Existing Accountability Mechanisms

Independent special districts are local governments with their own elected boards, subject to mechanisms designed to hold them accountable to the public and policy-makers, including: q The electoral process. Most special district board members are elected by division or at-large, typically for four-year terms. Like other elected officials, they are subject to removal from office if voters become disenchanted with their policies or performance. There are some exceptions: county boards of supervisors, for example, appoint memorial and cemetery district board members. Also, small districts often do not have enough candidates for a contested election or have no candidates at all. In either case, appointments become the responsibility of the county supervisors. q Sunshine laws. Like all local governments, special districts are required to conform to the Ralph M. Brown Act, the State’s open and public meeting law, and to make minutes of their meetings publicly available. Districts also must comply with the Public Records Act. q Financial audits. Districts annually adopt budgets and programs at open and public meetings, and file their budgets with county auditors. They are required to have annual or biennial independent audits. In some cases, county auditors conduct audits; elsewhere, independent audit firms perform the audits.

17 LITTLE HOOVER COMMISSION

q State Controller reports. Special districts are required to annually report their financial transactions to the State Controller, who compiles and publishes the information in the Special Districts Annual Report. Districts also submit copies of their financial audits to the State Controller. The Controller’s function is primarily ministerial, including a desk review of the information, focusing on “consistency, reasonableness and format.” The Controller does not have oversight or audit responsibilities that would help to assess the performance of special districts or hold them accountable for fiscal decisions.

Occasionally, the activities of a special district have raised enough concern that a review by the State Auditor has been undertaken, as was recently the case with the Water Replenishment District of Southern California. The activities of special districts can also be subject to review by local grand juries. Challenges to Effective Oversight

The formation of a special district is a fundamentally democratic action – the creation of a government by a community of people. But the traditional democratic means of providing oversight are not adequate.

Special districts seldom generate much public interest because of the singular and generally non-controversial nature of their activities. As a result, the mechanisms for oversight and accountability – the electoral process, the public venue and financial reporting – are often ineffective. Advocates of multiple governments tout the efficacy of these mechanisms in ensuring accountability and contend that any lack of public participation signals satisfaction, but the evidence shows otherwise.

q The electoral process is not rigorous enough. Researcher Nancy Burns found in Formation of American Local Government: Private Values in Public Institutions that few citizens are aware of and participate in special district government. Citing an earlier study, she reports that following their formation, special districts usually have a miniscule number of voters participating in elections, with involvement of 2 to 5 percent of the electorate regarded as an unusually high turnout. 20

To gauge the adequacy of the electoral process in special district elections, the Commission studied election results in Sacramento and Contra Costa counties for the years 1983 through 1998.21 The research compared the rigor of the electoral process in city council elections to that in special district elections by reviewing voter

18 TOWARD VISIBILITY AND ACCOUNTABILITY participation, incumbency patterns and contested elections. The Commission found differences between special district and city council elections in four areas: the number of candidates running, seats filled through contested elections, incumbency rates and voter participation.

Independent Special Districts in Sacramento & Contra Costa Counties in 1998

Sacramento Contra Costa 3 Community Services (CSD) 4 Community Services (CSD) 11 Fire 3 Fire 1 Flood – American River Flood Control 3 Health/Hospital 10 Recreation & Park (Rec & Park) 6 Municipal Advisory Council or Municipal 4 Resource Conservation Improvement (MAC) 1 Utility – Sacramento Municipal (SMUD) provides 5 Recreation & Park or Regional Park (Rec & Park) electricity 1 Resource Conservation 9 Water or Irrigation (Water/Irrig.) 8 Sanitary 3 Landowner Water – not included in election data 2 Transit (also serve neighboring counties) 1 Utility – East Bay Municipal (EBMUD) provides water and sewer 5 Water or Irrigation (Water/Irrig.)

Sources: Sacramento LAFCO, Directory of Service Providers, Nov. 1998. Contra Costa Registrar of Voters, elections possible, on file.

1. Contested Elections. Special district board members may either win a contested election, run uncontested (in which case they are appointed by the county board of supervisors), or be appointed by the board of supervisors if not enough candidates filed for the available seats. The Commission found that fewer candidates ran for special district seats than ran for city council seats. In addition, while city councils consistently had enough candidates to hold elections, special districts frequently did not.

The chart on the following page depicts the percentage of seats that were filled through contested elections between 1990 and 1998. In Sacramento County, all city council, utility district (Sacramento Municipal Utility District – SMUD) and community services district (CSD) seats were filled through contested elections. Fire, flood (American River Flood Control District), park and recreation, resource conservation, and water and irrigation district seats were filled by a combination of contested elections, appointed uncontested candidates, and appointments. In Contra Costa County, all types of districts and city councils had at least one seat filled by appointment. In both Sacramento and Contra Costa counties, all seats on resource conservation district boards were filled by appointees.

19 LITTLE HOOVER COMMISSION

Seats Filled Through Contested Elections 1990-98, Sacramento & Contra Costa Counties 100%

80%

60%

40%

20%

0% City CSD Fire Flood** Hospital* Rec & Sanitary* Transit* Utility Water/ All Councils Park Irrig. Special *Contra Costa County only Sacramento Contra Costa **American River Flood Control District, Sacramento County

2. Candidate participation. Overall, there were more candidates per seat for city council races than special district elections in Sacramento.22 The differences were particularly striking in fire, flood, resource conservation, and water and irrigation districts. On average, candidates in these districts had a greater than two in three chance of winning. In contrast, Candidates per Seat the average city council candidate was Sacramento County, 1983-1998 only half as likely to win. 3.0

2.5 2.7 2.7 As the chart on the left illustrates, more 2.4 2.0 candidates filed for each available seat on a city council (2.7) than for each special 1.5 1.7 1.6 1.6 1.4 1.5 district vacancy (1.7) in Sacramento 1.0 County. In community services districts 0.5 0.1 (CSDs) and the Sacramento Municipal 0.0 Utility District (SMUD), which are high- City CSD Fire Flood Rec & Res. Utility Water/ All Cncls Park Cons. Irrig. Special profile districts, more than two candidates 1 candidate per seat = unopposed election filed per vacancy. Other special districts, Less than 1 per seat = at least 1 appointment made however, ranged from 1.6 to 0.1 Resource conservation districts, which were candidates per seat, which means that so scheduled to elect 12 board members between 1983 and 1998, did not hold a single contested election, few candidates filed that all seats were and only one candidate filed. filled by appointment.

3. Incumbency patterns. A slightly higher percentage of special district seats are contested and won by incumbents in both Sacramento and Contra Costa counties than their city council counterparts. The variation between counties, however, was greater than the differences between special districts and city councils. Incumbents ran for and won a greater percentage of seats in Sacramento than in Contra Costa.

20 TOWARD VISIBILITY AND ACCOUNTABILITY

In Sacramento County contested elections, Incumbency Patterns incumbents won 48 percent of the special Seats Contested By Incumbents district seats, compared to 44 percent of the 1990-1996

city council vacancies. Similarly, Contra 80% Costa County special district incumbents won 70% Seats lost by incumbents 30 percent of the contested seats, while city 60% Seats won by incumbents council incumbents won 23 percent of the 50% 40% contested seats. 30% 20% Special district board members are also much 10% more likely to begin their stints on special 0% Special City Special City district boards as appointees. Subsequently, Districts Councils Districts Councils they may run for re-election or simply be Sacramento Contra Costa reappointed to the board. If they face a Incumbents Beginning As Appointees contest for re-election, these board members Sacramento County, 1983-1998 50% have the advantage of incumbency, although 43% 45% the voters did not originally elect them. In 40% 36% 33% Sacramento County, between 1983 and 1998, 35% 30% 36 percent of fire district incumbents (27 25% 20% people), 33 percent of recreation and park 15% district incumbents (17 people), and 43 10% 5% 0% 0% 0% percent of water and irrigation district 0% City CSD Fire Rec & Utility Water/ incumbents (20 people) began their board Cncls Park Irrig. careers as appointees.

4. Voter participation. The Commission found lower levels of voter participation in Sacramento County special district elections, as compared to city council elections.23

In the 1990 to 1998 Sacramento County general elections, there were 18 city council and 233 special district elections.24 During that period, voters selected 41 city council seats and 439 seats on special district boards. To determine participation, the Commission compared the number of votes cast to the number of votes that could have been cast if all registered voters voted for all of the seats available. On average, registered voters cast 55 percent of their allowed city council votes and 45 percent of their special district votes.25

Sacramento has made an effort to increase voter participation in special district elections. Prior to 1988, many special districts held their elections in odd-numbered years. Voter turnout is typically much lower for odd-year elections, which lack the statewide issues to draw voter interest. City council elections between 1983 and 1987, for example, averaged 47 percent voter participation.

21 LITTLE HOOVER COMMISSION

For odd-year elections alone, city councils averaged a 38 percent voter participation rate. Water and irrigation districts averaged an 11 percent participation rate, and fire districts averaged 18 percent.26 The rate of participation in local elections increased significantly in 1988, when all city council and special district elections were placed on the general election ballot in even years. The data, however, also show that special district elections still do not receive the same level of participation as city council elections.

Average Voter Participation

When Sacramento Allowed Odd-Year Elections (1983-87) After Sacramento Required Even-Year Elections (1990- Odd years only 98) 70% 70% Even years only 60% 60% 55%

47% 47% 50% 50% 46% 45% 44% 42% 38% 40% 40% 28% 30% 30%

18% 17% 20% 14% 20% 11% 10% 10%

0% 0% City CSD Fire Rec & Water/ Total City CSD Fire Rec & Utility Water/ Total Councils Park Irrig. Special Park (SMUD) Irrig. Special

q Open meetings are not enough. Designed as the venue for public scrutiny of public agency activities, the public process as practiced by special districts is largely ineffective. The Brown Act, in effect, requires that people come to the government, not that government comes to the people. But the people generally do not go to special district government, either because they are unaware of its existence and activities, or because it is inconvenient.

Today, many businesses and larger government agencies recognize and take advantage of the opportunities presented by technology to provide better customer service. “Brick and mortar” operations of the past are now on-line. Many special districts, on the other hand, do not maintain a presence on the Public Meetings on the Internet Internet. When they do, they often fail to provide Some cities, like Santa Monica, provide information necessary to facilitate rigorous public live video streaming of their city council scrutiny of the district’s policies and performance, or meetings on the Internet. Others are to invite input electronically from customers unable also posting the video on their Web or unwilling to attend public meetings. sites. These practices allow citizens to view a public meeting they are interested in from their work site or Many districts contacted by the Commission home, or at times they find convenient. reported practicing the most minimal of public notice by posting meetings and agendas only at

22 TOWARD VISIBILITY AND ACCOUNTABILITY

district headquarters – locations rarely frequented by Public Notice is Inadequate members of the public. Most do not routinely use newspapers, cable television or radio to make their During the course of its study, the activities known to their customers. Commission used a newspaper clipping service to obtain articles from across the state that Californians by and large do not have an easy, one- contained special district news. Of stop way to determine which districts serve them, the hundreds of articles that and when and where those districts meet. The crossed the Commission’s desk, Internet is one effective way for citizens to find out few provided notices of district board meetings, pertinent district detailed information tailored to their communities. In financial information or reference to simple applications, citizens can find out the time a Web site for more information. and place of meetings. But increasingly public meetings are being “broadcast” on the Internet to anyone interested in participating.

Many districts hold meetings at times convenient for the staff and elected officials, but that preclude attendance by citizens faced daily with the pressures of balancing family, work, school and other demands of contemporary life. Riverside County Special District q Financial reporting is inadequate. For Meeting Times financial reporting to be useful to the public Daytime Evening and policy-makers, it must be easy to get, Community Services 1 6 easy to understand and easy to respond to. Health* 2 1 Currently, district financial reporting meets Recreation & Park 1 3 none of these criteria. Resource Conservation 6 1 Sanitary 1 1 Prepared according to principles and Water/Irrigation 15 10 standards developed by and for professionals, *A fourth health district meets only once a year. district financial information is difficult for persons lacking training in public finance to understand. The Controller’s report, Special Districts Annual Report, is prepared with largely unaudited information from districts and is two years old when it is made available. Distributed to the Governor, Legislature, special districts, libraries and county auditors, it is of little utility for community leaders and local policy-makers interested in examining special districts.

Budgets and audits submitted to county auditor controllers are public documents. County auditors may review budgets to ensure that they balance, or that districts have “done the math” correctly. In some counties, monthly reports are generated for the districts’ use. The budgets are not provided to the public or policy-makers. Audits are typically given a cursory review to ensure that they are prepared in accordance with established standards, and are then filed away. Absent a controversy, these documents are unlikely to ever be viewed

23 LITTLE HOOVER COMMISSION

by policy-makers or the public – who are mostly unaware that the reports exist or do not know how to obtain them.

Districts also are not required to submit financial information to city or county elected officials or Local Agency Formation Commissions, which represent the broader community interests. As a result, district financial information is largely meaningless as a tool to evaluate the effectiveness and efficiency of services provided by districts, or to make comparisons with neighboring districts or services provided through a city or county. Making Finances and Activities Known

Among the attributes of special district governments are the ability to provide specialized services desired by the residents of a given area, governance by an elected body close to and responsible to the voters, and a lack of conflicting policy issues. These very characteristics, however, also give rise to the lack of visibility and accountability for which special districts are criticized.

Long concerned about these shortcomings, policy-makers have attempted to address the challenges to good government presented by the obscurity of special districts. Historically, efforts to make local government better understood, efficient and accountable have focused on changing government, not making it more visible. As described in the

American River Fire Protection District

Some districts, including the American River Fire Protection District in Sacramento County, have taken it upon themselves to aggressively publicize their activities and solicit public input.

In 1998, the district formed a citizen’s task force and charged Increasing Public Awareness it with reviewing long-term strategies and addressing issues 3 Regular newsletters. regarding the fiscal concerns of the district. The task force 3 Well-advertised Web site. expanded its charge, examining issues of public awareness 3 Media encouraged to attend all and involvement. It concluded that district residents were meetings. “woefully uninformed” about the operations of the district. The 3 Meetings aired on cable TV. task force encouraged the board to provide increased 3 Regular radio and newspaper opportunities for district residents to work closely with the coverage. 3 Public Saturday strategic board and district staff and to survey public attitudes toward planning meetings. the district on a regular basis. It recommended a “sustained 3 Evening board meetings. and imaginative” public information and education campaign that would include advertisement of the existence of the district’s Web site and encourage its use as a method of obtaining public feedback. The district subsequently implemented a number of other strategies to increase public awareness and participation. The district reports it has received a tremendous amount of positive feedback from the public, particularly for televising its meetings.

24 TOWARD VISIBILITY AND ACCOUNTABILITY background and Finding 2, the goal of most of these efforts has been a reduction in the number of local governments.

But even if policy-makers are successful in limiting or reducing special districts, they promise to remain an important fact of California life. The State could play an important role by addressing the persistent concerns about their lack of visibility and accountability.

The California Society of Municipal Finance Officers recognizes the importance of public awareness and understanding of the financial activities of cities and provides incentives for cities through its annual Excellence in San Diego Citizen’s Budget Public Communications awards. Several cities have found innovative and effective The City of San Diego presents a four-volume ways to inform the public about their budget. Volume 1, titled the “Citizen’s Budget,” includes a “Citizen’s Guide to the Budget” that budget processes. These cities have made walks the reader through each section of the an effort to describe their budgets in budget, using sample graphs and charts from language that the average citizen can departmental budget pages. The Citizen’s Guide understand, and to provide budgetary also describes the allocation and budget processes and defines city fund types. The Citizen’s Budget information in an easily accessible, provides summaries of city revenues – including reader-friendly format. They make use of revenue carried over from the previous year – graphs and formatting to summarize expenditures, capital improvements, number of city information and highlight major programs employees per thousand residents, and other and savings. Short flyers and newsletter- financial information. The full budget provides detailed information on departmental revenue and style pieces are mailed to residents, expenditures and lists the outcomes of selected providing them with basic information performance measures. All four volumes of the that is not intimidating. Several cities budget are available on the city’s Web site. The also provide budget information on their Web site also provides information on community budget forums and offers an opportunity for citizens Web sites. to comment on the budget.

The examples provided by the American San Diego’s Citizen’s Budget can be accessed at: River Fire District and other local www.ci.san-diego.ca.us/budget. governments show opportunities to take government to the public and to raise the visibility and accountability of all special districts. Reforms in three areas could improve the electoral process, the public process and make financial reporting more effective: q Information to the public. Public awareness of and participation in special district government – including the electoral process – could be increased if districts took advantage of all available means to publicize their activities and invite public participation. All districts could maintain Web sites that provide information on their mission, purpose, activities and finances. Widely advertised interactive Web sites could invite public input 24 hours a day, seven days a week, reducing the reliance on public meetings to provide public

25 LITTLE HOOVER COMMISSION

accountability. And Web sites could be linked to those of cities, counties and Local Agency Formation Commissions. County and Local Agency Formation Commission Web sites could permit citizens to enter their zip code and learn which districts serve them. Districts could also inform the public through cable television, local newspapers and radio, newsletters, property tax bills and bills for service.

q Information to local policy-makers. Special district visibility and accountability would be enhanced, as would opportunities for more effective regional planning, if policy-makers in larger local government agencies understood the state of special district finances and activities. Special districts could annually present budgets, audited financial statements and future plans to boards of supervisors, city councils and Local Agency Formation Commissions. Detailed information on district reserves, including district policies on the accumulation and use of reserves, should be provided. So informed, local policy-makers could provide the oversight needed to prevent occasional but costly controversies like that of the Water Replenishment District of Southern California.

q Information to state policy-makers. Special district financial and activity information is needed by state policy-makers charged with developing and enacting policies that guide the evolution of government, define the state-local relationship and determine how infrastructure and services will be provided. State policy-makers, armed with information about district finances, could assess the solvency of districts, their ability to provide critical services, and the appropriateness of their reserve policies and practices.

To be useful, financial information should be provided in standard, uniform and easily understood formats. Summary financial documents should foster comparability, accountability and utility. Sources of revenues, expenditures and services provided should be identified, as should reserve funds and their purposes.

Summary

The debate about special districts is often about which ones can be consolidated or eliminated. The Commission believes the first step should be making all independent special districts more visible – improving the electoral process, the public process and financial reporting. Visibility could become the norm rather than the exception. For citizens and community leaders to provide the necessary oversight, they need the relevant information.

26 TOWARD VISIBILITY AND ACCOUNTABILITY

Recommendation 1: The Governor and Legislature should enact legislation that would make special districts more visible and accountable. Specifically, the legislation should: q Require special districts to actively make their activities visible to the public. To help the public – as citizens, consumers and voters – to participate effectively, independent special districts should annually develop and publicize the following information, stated in easily understood terms:

3 District mission and purpose 3 Summary financial information presented in a standard format and simple language, including reserve funds and their purpose 3 District policy on the accumulation and use of reserves 3 Plans for the future, including anticipated revenues, expenditures, reserves and trends in user rates 3 Per capita tax contributions of property owners 3 Performance and quality of service indicators 3 Board member benefits and compensation

Financial information should be posted on Web sites, provided in property tax bills, customer billing statements, and be available from cities, counties and libraries. Districts should be required to publicly notice all meetings in local newspapers, invite coverage by local cable television and conduct annual mailings to district residents. q Require special districts to submit information to other local governments. Independent special districts also should annually and publicly present financial information to county boards of supervisors and city councils, which represent the broader community of interests. Districts also should submit budgets and financial audits to their Local Agency Formation Commission, which could then determine which districts warrant closer scrutiny. q Encourage special district elections to be held as part of even year general elections. To increase voter participation in special district elections, counties should be encouraged to consolidate special district elections in even-year general elections.

27 LITTLE HOOVER COMMISSION

28 STRENGTHENING LAFCOS

Strengthening LAFCOs

Finding 2: Local Agency Formation Commissions, by not aggressively scrutinizing the organization of special districts, have failed to promote the efficient and effective evolution of local government.

Local Agency Formation Commissions were created in response to the rapid and haphazard development of cities and special districts in the years following World War II. LAFCOs, charged with promoting the rational and orderly evolution of local government, were specifically empowered in 1994 to initiate special district reorganizations. But despite the intent of the Legislature, LAFCOs have failed to effectively guide the evolution of special districts. As a result, districts formed in a different time to meet different needs survive today – even if they are no longer the most effective service provider or the reason for their formation has ceased to exist. If LAFCOs are to be aggressive in scrutinizing the organization of special districts, they need a mandate and resources. “Watchdog” Agents of the State

LAFCOs were established to function as “watchdog” agencies with local appointees. They can initiate special district reorganizations if they conduct a study that finds the reorganization would cost the same or less than alternatives, and would promote public access and accountability. LAFCOs are responsible for the cost of studies they initiate, unless the entities involved agree to contribute to cover the costs.

Most LAFCOs have five commissioners: two county A LAFCO Executive Officer’s supervisors, two city council members and a public “Other Hats” member. The exceptions are those commissions dubbed the “Big Four” – Los Angeles, Sacramento, The Sacramento County LAFCO San Diego and Santa Clara – which have specific executive officer also administers the statutory provisions for membership. Several small county’s Community Development and Neighborhood Assistance Agency, counties also have different configurations. In 1993, serves as the Agricultural AB 1335 (Gotch) required LAFCOs to add two special Commissioner/Sealer of Weights and district members if a majority of a county’s Measures, and oversees the following independent special districts asked for representation. county functions: Airports, Animal Currently, special districts have seats on 25 LAFCOs Care and Regulation, Cooperative Agricultural Extension, Environmental 27 (44 percent). Management, Environmental Review and Assessment, Planning and LAFCOs are described as dependent or independent, Community Development, and Parks, depending on whether their staffs are considered Recreation and Open Space. employees of the county or the commission. Of the 57

29 LITTLE HOOVER COMMISSION

LAFCOs, 40 of them (70 percent) are dependent.28 They have executive officers and staff who are county employees who typically allocate a percentage of their time to LAFCO work. They may also administer and oversee numerous other county functions. For example, in Sacramento County the executive officer is a county employee who devotes approximately 10 percent of his time to LAFCO duties. Independent LAFCOs appoint their own executive officers and legal counsel, who serve at the pleasure of the commission.

State law requires counties to fund LAFCOs and provide them with equipment, supplies and office quarters. County boards of supervisors allocate funds to LAFCOs based on commission estimates of the amount that will be needed in the following fiscal year, prior year funding and other criteria. LAFCOs also can charge fees for processing boundary changes.

Independent LAFCO

Dependent LAFCO

In 1998-99, California counties budgeted $7,170,570 for LAFCOs, with wide variations among counties. A survey by the California Commission on Governance for the 21st Century found that independent LAFCOs have larger budgets and recovered higher proportions of their costs through fees than did their dependent counterparts.

LAFCO Budget Ranges Thirty commissions have budgets of less than

30 $50,000. All of these are county-dependent LAFCOs, except Lake County. Ten LAFCOs have budgets Dependent 25 Independent between $51,000 and $150,000. Six of these are independent commissions and four are dependent on 20 county staff. Nine LAFCOs have budgets between $151,000 and $250,000. Five of these commissions 15 are dependent and four are independent. Eight

10 LAFCOs have adopted budgets of more that $250,000. Six of these are independent and two are 5 dependent.29

0 st <$50,000 $51,000- $151,000- $251,000+ The Commission on Local Governance for the 21 150,000 250,000 Century also found that of the $7,170,570 budgeted Source: Commission on Local Governance st for LAFCOs statewide, 22 percent is returned to the for the 21 Century, Appendix G.

30 STRENGTHENING LAFCOS counties through fees collected by LAFCOs. Fees as a percentage of their budgets vary widely among dependent LAFCOs. They range from 5 percent to 75 percent, with a mean of 20 Percent of Budgets Returned Through Fees percent. Among independent LAFCOs, fees 16 recovered ranged from 5 percent to 66 percent, with a mean of 26 percent. 14 Independent LAFCOs recovered about $1.2 12 million, or 70 percent of the total amount recovered throughout the state. 10

8 Barriers to Reorganization 6

The law gives LAFCOs the authority to 4 initiate special district reorganizations. 2 However, since the implementation of AB 0 1335, LAFCOs have generally failed to 0-5 6-10 11-20 21-30 31-40 41-50 51-60 61-70 71+ pursue special district reorganizations. Source: Commission on Governance for the 21st Century, Appendix G. A 1996 survey by the California Association of Local Agency Formation Commissions (CALAFCO), found that 18 of the 67 special district reorganization studies undertaken since the implementation of AB 1335 had been initiated by LAFCOs. Only one LAFCO-initiated proposal had actually resulted in the elimination of a special district.

The Senate Local Government Committee conducted a hearing in January 1997 In response to concerns that AB 1335 had not spurred special district consolidations. The committee concluded that only one LAFCO had taken advantage of its power to initiate special district reorganizations.

The Little Hoover Commission conducted in-depth interviews with six LAFCO executive officers to assess the ability and willingness of LAFCOs to initiate reorganizations, and to better understand the barriers to reorganizations. Interviews were conducted with LAFCO officials from Contra Costa, Fresno, Orange, Stanislaus, Riverside and Yolo counties. They represent rural, urban and urbanizing counties and are located in northern, central and southern parts of the State. Three are dependent and three are independent LAFCOs. The interviews reinforced testimony the Commission heard in public hearings.

The six counties involved in the interviews collectively have 311 independent special districts and 198 dependent special districts.30 While all of the counties have experienced significant development, few

31 LITTLE HOOVER COMMISSION

changes have been made in the structure of special district government. Since 1994:

3 Two of the LAFCOs had each initiated one reorganization involving independent special districts. One effort involved an inactive fire district in Yolo County and the other involved the merger of a water district with a city in Orange County. Both proposals received LAFCO approval.

3 One LAFCO initiated a reorganization of six Community Service Areas (CSAs), dependent districts governed by the Contra Costa County Board of Supervisors. The districts were considered inactive and the proposal to dissolve them was approved.

3 In all, 22 special district reorganizations were submitted to the six LAFCOs. Of the 22, the LAFCOs approved 16, denied three and three were withdrawn.

In interviews and testimony to the Commission, the staff of county LAFCOs identified five barriers to the effective evolution of special districts:

1. Permissive and vague state policy. Given the controversies inherent to reorganizations, LAFCO staff said they do not have clear statutory language to back up their efforts to push for the evolution of special districts. They emphasized that while the policy The State could establish intends for LAFCOs to be proactive, it fails to provide criteria clear criteria to make it or guidelines for when reorganizations should be considered. easier to consolidate and The Stanislaus County LAFCO executive officer said: “The dissolve districts. State could establish clear criteria to make it easier to consolidate and dissolve districts…”31

2. Lack of independence. The independence of LAFCO staff is a persistent issue that has not been adequately resolved. The Commission – and others researching this issue – have consistently heard that when staff is employed directly by the LAFCO they can work independently and objectively toward the goals of the LAFCO, rather that the goals of the county. This issue was described as particularly problematic in urbanizing counties where opportunities for reorganization are greatest. Two examples demonstrate the problem:

3 California Association of Local Agency Formation Commission officials described a county where the LAFCO staff is given a recommendation on a proposal by the county administrator and told to write a report to support it. The county employed this

32 STRENGTHENING LAFCOS

tactic, it was explained, because it did not As LAFCOs Become Involved, want to take on any more controversy or Public Disclosure is Needed address tough issues about governance. The Fair Political Practices Commission 3 CALAFCO officials also described LAFCOs has declared that groups advocating for where the county administrator or and against secession from Los Angeles should be required to disclose who is planning director performs the duties of funding their campaigns. the LAFCO executive officer. In these “strange” relationships, the executive In contrast to ballot initiative proposals or officers’ primary loyalty is to their candidate elections, campaigns to change the boundaries of local governments are employers, not the commissions, and the not subject to financial disclosure commissions recognize that the executive requirements until after a county LAFCO officers do not really report to them. has reviewed the proposal and the issue has qualified for the ballot. At the same time, the workload in rural The heated controversy over the secession counties often does not justify the cost of of the San Fernando Valley from Los full-time, independent staff. The Angeles has generated concerns about this Commission on Governance for the 21st “loophole” in the law as large sums of Century found that many LAFCOs with money are expended to influence the Local Agency Formation Commission. low or no activity only meet as needed. For example, at the time of its survey, Del While the FPPC agreed that disclosure Norte LAFCO had not met in 18 months, should be required, it disagreed on the Amador had not met in 12 months, specifics of how groups would disclose Mariposa had not met in 24 months and campaign finance information. Reforms to address the issue are contained in pending Sierra had not met in 36 months. Nearly legislation, which would implement one-third of all LAFCOs meet three or recommendations from the Commission on fewer times per year.32 Governance for the 21st Century. Specifically, the bill would require that 3. Inadequate funding. LAFCOs report that contributions to influence a reorganization proposal be disclosed and reported in the they do not have the resources necessary to same manner as local initiative measures. aggressively pursue special district reorganizations – even if they had the political will. LAFCOs must have the staff or pay consultants to examine potential reorganizations and facilitate the public review process. The Riverside County LAFCO executive director told the Commission: “The Riverside LAFCO does not have the staff or resources to undertake the types of studies needed, or to engage in protracted battles… Even though the Palm Desert consolidation was a ‘no brainer,’ the Palm Desert board fought it.”33

The financial burden for LAFCOs falls overwhelmingly on counties; cities and special districts do not share in the fiscal responsibility. If funding were shared, LAFCO officers said the costs of the required studies are still a deterrent to pursuing reorganization opportunities. CALAFCO reports that consolidation studies cost between $25,000 and $50,000, depending on the number of agencies and the complexity of the issues.

33 LITTLE HOOVER COMMISSION

4. The structure of LAFCOs. LAFCOs are comprised of elected city, county and special district officials, who when they sit as LAFCO directors are expected to scrutinize and possibly eliminate the positions held by other elected officials. As such, they are subject to local political pressure to preserve the status quo.

LAFCO staff told the Commission that in exploring reorganizations, the benefits of consolidation are often difficult to quantify and wide public support is hard to obtain. Coupled with the inevitable and often formidable opposition from the entities affected, commissions succumb to narrow politics rather than the broader public interest. Many believe that without a mandate from the State, LAFCOs will never aggressively seek to consolidate and eliminate districts. One former LAFCO staff member described it as LAFCOs’ need for a “beard to hide behind.”

5. Benefits and compensation to elected officials. The benefits and compensation that independent special district members receive deters them from supporting reorganizations that would eliminate their positions, according to several LAFCO staffers.

Special Districts Survey The Commission, with the assistance of the California Special Districts Association (CSDA), surveyed Surveys were sent to a random independent special districts to quantify the benefits and sample of 513 of the total 1,839 compensation that districts provide elected officials and to special districts in the California Special Districts Association assess from the perspective of the districts the role that database, stratified by district benefits may play in discouraging reorganizations. type and geographical area. 258 responses were received, The survey revealed that most special districts resulting in a 14 percent sample. compensate their board members at a minimal level or not The Commission obtained at least a 10 percent sample for at all – the majority of board members receive less than each type of special district. The $5,000 annually. The chart on the following page displays survey form can be found in the distribution of compensation among board members. Appendix B. As shown in the table opposite, the most common form of compensation is a meeting or monthly stipend. A significant number of districts also provide health and life insurance benefits. Most districts that provide health benefits to board members also extend them to spouses, and a few extend these benefits to former board members. Other forms of compensation include retirement benefits, workers’ compensation, and car allowances. The majority of districts also pay for board members to attend conferences or classes.

34 STRENGTHENING LAFCOS

Board Members Who Receive Benefits and Compensation Percentage of Board Members by Annual Value

50% 45% 45% 40% 40%

35%

30%

25%

20%

15%

10% 8%

5% 3% 1% 2% 0% 0% None $1 to $5,000 $5,001 to $10,000 $10,001 to $15,000 $15,001 to $20,000 $20,001 to $25,000 more than $25,000

Board Member Compensation By District and Benefit Type

Confer- Health Life Stipends (Payment per Meeting) ences Benefits Insurance Sample Total % min max mean median mode %%% ## Airport 50% $100 $100 $100 $100 $100 67% 33% 0% 6 9 Cemetery/ 38% $10 $80 $49 $50 $50 52% 7% 7% 29 228 Memorial CSD 43% **$6 $100 $63 $50 $100 43% 0% 0% 37 286 Fire 29% $20 $100 $62 $75 $75 58% 13% 6% 31 294 Harbor & 20% *$300 $300 $300 $300 $300 80% 40% 20% 5 18 Port Health 47% $75 $100 $98 $100 $100 83% 33% 10% 30 56 Library 0% - - - - - 43% 0% 0% 7 9 Pest Cont. 83% $25 $100 $49 $49 $50 75% 8% 8% 12 59 Park & Rec 50% $50 $100 $90 $100 $100 80% 0% 0% 10 88 Pollution 100% $100 $100 $100 $100 $100 67% 0% 0% 3 4 Reclamation 67% $40 $175 $103 $100 $100 44% 0% 0% 9 96 Resource ^0% - - - - - 80% 0% 0% 5 114 Conservation Sanitary 100% $25 $100 $87 $100 $100 69% 31% 23% 13 78 Utility 80% $20 ^^$463 $62 -- 60% 40% 20% 10 55 Water 78% $25 $229 $108 $100 $100 73% 33% 16% 49 441 NOTE: Some districts pay their board members monthly stipends. These have been converted to per meeting figures based on the average number of board meetings per month. *One district pays each director $600 per month. Directors meet twice a month. **$25 yearly stipend. ^One district pays $15 for mileage. ^^One district pays its directors $926 per month. Directors meet twice a month.

35 LITTLE HOOVER COMMISSION

In its analysis, the Commission looked specifically at community services districts (CSDs), fire, health, park and recreation, sanitary/sanitation and water districts. Overall, 56 percent of these districts provide meeting stipends or monthly compensation to their board members, 20 percent provide health insurance, and 9 percent provide life insurance. None of the community services or park and recreation districts surveyed reported providing health or life insurance. Sixty-six percent of the districts reported that they cover the cost to send directors to conferences and seminars.

The survey results also revealed significant differences among the types of districts when it comes to benefits and compensation. Here is a look at the benefits and compensation paid to board members of five different types of districts:34

Community Services Districts

In the Commission’s sample, no community services Annual Compensation Per Board Member district provided its board members with more than Community Services Districts $5,000 in compensation in 1999. The majority (56%) do 80% 70% not provide any compensation, and none of the districts 60% 50% provide health or life insurance benefits. 40% 30% 20% Fourteen percent of the community services districts 10% 0% spent more than $1,000 per director in 1999. The full None $1 to $5,001 $10,001 $15,001 $20,001 more $5,000 to to to to than range of compensation went from a high of $4,480 per $10,000 $15,000 $20,000 $25,000 $25,000 board member (Bear Valley) to a low of $25 per board member (Westridge).

Fire Protection Districts

Fire Protection Districts The majority of fire districts do not provide compensation 80% 70% to their board members, according to the survey. Of the 60% 50% 32 percent that do provide compensation, no district 40% 30% spends more than $10,000 annually on each board 20% member. Twenty-nine percent of the districts provide 10% 0% meeting or monthly stipends, 16 percent provide health None $1 to $5,001 $10,001 $15,001 $20,001 more $5,000 to to to to than benefits, and 6 percent provide life insurance benefits. $10,000 $15,000 $20,000 $25,000 $25,000 District expenditures on all forms of compensation vary widely. In 1999, fire district expenditures per board member covered the following ranges:

Maximum Minimum Stipend $1,245 Half Moon Bay $300 Industrial Health Benefits $5,032 Linda $3,024 Menlo Park Life Insurance $132 Mammoth Lakes $65 Sacramento Co.

36 STRENGTHENING LAFCOS

Park & Recreation Districts Compensation Per Board Member Half of the park and recreation districts surveyed Park & Recreation Districts provide annual compensation – in the amount of 80% 70% $5,000 or less per board member. None of these 60% 50% districts provide health or life insurance benefits. 40% 30% Meeting compensation ranges from $510 (Arden 20% 10% Manor) to $4,740 (Conejo). 0% None $1 to $5,001 $10,001 $15,001 $20,001 more $5,000 to to to to than Sanitary Districts $10,000 $15,000 $20,000 $25,000 $25,000 All of the sanitary districts in the Commission’s sample provide compensation – 78 percent spent Sanitary Districts 80% $5,000 or less per board member in 1999. In addition 70% to a stipend, 31 percent provide health and 23 percent 60% 50% provide life insurance benefits. 40% 30% 20% 10% District expenditures on stipends and health benefits 0% vary widely. In 1999, sanitary district expenditures None $1 to $5,001 $10,001 $15,001 $20,001 more $5,000 to to to to than per board member covered the following ranges: $10,000 $15,000 $20,000 $25,000 $25,000

Maximum Minimum Stipend $7,120 West County $480 San Andreas Health Benefits $8,412 Truckee $828 Carmel Area Life Insurance $190 Napa $125 Midway City

Water Districts

The majority of water districts provide their board members with annual compensation of $5,000 or less – and 22 percent do not provide compensation. In addition to meeting or monthly stipends, 33 percent provide health insurance and 16 percent provide life insurance. Water Districts 80% A small number of districts provide board members 70% 60% with large compensation packages. Of all the districts 50% 40% responding to the Commission’s survey, the only 30% districts that reported spending in excess of $25,000 20% 10% per director were water districts: Central Basin, 0% None $1 to $5,001 $10,001 $15,001 $20,001 more Irvine Ranch, and West Basin. $5,000 to to to to than $10,000 $15,000 $20,000 $25,000 $25,000

Districts with similar revenues also provided vastly different benefits packages. Marin Municipal Water District, for instance, provided each board member with $4,200 for meeting attendance in 1999. Board members did not receive health, life insurance, or other benefits. Central Basin Municipal Water District,

37 LITTLE HOOVER COMMISSION

in contrast, provided each director with annual compensation and benefits worth $39,800 – including a meeting stipend, health and life insurance benefits, and a monthly car allowance. The two districts reported similar gross revenues in 1996-97 – $40.3 million and $54.5 million respectively.

District expenditures on all forms of compensation vary widely. In 1999, water district expenditures per board member covered the following ranges:

Maximum Minimum Stipend $29,270 Central Basin $225 Bella Vista Health Benefits $6,837 Central Basin $180 Rainbow Life Insurance $8,750 Irvine Ranch $21 Rainbow

Most districts responding to the Commission’s survey said that in their experience benefits and compensation had not been a deterrent to consolidation. Most of those districts, however, had not been involved in a reorganization. On the other hand, the general manager of the South Coast Water District, which has been involved in consolidation efforts since 1976, said that compensation and benefits, including health and life insurance, have created concerns for directors considering consolidation.35

A source that asked to remain anonymous told the Commission that a proposed merger of the Los Alisos Water District with the Irvine Ranch Water District was stalled by board member resistance that involved benefits and compensation. To overcome the opposition and close the deal, Irvine Ranch agreed to provide the five I believe that providing full time outgoing Los Alisos board members with the following: benefits for a part-time job has their current maximum allowable meeting stipend (10 prevented some directors from meetings a month at $165 per meeting, or $1,650 per looking objectively at month) for three years; and the same benefit package as consolidation due to fear of is afforded paid employees, including health, dental, losing their seat. retirement and life insurance. Once the proposal is filed with LAFCO, the terms of the agreement will be public.36

Another survey respondent representing a fire district wrote: “I believe that providing full-time benefits for a part-time job has prevented some directors from looking objectively at consolidation due to fear of losing their seat.”37

Many districts reported modest compensation packages that seemed unlikely to be an obstacle to reorganization. In others, however, meeting compensation can amount to thousands of dollars of

38 STRENGTHENING LAFCOS

additional income per year. In addition, directors and sometimes their spouses stand to lose life insurance and health benefits if their board seat is eliminated. In these cases, there appears to be merit to the assertions by some LAFCO staff and special district officials that compensation levels discourage directors from supporting reorganization efforts.

In some cases, the economical reorganization of special districts is thwarted by all five barriers: vague state policy, a dependence of LAFCOs on county staff and resources, inadequate funding for studies, structure of LAFCOs, and benefits and compensation to board members. Making LAFCOs More Effective

Over the years, several strategies have been considered by policy-makers to address the failure of LAFCOs to actively pursue special district reorganizations, and to make government more easily understood, efficient and accountable. Proposals have included replacing LAFCOs with something else, replacing special districts with something else, and legislation to force special districts to reorganize. q Regional planning agencies. Lawmakers mandated regional planning agencies when legislation authorizing LAFCOs to initiate special district reorganizations failed to provide the needed impetus. Some lawmakers hoped that one day those agencies would evolve into bonafide regional governments. But instead, Californians became more steeped in local control and regional government failed to materialize. q Home Rule Community Charters. The California Constitution Revision Commission in 1996 recommended Home Rule Community Charters that would be required to provide methods for reducing the number and costs of local governments. A 1998 bill by Assemblymember Hertzberg (AB 2368) would have allowed general- purpose governments to decide which services special districts should provide. Amended to restrict the proposal to Los Angeles, it died in the Senate in the wake of opposition from labor interests and special districts. q Regional “super-governments.” In the 1980s, then-Assembly Speaker Willie Brown proposed a number of regional “super- governments” to replace single-purpose agencies. But the proposal, which would have given the Governor and legislative leaders appointing authority to the regional boards, failed.

39 LITTLE HOOVER COMMISSION

q Special legislation. Suggestions have been made that the Legislature consider adding legislative members to help LAFCOs overcome local politics and the tenacity of the status quo. And while it has shown little interest in this approach, the Legislature has acted as a sort of “super-LAFCO” by considering bills that would reorganize specific districts. Some of those efforts are described in the background section. Viewed as antithetical to “home rule,” the bills also proved unsuccessful. But they underscore the sentiment among some policy-makers that mechanisms for streamlining local government are not always effective.

Absent an appetite for fundamental reform, the issue becomes how the State can help LAFCOs overcome the power of local politics and promote the public interest. The following reforms could make LAFCOs more effective in guiding the evolution of special district governments:

q Give LAFCOs a mandate. The Commission heard that while independence and resources are important, LAFCOs are unlikely, without a mandate, to ever effectively scrutinize and guide the evolution of local government. LAFCOs, particularly in urbanizing areas, could be emboldened by a State mandate to identify areas where multiple districts provide similar services. Where duplication, overlaps and inefficiencies are identified, LAFCOs could be required to initiate a study. All reorganization alternatives should be considered, including consolidation, dissolution, and making the district dependent rather than independent. Specific criteria that could trigger a LAFCO review could include:

3 When a district’s founding mission changes. 3 When the district’s solvency and ability to provide efficient and effective service is in question. 3 When a city incorporates. 3 When there are vast inequities in rates charged by neighboring districts. 3 When violations have been issued by regulatory agencies. 3 When levels of services are not satisfactory or are inconsistent among neighboring districts.

Finding 3 will discuss in detail a State-led process to develop empirical data and provide training to assist LAFCOs in fulfilling such a mandate.

q Provide LAFCO with resources. Persistent funding shortages cited by LAFCOs could be addressed by requiring cities, counties and special districts to share equally in the funding of LAFCOs. Shared funding would increase the resources available to LAFCOs to conduct studies and process reorganization actions, level the fiscal playing

40 STRENGTHENING LAFCOS

field among all of the stakeholders, and enhance LAFCO independence and objectivity.

In 1997, AB 270 (Torlakson) would have required cities and special districts to pay shares equal to that of the county to fund LAFCOs. Additionally, it would have required LAFCOs to maximize fees to process actions, and would have required the addition of special districts representation on all LAFCOs. The bill, opposed by cities, died on the Senate floor. The Commission on Governance for the 21 st Century, in its final report, recommended that the costs of LAFCO be shared equally by all of the agencies that appoint members to LAFCO.

Special districts are an integral part of the local government landscape and they should contribute to its effective functioning. To encourage special district participation in LAFCOs and to provide LAFCOs with resources, districts could be required to share equally in the funding of LAFCOs, whether or not they choose to seat members. Furthermore, in choosing to seat members, special districts should not be required to give up their latent powers.

If the State requires LAFCOs to initiate special district reorganization studies under certain conditions, the State could require the affected districts to fund the study. The State could establish a fund in the Governor’s Office of Planning and Research to which districts that claim financial hardship could apply. Full or matching funding could be provided based on a review of the district’s finances and a finding regarding their ability to pay. q Eliminate inherent conflicts. The State could encourage LAFCOs to appoint their executive director and legal counsel in urban counties where the workload justifies it and where policy-makers determine that the dependent status of LAFCO has hindered the pursuit of special district reorganizations.

Summary

LAFCOs have not aggressively examined the organization of special districts and pursued reorganizations as intended by the State – even when there is substantial evidence that districts should be consolidated or eliminated. But the State has failed to provide LAFCOs with clear policy direction, the necessary resources and, most importantly, has not required them to do so. LAFCOs need a mandate from the State and they need resources and, in some instances, independence to function effectively.

41 LITTLE HOOVER COMMISSION

Given these tools, and coupled with the enhanced visibility recommended in Finding 1, LAFCOs would be better equipped to overcome the barriers to reorganization they have identified. For example, if districts were required to fully disclose and widely publicize the benefits and compensation they provide to directors, board policies in these areas would conform with public expectations and specious arguments against reorganization would become transparent.

Recommendation 2: The State should provide LAFCOs with the direction and resources necessary to make them a catalyst for the effective and efficient evolution of independent special districts. Specifically, the Governor and Legislature should:

q Require periodic and specific reviews of independent special districts. The State should require LAFCOs in urbanizing counties, in cooperation with special districts and other local governments, to periodically review services provided by special districts. The reviews should identify areas of duplication and overlap and assess whether services are being provided in the most efficient and cost-effective manner. Where duplication, overlap and inefficiency are identified, LAFCOs should be required to initiate a study. Specific triggers could be established, such as when the fundamental mission of a district changes or reserves exceed defined limits.

q Enhance the independence of LAFCOs. The State should encourage LAFCOs in urban counties to appoint their own executive officer and legal counsel, thereby establishing employment relationships free of the real and perceived conflicts that occur when county employees hold those positions.

q Require shared funding of LAFCOs. To increase the resources available to LAFCOs, enhance their independence and increase their effectiveness, the State should require counties, cities and special districts to jointly fund LAFCOs. Special districts should contribute whether or not they have opted to sit on a LAFCO.

q Identify funds for studies. The State should require special districts that are the subject of a required LAFCO study to fund the study. For financial hardship cases, the State should provide grants or loans, which could be repaid from savings accrued as a result of reorganizations.

42 TO PROVIDE INFORMATION AND TRAINING

To Provide Information and Training

Finding 3: Policy-makers and community leaders lack the analytical tools necessary to assess the benefits of consolidation, impeding their ability to advocate effectively for change and overcome the tenacity of the status quo.

The State created LAFCOs to be catalysts for the logical and orderly evolution of local government. They also were specifically directed to pursue the consolidation and reorganization of special districts.

Finding 2 described ways to improve the independence of LAFCOs. But the State also has a role to play in helping LAFCOs and special districts develop the analytical capacity to assess performance and determine when reorganizations would reduce costs or improve the quality of services. Beyond good analysis, the experience of LAFCOs is that the reorganization process requires intensive facilitation. As a result, local officials need to develop or have available the skills necessary to help stakeholders negotiate the reorganization of independent special districts.

The State should establish a program at the California Policy Research Center, or similar institute, to furnish LAFCOs and community leaders with these tools. A Silent Policy

The State’s current policy is silent on when, where and There is just no reliable, how LAFCOs should go about their task of initiating empirical data available to guide special district reorganizations. LAFCOs also have few LAFCOs in determining when tools – proven analytical models or reliable evaluations consolidations are warranted. of previous reorganizations – to help them conduct They don’t have the ability to credible assessments. A former LAFCO staffer told the follow up and look at long-term Commission: “There is just no reliable, empirical data benefits. The State could play available to guide LAFCOs in determining when an important role in this area. consolidations are warranted. They don’t have the ability to follow up and look at long-term benefits. The State could play an important role in this area.”38

Local leaders also can play an important role in promoting the effective organization of local government, particularly where LAFCOs are reluctant. Community leaders can circulate petitions to bring reorganization proposals before LAFCOs. County boards of supervisors and city councils also can initiate reorganization efforts. But they too

43 LITTLE HOOVER COMMISSION

lack the information that would encourage them to invest time and political capital in these efforts. Few Tools are Available

While there are thousands of independent special districts and there have been dozens of consolidations, LAFCOs do not have a standard methodology for examining potential reorganizations. When can reorganizations be expected to cut costs, generate efficiencies, improve service and increase accountability? Likewise, there is little evidence of reorganization outcomes over time. Without evaluations, lessons that could be learned and applied to the next effort and shared among LAFCOs as best practices are lost.

Lacking reliable data to support reorganization proposals, LAFCOs and community leaders find themselves at a disadvantage to the politically and emotionally charged forces that often align in defense of the status quo.

LAFCO staff told the Commission that successful reorganizations, particularly where there is resistance, require a skilled facilitation process. Staff must be able to elicit the involvement of all of the parties that would be affected by the reorganization. They must be brought to the table and kept at the table throughout what can be lengthy and contentious processes. Disagreements must be mediated, resistance overcome and, where possible, consensus achieved. But there is no State or State-sponsored entity that LAFCOs can turn to for professional skill development and technical assistance they need.

Dana Smith, the Orange County LAFCO executive officer, described a mediated process between two districts in one city where the elected officials would not speak directly to each other, but only through the LAFCO staff. Due largely to the skills of the LAFCO staff, the process moved forward, common ground was identified and progress made on a consolidated infrastructure plan.

Many LAFCO staffs, however, lack the analytical and facilitation skills to effectively manage these types of actions. The LAFCO executive officer in Riverside County described a failed effort to dissolve a small retail water district within the boundaries of a larger municipal water district. To overcome opposition, he needed a detailed rate study that would better identify the costs of the current arrangements and potential savings of consolidation. The staff did not have the expertise. If a knowledgeable consultant had been available, he believes the outcome might have been different.39

44 TO PROVIDE INFORMATION AND TRAINING

Recently, there has been renewed interest in Smart Growth performance measurement in the public sector. Between 1989 and 1994, resolutions by the “Smart growth” is a concept for urban Government Accounting Standards Board, the planning and development. It involves National Academy of Public Administration, the identifying and achieving community goals for how neighborhoods and cities grow. American Society for Public Administration, and Smart growth strategies attempt to build on the National Governors’ Association called for community strengths to achieve economic governments to institute systems for goal goals within environmental constraints. setting and performance measurement.40 Smart Growth involves: 3 Regional Planning and Coordination At the national level, the Government 3 Building on Community Strengths Performance and Results Act of 1993 requires 3 Supporting Creative and Entrepreneurial strategic planning and performance reporting Efforts for all federal agencies.41 In California, state 3 Integration of Economy, Environment and Equity agencies are required to submit strategic plans to the Governor’s office for approval. The California’s special districts – given their Department of Finance will only consider budget resources and competencies – could be change proposals when a state agency has an integral partners in helping communities approved strategic plan. Performance measures meet their development and quality-of-life goals. to assess each agency’s successful achievement of its mission, vision, goals and objectives are required components of the strategic plans.

But there is no expectation for local governments, including special districts, to measure performance – and most do not. A 1997 nationwide survey of municipal governments showed that 40 percent or fewer make any kind of meaningful use of performance measures in their management and decision-making processes.42 The Commission did not find comparable data for special districts, but the California Special Districts Association and Special Districts Institute report no knowledge of the significant use of performance measures by special districts.

One explanation is that many special districts do not know how to adequately develop and implement performance measurement, and the State has not required or assisted them in doing so. Building Knowledge and Skills

To effectively advocate for change – especially in the face of opposition – LAFCOs and community leaders need to be armed with analytical tools and facilitation and mediation skills. Fortunately, California is home to a number of top public and private organizations dedicated to public policy research that could be tapped by the State to assist.

California Policy Research Center. The California Policy Research Center at the University of California (formerly the California Policy

45 LITTLE HOOVER COMMISSION

Seminar) was created to help inform some of the most important public policy issues facing California. The center works closely with the legislative and executive branches to analyze and help implement meaningful and innovative policies.

Center for California Studies & California Institute for Local Government. The Center for California Studies at California State University, Sacramento and the California Institute for Local Government at the University of California at Berkeley provide research assistance and leadership in addressing key local and state government public policy issues.

California Research Bureau. The California Research Bureau (CRB) conducts research and provides policy assistance to state policy-makers through reports, consultations, training and technical assistance. The California Policy Research Center has developed an initiative with the CRB to make their research more available to health and human services agencies. This effort could be expanded to provide the resources of their local government component to local policy-makers.

School/Law Enforcement Partnership Additionally, the California Special Districts Association (CSDA) and the Special Districts The School Law/Enforcement Partnership Institute (SDI) offer training seminars on the Cadre, sponsored by the Department of management and operation of special districts. Education and the Attorney General, consists of 100 school safety experts from local The California Association of Local Agency education and law enforcement agencies. Formation Commissions (CALAFCO) sponsors Cadre members provide technical assistance an annual conference for LAFCO to other local educators and law enforcement commissioners and staff. The conference officers at no cost to develop school safety provides opportunities for networking and programs. The Partnership pays for the travel costs of members and provides resource subject-specific training on issues ranging materials and training; their agencies make from finance and planning to media relations. them available for Cadre activities 10 to 12 The association conducts one or two sessions days a year. The Partnership is authorized by per year on topics of current interest, where statute and paid for from the General Fund. the subject of reorganization has been addressed.

The State could establish a program at one of these or other institutes, or through a partnership of organizations, to conduct research and establish programs to equip policy-makers with the tools necessary to adequately assess and guide the organization of local government. CSDA and SDI could cooperate with the institute to disseminate the information. Tools should assist policy-makers in the following ways:

q To know when to pursue special district reorganizations. LAFCOs and community leaders need information on the long-term outcomes of consolidations and other data to help them accurately

46 TO PROVIDE INFORMATION AND TRAINING

identify and promote opportunities for reorganizations. So armed, they would be more likely to initiate and successfully complete reorganizations. q To obtain training and technical assistance. LAFCOs need access to training and technical assistance to build the skills necessary to effectively facilitate actions involving special districts, and particularly to mediate difficult cases. A cadre of experts could be identified and made available to provide training, skill development and technical assistance to LAFCOs. The state School/Law Enforcement Partnership Cadre provides a model for training and technical assistance to local agencies. q To implement performance measures. The day-to-day operations of special districts could be evaluated and improved through the use of performance measures. Most special districts provide real services that lend themselves to outcome measures that are meaningful to the public and which would provide the public – and policy-makers – with a way to gauge their performance. A research institute, working in cooperation with organizations representing special districts, could Lake County develop and disseminate standard performance measures for like The Redbud Health Care District sold its hospital in 1997. The Lake County grand jury has recommended special districts. two years in a row that the district be dissolved. But district officials told the Commission that citizens of the Health care districts in California are a district, public agencies, special districts, the Lake good example of where LAFCOs and County Board of Supervisors and Clearlake City community leaders at large need to Council support the continuation of the district. The take a stronger leadership role. district derives all of its revenue -- $400,000 annually – from property taxes. California has 24 health care districts that no longer operate hospitals. And The county administrative officer said there are three LAFCOs have not assertively reviewed paths to dissolution: Board initiated, LAFCO initiated or the need for these districts to exist, as citizen initiated. County supervisors have decided they do not want to be responsible for initiating an is expected of them under the law. unpopular action, preferring instead for the public to initiate the process. If empowered in the ways described in Finding 2, and armed with reliable The executive officer of the Lake County LAFCO said analytical tools as described in this the reason he had not initiated the dissolution process is that he is a private attorney with other duties, and no Finding, LAFCOs and local leaders can staff or resources to conduct such a study. He said if become the catalysts for a more the State wants LAFCO to conduct a study, the State efficient evolution of special districts. should give LAFCO the funds. The Lake County The following pages explore this issue LAFCO is an independent LAFCO with a $16,000 annual budget. in depth.

47 LITTLE HOOVER COMMISSION

Ailing Health Care Districts

California has 74 health care districts, formed mostly in the 1940s and ‘50s to build and operate hospitals and deliver health care in rural areas. Twenty four of those districts no longer operate hospitals, but continue to exist. Most of them collect property tax revenues.

As health care financing changed in the 1980s and ‘90s, public hospitals – especially those in urbanizing areas -- found it hard to compete with the big health systems and hospital chains. Many struggling district hospitals made decisions to affiliate or merge with providers like Sutter Health and Tenent HealthSystems. They leased or sold their hospitals and redefined their missions to survive. Others, like the Los Medanos Health Care District in Contra Costa County, closed their hospital doors and ceased to provide services.

The Commission, with the assistance of the Association of California Healthcare Districts (ACHD), surveyed those districts by mail. The Commission asked districts how their missions had changed, whether they had considered dissolution, and requested financial information. Of the 24 districts, 19 responded to the survey. The remaining five districts failed to respond, even after repeated requests. The survey questionnaire is in Appendix C.

The Commission found the following: q District missions: Sixteen districts reported that they changed their missions after they ceased to operate a hospital. Two districts report they are evaluating their missions following the sale of their hospitals. One district’s original mission included ambulance service, which it continues to provide. q Status of the hospitals: 410 were leased 47 were sold 42 were closed. According to ACHD, of the five districts that did not respond to the survey, four have closed their hospitals and one sold its hospital. q Property tax revenues: Fourteen districts reported receiving property tax revenues in 1998-99 totaling more than $17 million. Two districts did not respond to this question, but the State Controller’s office reports that they received a total of $1.5 million in property tax revenues in 1996- 97. Of the five districts that did not respond to the survey, the State Controller’s office reports 1996- 97 property tax revenues for three of them, for a total of $2.2 million.

q Expenditures: Ten districts say they spend at least 75 percent of their revenue on direct services to their community, while four provide revenue to the hospitals they previously owned. q Current district roles: All of the districts that have sold or leased their hospitals described continuing oversight roles relating to the terms of the lease or sale. For example, they ensure the hospitals are well-maintained, that necessary licenses are maintained, that the hospitals are operated for the benefit of the community, and that residents with unmet health care needs are served.

Ten districts have at least one district board member on the corporate board of the hospital they leased or sold. All five board members from the Eden Township district serve on the board of the hospital sold to Sutter Health. Some districts reported clearly the types of services they provide, including grants to local agencies and organizations. Others described health prevention and education services. For some districts oversight of the lease or sale was the only apparent function.

48 TO PROVIDE INFORMATION AND TRAINING

Bloss Memorial and Del Puerto health care districts have closed their hospitals. Del Puerto’s original mission included the operation of an ambulance service, which it continues to do. The district reports it is the only such provider in the area, serving approximately 20,000 residents. Notes to its 1999 financial statements indicate possible new services are in the planning and proposal stage.

The Bloss Memorial Health Care District reported that it operates three rural health clinics and a dental surgery center serving a population that is 90 percentMedi-Cal eligible. q Few districts have explored dissolution: Fifteen districts reported that they have not considered dissolution. Two reported that dissolution was considered, and two have been the subject of grand jury reviews.

The Petaluma Health Care District reported that dissolving the district was discussed after the hospital was leased in 1997. But the board decided at its first meeting following the lease to focus on community health and services other than the hospital. The Selma Health Care District reported that the board thought about dissolving the district, but abandoned the idea because it believes there are health care services it could provide. The district is considering providing teen pregnancy prevention and diabetes and other health education programs. No district reported having been the subject of a LAFCO study or request to consider reorganization. q Two grand jury reviews: Redbud and Camarillo Health Care Districts have been the subjects of county grand jury reviews. The Lake County grand jury recommended dissolution of theRedbud district, but local policy-makers are supporting the district and protesting the grand jury recommendation. The Ventura County grand jury recommended the Camarillo district continue to exist. It did, however, find that property owners are not “fully cognizant” of their annual tax contribution used to support the district. The grand jury recommended that the district annually set forth in its publications the per capita tax contributions of property owners. It also recommended the district establish definitive guidelines for the accumulation and use of its reserve fund. q The Los Medanos Community Hospital District: The Los Medanos district in Contra Costa County has been embroiled in a controversy over dissolution since the district went bankrupt and closed its hospital in 1994. While the board has remained split on dissolution, a citizen’s Committee to Dissolve Los Medanos Hospital District has collected enough signatures to bring the issue before the LAFCO. Since the hospital closed, the district has continued to conduct board meetings and collects roughly $1.5 million in property tax revenues annually. The district failed to respond to the Commission’s survey and to subsequent requests for a response.

When questioned in November 1999 about the role of the Contra Costa County LAFCO in the controversy, the LAFCO executive director explained that she had been involved in “informal talks” regarding the district for several years. She considered the district to be inactive, but did not know what facilities it still owned or any other details of its operation. She stated: “In general, Contra Costa LAFCO considers initiation as a last resort.” She explained that due to the board’s position (divided on dissolution), LAFCO would not initiate a dissolution. “Hostile” LAFCO-initiated reorganizations, she explained, are often “politically messy and expensive.”

49 LITTLE HOOVER COMMISSION

The Policy Debate The questions posed by these districts are whether they are performing important functions and whether an independent government agency is required to perform them. If the functions are critical, could a county department or non-profit agency perform the functions more efficiently? Supporters fear that if these districts are dissolved, the property tax revenues they generate will no longer be available to support important community public health needs.

Current Policy

Under current law, when a hospital district sells or leases 50 percent or more of its assets, the transfer must be approved by a majority of the voters in the district. But the vote on the sale or lease of the hospital does not involve a referendum on the fate of the district itself. In fact, most of the sale and lease agreements include provisions for a continued role for the district after the transfer of the hospital.

Dissolution under hospital district law (Health and Safety Code section 32121(p)(1)), unlike most other special district laws, requires approval by a majority of the voters within the district.

Dissolution can be initiated several ways: By citizens gathering signatures from registered voters; by LAFCO if it conducts the required study; or by the elected officials of the county or city in which the hospital exists. The Commission found no examples of LAFCO-initiated hospital district dissolution; a health care district in Needles is the only district to be put out of business by voters.

Depending on the circumstances, dissolution proposals could include the following: ü Identification of a successor agency such as the county, which would perform ministerial functions associated with debt payments, lease and sale agreement oversight, or provide health-related services previously provided by the district. In these cases, property tax received by the district would be reallocated to the successor agency providing the services. ü Dissolution of the district, but with no successor agency. In these situations the law requires that the property tax be returned to the State and reallocated by the State. The State is not required to reallocate the property tax to the area previously served by the district or to the respective county. Furthermore, there is no requirement that it be earmarked for health care services.

Few Incentives Exist to Dissolve Hospital Districts

Under current policy, there is little incentive for citizens or policy-makers to initiate the dissolution of a hospital district, even when it no longer operates a hospital. Knowing that the property tax dollars will be returned to the State citizens are unlikely to initiate a dissolution. Likewise, policy-makers have little or no incentive to pursue potentially unpopular actions that would either: 1) result in property tax revenue being returned to the State, or 2) even if they could keep the revenues locally they would have not have much flexibility about how it should be spent.

50 TO PROVIDE INFORMATION AND TRAINING

Evaluating Alternatives

When a health care district ceases to operate a hospital, it may indeed be time for the district to disappear. There may be instances where the unique circumstances and needs of the community argue against dissolution. But two missing elements prevent a case-by-case review: 1) objective information to enable policy-makers and the public to make informed decisions about whether the district should continue and, 2) incentives for the public and policy-makers to pursue reorganization of these entities. q Information is needed. Policy-makers and the public need information to permit them to understand what would be gained and what would be lost as a result of the dissolution of a district. A review that would provide answers to the following questions could facilitate that understanding: 3 What savings would accrue from the elimination of the elected board, including meeting stipends and other benefits, and overhead expenses? 3 What services would potentially be eliminated and how important are those to the community? 3 What other entities in the community could provide the services and at what cost? q Incentives are needed. For policy-makers and the public to expend the time and resources to dissolve a hospital district, especially in light of the vote requirement, incentives are needed. The most powerful incentive could be the knowledge that the revenue would remain locally, to be allocated according to the needs and desires of the community.

Currently, for a county to retain property tax revenue from a dissolved district with no successor agency, specific legislation must be enacted. Few counties go to the trouble. To provide an incentive for scrutinizing these districts, the State could change the law to return all or a portion of the property tax revenues to counties upon the dissolution of a special district.

Recommendations for Reform

The recommendations in this report would provide the scrutiny necessary to determine if these districts should continue or be dissolved. These recommendations, applied to hospital districts, would: q Require LAFCO review. As recommended in Finding 2, when the fundamental mission of a special district changes – such as when a hospital district sells, leases or closes its hospital – LAFCOs should be required to initiate a process to determine if the district should continue to exist. q Create analytical tools. As recommended in Finding 3, the State should develop a specific methodology for assessing which of these hospital districts should be dissolved and how remaining functions could be more efficiently administered. q Create Incentives. As recommended in Finding 5, the State could offer incentives for communities to reorganize districts that no longer operate hospitals. State legislation could return property tax revenues to counties upon the dissolution of a health care district that has no successor agency.

51 LITTLE HOOVER COMMISSION

Summary

Policy-makers and community leaders need analytical tools to help them assess the performance and organization of local government and to successfully identify and advocate for reorganizations when they are supported by the evidence. And they need access to training and technical assistance to successfully facilitate special district reorganizations. Research institutes such as the California Policy Research Center, and other public and private organizations, have the expertise to assist the State. They could develop and deliver reliable information and strategies to assist policy-makers and community leaders to make the best decisions and guide local government in the 21 st Century.

Recommendation 3: To equip policy-makers and the public with the tools necessary to assess and guide the organization of independent special districts, the Governor and Legislature should establish a program at the California Policy Research Center, or similar institute, to do the following:

q Develop guidelines and protocols for special district consolidations. The consulting research center should conduct research to identify conditions when consolidation or reorganization of special districts will result in cost-savings, improved service and other benefits.

q Study the long-term outcomes of consolidations and reorganizations. The consulting research center should review and quantify the long-term outcomes of special district consolidations and reorganizations.

q Establish a cadre of trainers. The consulting research center should establish a cadre of experts to provide training and technical assistance to LAFCOs, enabling them to perform periodic reviews and analyze and facilitate special district consolidations. They could also be called to advise in instances where conflicts arise between special districts and their customers.

q Develop performance measures. The consulting research center, in cooperation with the California Association of Local Agency Formation Commissions, California Special Districts Association and Special Districts Institute, should develop and encourage special districts to establish and report performance measures as a means of building public understanding and support.

52 UNDERSTANDING SPECIAL DISTRICT RESERVES

Understanding Special District Reserves

Finding 4: Hundreds of independent special districts have banked multi-million dollar reserves that are not well publicized and often not considered in regional or statewide infrastructure planning.

Independent special districts reported more than $19.4 billion in reserves to the State Controller in 1996-97, the most recent year for which this information is available. These retained earnings represent nearly 2½ times the annual gross revenues of these districts. These enormous public resources also are largely unknown and unexamined by the public or policy-makers, and are often not considered in statewide or regional infrastructure planning and financing. Enterprise districts – those districts that collect fees for services – hold most of the reserves. Special districts should be required to aggressively publicize their reserves and policy-makers should integrate them in infrastructure planning. Guidelines for the accumulation and use of prudent reserves should be established.

Financially Autonomous Governments

Independent special districts are financially autonomous units of local government with the same governing powers as other local governments. They can enter into contracts, acquire real property and issue debt. Enterprise districts can charge fees for their services.

And most special districts – enterprise and non-enterprise – establish reserves. While all districts operate under statutory authority, there are no specific provisions in district laws that govern the accumulation and use of reserves. Furthermore, there are no formal guidelines or widely accepted standards to guide special districts in the accumulation and use of reserves. Some districts establish formal reserve policies. But others do not, and make decisions year-to-year about how much money to bank.

Districts report reserves in annual financial statements to county auditors and in reports to the State Controller. Most districts prepare those reports using the Generally Accepted Accounting Principles (GAAP) for local governments, which describe in detail what is to be reported and how it is to be reported.

In the aftermath of the Orange County bankruptcy, the State required each county to establish an investment oversight committee to monitor

53 LITTLE HOOVER COMMISSION

county investment policies and practices. But no similar entity scrutinizes the investment practices of a county’s independent special districts. Nor is there any oversight by the State. Legislation has been proposed that would require all local government agencies to annually submit their investment portfolios to the California Debt Advisory Commission in the State Treasurer’s Office.

State law does prescribe the types of investments that local government agencies – including special districts – are permitted to participate in, and requires that they establish and annually review investment policies.43 Among the types of investments allowed by law are treasury notes, federal agency paper, short-term IOUs, money market funds, and state and county investment pools. According to the State Treasurer’s Office, much of the money invested by local public agencies, including special districts, is held in the state Local Agency Investment Fund (LAIF) and county investment pools. And while the law permits some discretion by local governing boards, the Treasurer’s Office believes that most districts, in the wake of the Orange County bankruptcy, tend to “err on the side of the conservative” in their investment practices. 44

How Districts Report Reserves

Enterprise Districts In financial statements and reports to the State Controller, enterprise special districts report the difference between revenues and expenditures as fund equity. Fund equity, in turn, is divided into contributed capital and retained earnings. A district’s retained earnings represent the equity that it derives through fees and charges from the provision of services. Contributed capital is equity obtained from other sources, such as facilities developers have built and contributed to a special district.

Retained earnings can include funds that districts designate as “restricted,” for example, to bond debt service; funds restricted by the board for capital projects; and funds otherwise restricted, sometimes legally committed, for a specific purpose. It can also include “unrestricted” funds for which there may be tentative plans or no plans. “Reserves,” as used in this report for enterprise districts, represents those funds identified in reports to the State Controller as retained earnings. It does not include equity reported as contributed capital. Non-enterprise Districts Non-enterprise districts report the difference between revenues and expenditures as fund balances. In governmental accounting, the fund balance includes the broad categories “reserved” and “unreserved” – with some subcategories within each. “Reserved” funds are set aside because the district has entered into a commitment in which it is obligated to make payment once a vendor or contractor delivers a product. “Unreserved” fund balances are not obligated and include “designated” and “undesignated” funds. “Unreserved designated” fund balances are those funds that have been set aside for a specific purpose, but where there is no binding agreement that the funds be spent for that purpose. “Unreserved undesignated” funds are those funds for which there is no committed or planned use. As used in this study for non-enterprise districts, fund balances include “reserved” and “unreserved” fund balance categories.

54 UNDERSTANDING SPECIAL DISTRICT RESERVES

Proposition 218, passed by the voters in 1996, provides that property- related fees – e.g. fees for water, sewer and refuse collection – may not exceed the cost to provide the service. And fee revenue may not be used for any purpose other than providing the property-related service. Taxpayer groups assert that Proposition 218 was intended in part to prevent districts from setting fees so high that large reserves can accumulate. Alternatively, the Legislative Analyst’s Office has asserted that fees that vary depending on usage, such as water, are not property- related fees and therefore are exempt from the provisions of Proposition 218.45 The Attorney General’s office also has issued opinions interpreting the Proposition, but the legal issues have not been settled. The Controller’s data, however, show that reserves of many enterprise districts are growing, indicating the revenue may be exceeding the cost of providing service. Reserves Are Not Well-Known to the Public

The financial autonomy of special districts, the lack of guidelines for the accumulation and use of reserves, and the existing reporting mechanisms present several problems for the public and policy-makers.

1. Some reserves appear unreasonably large.

Because district financial information is not widely disclosed or easily understood, the public and policy-makers are largely unaware of the existence and purposes of the reserves held by special districts. Some districts have amassed huge surpluses, often in multiple reserve funds. A former assistant county administrator and budget officer told the Commission: “I am astounded by the size of some reserves in cities and special districts.”46

The Metropolitan Water District of Southern California, for example, reported retained earnings of $4,046,288,932, as of June 30, 1999. The district told the Commission that its retained earnings are a component of its total equity and reflect the accumulated earnings of an enterprise fund since the district’s inception in 1929. The district’s operating revenues for the year ending June 30, 1999 were $708,881,000. The district’s retained earnings equaled 571 percent of its operating revenues for that period. The table in Appendix D provides information from the State Controller’s Office on the 25 enterprise districts with the highest retained earnings in 1996-97.47

The troubled Water Replenishment District of Southern California exemplifies the problem – and the consequences – when a district’s reserve policies do not reflect community sentiment. Authorized to replenish the groundwater in two major basins in Los Angeles County,

55 LITTLE HOOVER COMMISSION

the district collects assessments from the 43 cities that pump groundwater from the basins. With no requirement for disclosing financial information in a way that is easily understood, the district over 10 years accumulated $67 million in unreserved fund balances, an amount equal to 164 percent of its 1996-97 gross revenue.48

In challenging the district’s business practices, officials of the cities served by the district were astounded to learn the size of its reserves. The district is the subject of a critical report by the State Auditor, has been sued by the cities it serves, and has spent hundreds of thousands of dollars defending its activities in what district officials describe as “war.”

The WRD is a telling example of the consequences of policies that permit districts to operate in obscurity. The district, however, is not the exception among enterprise districts when it comes to large reserves that have not been publicly scrutinized.

The State Controller’s statewide special district financial data for 1996-97 shows:

Independent district retained earnings and fund balances: $19.4 billion Enterprise district retained earnings: $18.2 billion Non-enterprise district fund balances: $ 1.2 billion Number of districts reporting reserves in excess of $1 million: 645 Districts reporting reserves that exceed annual gross revenue: 1,343 Districts reporting reserves at least triple annual gross revenue: 592

Enterprise Retained Earnings Non-Enterprise Fund Balances in millions in millions $14,000 $200 $175 $11,800 $180 $12,000 $161 $160 $10,000 $140 $114 $8,000 $120 $99 $100 $74 $76 $6,000 $80 $4,116 $4,000 $60 $40 $2,000 $1,110 $20 $436 $592 $20 $6 $8 $8 $10 $13 $53 $0 $0 Reclam- Airport Comm. Harbor/ Utility San. Water Resour. Library Drain. Maint. Reclam. Comm. Pest Flood Cem./ Rec & Fire ation Svces Port Cons. Svces Abate. Memor. Park

Source: State Controller, data for enterprise district retained earnings and non-enterprise district fund balances. 1996-97 fiscal year.

2. District resources are not integrated into infrastructure planning.

Special districts are not required to participate in the development of county or city general plans or to cooperate and coordinate their activities with neighboring local governments. 49 And despite a renewed

56 UNDERSTANDING SPECIAL DISTRICT RESERVES interest in regional cooperation and headway in some areas of the state, many special districts still tend to pursue their own agendas, often focusing on parochial issues. As a result, special district finances and activities are often unknown to other policy-makers and not integrated in local, regional or state infrastructure planning and financing.

As a state, California faces an enormous infrastructure bill. The rising costs are driven by the growing population, the increasing price of land, and demands for new types of infrastructure – from computer networks in schools to treating polluted runoff. Consider: 3 The Department of Finance estimates unmet capital outlay needs at $40.4 billion over the next 10 years. That estimate does not include transportation. But it does include $18.2 billion in local projects that may require state funding.50 3 The California Business Roundtable estimates transportation needs at $15-25 billion over the next 10 years.51

3 The Legislative Analyst has raised concerns that the State will have increasing difficulty financing state infrastructure projects if it continues to finance local projects. Two-thirds of the $35 billion in state general obligation bonds approved by voters since 1986 have been for non-state facilities. 52 Water District Retained Earnings While efforts are underway to understand California’s infrastructure needs, the State has Water districts reported $11.8 billion in retained earnings in 1996-97, representing not comprehensively assessed the public 65 percent of the retained earnings of all infrastructure and developed long-term plans enterprise districts. for building and maintaining those projects. In 1996, California voters passed Proposition Similarly, communities and regions do not have 204, the “Safe, Clean, Reliable Water Supply an integrated process for assessing community Act,” a nearly $1 billion water bond measure. infrastructure needs, identifying resources In March 2000 another $1.97 billion bond available for financing those needs, and putting measure known as the “Safe Drinking Water, together plans for building and maintaining that Clean Water, Watershed Protection, and infrastructure. Flood Protection Bond Act” was passed by voters. Enterprise special districts play an important Neither measure was crafted to consider the role in providing infrastructure to their resources already available to water districts. communities. The issue is whether, given their The measures do not prevent districts with large reserves from tapping the funds. And financial resources, they could play an even some projects funded by the bond measures larger role, and whether they should ever turn will benefit districts with reserves or the to the state for financial help. capacity to raise their own infrastructure funds. Probably the most common reason why enterprise districts say they need large reserves is to pay for capital projects associated with building or renovating infrastructure. But the role and resources of these districts are often not adequately considered

57 LITTLE HOOVER COMMISSION

in discussions about how the state should meet its infrastructure needs and which projects should receive state support. Similarly, in many communities, the resources of water and Coachella Valley County Water District sanitation districts are not considered in discussions of related water quality projects. The Coachella Valley County Water District, an independent enterprise district in Riverside The executive director of the Association of County, reported $643,684,000 in retained California Water Agencies, for example, earnings to the State Controller in 1998-99, including $485 million in infrastructure. The argued for support of Proposition 13 on the district’s gross annual revenue that year was March 2000 ballot: “As the supply and $46,885,000. In 1996-97 it ranked in the top 25 quality of California’s water move closer to enterprise districts for retained earnings. Self- the brink, investments such as Proposition described as the most diversified water district in 13 become increasingly urgent priorities for the state, it is a Colorado River and State Water Project contractor, a domestic water retailer, the entire state. Our water, our economy performs groundwater management, sanitation, and our way of life face serious impacts irrigation, flood control and drainage functions. unless California takes action immediately.”53 When asked to describe its reserves, district staff identified more than 25 separate funds designated as restricted reserved. They When lawmakers and voters approved this included funds designated for construction, measure they committed future taxpayers to capital improvements, system replacement, the costs of paying off the bonds. For water importation, emergency repairs, debt Proposition 13 bonds the State will make service to the State Water Project, and others. principal and interest payments from the Asked if these various funds and their purposes could be readily identified in a review of the General Fund for about 25 years, with district’s financial statement, staff stated they average annual payments of about $135 could not. The district does not have a written million.54 Given the enormity of the policy on the accumulation and use of reserves. obligation, the resources of enterprise districts should be known to the public and policy-makers as they craft proposals and deliberate the fate of these measures.

3. Special district reserves are obscure.

Financial reporting rules do not require information to be presented in ways that would provide for the public or policy-makers to understand or scrutinize how districts use public funds in general, and reserves in particular. As described in Finding 1, financial information is neither easily understood nor widely distributed to the public and policy-makers.

For example, when the chief financial officer of a large water district was asked if he thought the public could understand the district’s financial statement or budget, he replied: “It is rare that the public can interpret the numbers.”55 He added that even the district’s board was unable to understand the documents. To facilitate the board’s understanding, the district began providing additional detail in attached “notes” to the financial statement. But no such help was provided for the public.

58 UNDERSTANDING SPECIAL DISTRICT RESERVES

Additionally, the Commission was told that there is too much “wiggle room” in the established accounting rules. Specifically, the accounting rules allow for inconsistent treatment of contributed capital and manipulation of reserve reporting.56 As an example, one district’s financial statement showed retained earnings of $2 million, while in fact the district had $3.5 million in cash. The flexibility in the accounting rules, which allows districts to record developer fees as revenue, where it shows up in retained earnings, or to record it as contributed capital where it does not, accounts for the discrepancy in this case. The accounting rules will change in 2003 to address this specific problem.

4. There are no guidelines for prudent reserves.

Some special districts establish formal reserve policies, while others do not. Among districts that do have policies, there is a wide variation of what is considered appropriate. The Commission talked with 10 enterprise districts that rank in the top 25 among all enterprise districts for retained earnings. Five of the districts reported that they have reserve policies, while five reported that they do not. When asked how long it took them to accumulate their retained earnings, all of the districts reported that retained earnings had accumulated since the formation of the district.

Four districts illustrate the variations in reserve policies that exist in the absence of guidelines. q Central Contra Costa Sanitary District. The Central Contra Costa Sanitary District provides wastewater treatment and sewer services to 425,000 residents in central Contra Costa County. It has a board- approved policy that targets 10 percent of the district’s annual operating expenses as a prudent reserve for extraordinary expenses. In 1999-2000, district reserves are budgeted to be $4 million. Operating expenses are budgeted at $34.4 million – resulting in a reserve just under 12 percent. The district has established 75 percent of one year’s capital expenditures as the target reserve to support capital project expenditures. In 1996-97, the district’s retained earnings were 427 percent of its annual gross revenue of $50,322,689. q Irvine Ranch Water District. The Irvine Ranch Water District provides domestic and reclaimed water to 150,000 residents in 123 square miles of Orange County. The district told the Commission that its replacement fund comprises a good portion of its reported retained earnings. However, the district could not tell the Commission an approximate dollar amount in that fund. The assistant to the general manager was also unable to provide the

59 LITTLE HOOVER COMMISSION

Commission with an established informal or written board policy on reserves. The district’s 1996-97 retained earnings represented 361 percent of its 1996-97 gross revenue of $77,399,000.

q Moulton-Niguel Water District. Moulton-Niguel provides water and sewer services to 151,000 residents in 36 square miles of Orange County. Moulton-Niguel’s chief financial officer identified seven separate funds designated as restricted reserved, totaling $58.4 million. The district has $161 million in unrestricted reserved funds, including some depreciation on infrastructure and other non-cash balances. The chief financial officer said the district has no policy on the accumulation and use of reserves. The district controller described a long-range plan that is reviewed annually or biennially. He stated that $22 million is reserved for future infrastructure and growth, some of which is earmarked for specific projects. Moulton Niguel’s retained earnings comprised 381 percent of its 1996-97 gross revenue of $56,749,289.57

q Water Replenishment District of Southern California. The Water Replenishment District serves 3.5 million residents in 420 square miles of southern Los Angeles County. It provides primarily ground water, with additional recycled and storm water sources. The State Auditor found that while the Water Replenishment District had a reserve policy, it was not a prudent one. The district consistently overestimated the amount of water it would need, the Auditor said, thereby inflating the estimated cost for replenishment activities. It purchased less water each year than it originally estimated, but in setting rates for subsequent years, it did not take into account the savings from the previous year. As a result, reserves continued to increase.58 In 1996-97, the district’s retained earnings represented 120 percent of its annual gross revenue of $40,892,140.

Overcoming Autonomy and Diversity

Independent special districts are both autonomous and diverse, and scrutiny of their prerogative to establish and maintain reserves is largely unwelcome. Taken together, these factors have conspired to deter examination and solutions. The Commission solicited input from special district officials, city government officials, and others to explore potential remedies. The Commission found that responses are needed on several fronts.

1. Developing solutions to particular problems.

The WRD controversy put a spotlight on special district reserves and spurred discussion about ways to address its problems specifically, and

60 UNDERSTANDING SPECIAL DISTRICT RESERVES special district reserves generally. Implementation of the reforms detailed in Finding 1 would make the financial activities and reserves of all districts more visible and, over time, could prevent abuses and excesses.

However, where abuses or excesses are identified, the first and preferable alternative is for community leaders and district officials to work together to resolve problems. Solutions should include the implementation of policies for the prudent accumulation and use of reserves.

Where local efforts to resolve problems fail, intervention by the State is often the next step. But that intervention is always costly and contentious. In the case of the WRD, the State Auditor told the Joint Legislative Audit Committee that an examination of the district would cost state taxpayers at least $87,000. In addition, the district has employed numerous lobbyists, lawyers and others to defend its policies and practices – costs ultimately borne by those it is suppose to serve.

The State Auditor recommended the district establish a reserve limit that the district disagreed with. In response, legislation has been proposed that would specifically prohibit WRD from imposing charges on its customers if its reserves exceed the $10 million recommended by the State Auditor.59

In the course of its study the Commission also received recommendations for another way to address the specific problems presented by the WRD. Neighboring water districts and the Southern California Water Company recommended that the governance structure of the WRD be modified to include representation on the board by water professionals of its major groundwater extractors. Legislation has been introduced to implement this reform. Additional public resources are sure to be expended by those advocating for these reforms and by the WRD in defending the status quo.

The Southern California Water Company also told the Commission that no organization needs a reserve the size of the WRD’s, but acknowledged that among special districts WRD is not alone in accumulating and maintaining large reserves. The water company, and others, encouraged the Commission to explore the issue further. 60

2. Determining and requiring prudent reserves.

In examining the issue of reserves, the Commission questioned why special districts need reserves, the purposes for reserves, and how guidelines for prudent reserves could be established.

61 LITTLE HOOVER COMMISSION

Interviews with district financial staff illuminated some of the rationale for maintaining these funds, and the different reserve categories that are used. Reserves are used to pay for or contribute to the costs of planned capital projects, to repair and maintain infrastructure, to purchase equipment, to cover emergencies, to provide a cushion for lean economic times and to cover debt obligations.

Unable to identify principles or accepted standards for establishing reserves by special districts, the Commission queried district and local government officials and their representatives about current practices and what they regard as advisable.

The general managers of the South Coast and El Toro water districts cite targets of 5 to 10 percent of annual operating expenses. When asked to describe common practices regarding reserves, they said district practices vary widely.61

For comparison, the League of California Cities said there are no benchmarks, industry standards or good recommendations for the accumulation and use of reserves by cities. League officials said that each city determines its policy and practice based on its financial strength (what it can afford) and its political will (what is acceptable to the public). The League said reserve policies and practices range from targets of zero to 25 percent of annual operating expenditures in the general fund; but they are aware of districts with GFOA Fund Balance Guideline reserves of 50 and even 100 percent. Officials described a 3 to 5 percent target among “a lot” of The Government Finance Officers cities, and “many” with targets between 5 and 25 Association recommends that 62 governments develop policies “to percent. Reserves, as so described, would not guide the creation, maintenance, and include funds legally restricted to specific purposes or use of resources for financial designated for capital projects, for instance. stabilization purposes.” It states that policies should establish how and The most frequently cited reason for the lack of when a government accumulates reserves and identify the purposes for guidelines, and the justification for not establishing which reserves may be used. It them, is the diversity among special districts. What is suggests that identifying minimum and prudent in one district may not be prudent in maximum reserve levels may be another, it is argued. For example, the need for advisable. reserves can depend in part on where the district is in its evolution. A young district with the expectation of expansive growth and capital improvements may need greater reserves than an older, built-out district whose expenditures are primarily maintenance and replacement. The need for reserves is also predicated on a district’s revenue certainty or uncertainty.

These arguments have merit, but they do not justify the current absence of guidelines that, coupled with the obscurity of many districts, nurture

62 UNDERSTANDING SPECIAL DISTRICT RESERVES environments ripe for abuse. Furthermore, enterprise districts have the ability to charge fees, making them less vulnerable to economic downturns and revenue uncertainty. It could be argued that they have less need for large reserves than districts without the ability to charge fees and, when necessary, raise fees to cover the cost of services.

Two efforts to define prudent reserves for cities may inform similar efforts for special districts: q Analysis of reserve policies among cities. Anita Lawrence, the finance director for the City of Camarillo, has long been concerned about the reserves held by cities. She told the Commission that cities are floundering when it comes to establishing policies on reserves.

She has surveyed cities with populations between 10,000 and 200,000 to identify their reserve policies and the criteria used to establish the policies.

Her preliminary analysis showed that when establishing reserves, several key elements were important: Cash flow, vulnerability to natural disasters, exposure to economic uncertainty, and potential impacts of state and federal actions. She agrees that the circumstances of individual entities should be considered, as well as the political attitudes of the community and governing body. She is adamant, however, that guidelines can and should be developed.

She expects to publish her findings in the Summer of 2000 and anticipates that they may be applicable to special district governments, as well. International City Managers Assn. q City of Lake Forest. The city of Lake Forest was concerned that despite efforts since its The International City Managers Association comes at the problem of incorporation in 1991 to establish reserves, it reserves from another angle. It still did not have any target level or goal. City recommends assessing the fiscal health leaders initiated a study in 1997 to try to answer of city governments in terms of the question: “How much should the city keep in solvency, and defines a city government its general fund reserves?” as solvent if it meets the following criteria: ü It has sufficient incoming revenues Using the financial data of cities that had to pay its bills for a year. received awards for their budgeting practices ü It has three months of operating from the Government Finance Officers expenses in reserve. Association, the study compared the city’s ü It is program solvent, meaning it can revenue data with that of other cities nationally, continue to provide services for statewide and within Orange County, with current and expected growth. similar revenue and population characteristics. Source: Thomas Gardner, Director, Vitetta Group.

63 LITTLE HOOVER COMMISSION

The study revealed that in all instances Lake Forest had a much higher percentage of reserves (76 percent of general fund revenues) than the average for cities in its category (20.4 percent). Based on the findings, it was recommended that the city establish its target general fund reserves at 30 percent of revenues.

A like methodology, using special district budget information available from county auditor controllers could provide important information about reserve practices among enterprise special districts, allow for comparison among districts, and advance necessary public dialogue about what is prudent.

The information and insights gained from the experiences of city governments may be instructive for policy-makers wrestling with how to determine and implement guidelines for special district reserves.

3. Making reserves visible.

As with special district finances generally, the biggest problem with reserves is that the public and policy-makers do not know about them. To hold districts accountable, prevent costly controversies and plan for infrastructure, the public and policy-makers need information about special district reserves – just as they do about other aspects of their finances and activities. While district officials should determine what is “prudent,” that judgement also should be made by community leaders and the public.

The State could enhance the visibility and understanding of district reserves by requiring that they be publicized in ways easily understood by the public. Reserve information, like other district financial data, should be easily accessible and routinely provided to the public and policy-makers. It should be highlighted in budget presentations at district meetings and meetings of city councils and boards of supervisors. It should be received by LAFCOs and state legislators, and available on Web sites as described in Recommendation 1. To make reserves easily understood, individual fund categories and their purposes should be clearly identified and explained in financial reports tailored to the needs of the public and policy-makers.

4. Integrating reserve information in infrastructure planning.

Some districts have been criticized for impeding effective regional planning and have exempted themselves fiscally and programmatically from the process. To make it possible for district reserves to be considered in local, regional and statewide infrastructure planning, the public and policy-makers must first be aware of the reserves and their prospective uses.

64 UNDERSTANDING SPECIAL DISTRICT RESERVES

The next step is to ensure that districts and their resources are in fact integrated in infrastructure planning and financing. In some cases, there may be infrastructure needs that can be met by districts if their missions or boundaries were expanded. In other cases, the customers of special districts may be the direct beneficiaries of regional or state infrastructure projects, and so those districts should contribute to the costs of projects. At a minimum, general-purpose governments, regional planning agencies and state policy-makers need to assess the resources of districts prior to developing bond measures and other infrastructure plans.

While potentially controversial, policy-makers must be fully aware of and consider the reserves held by special districts as they fashion comprehensive plans to meet the state’s infrastructure needs. As agents of the State, special districts and their resources should not exist in isolation and obscurity.

Summary

Democracy demands that the public and policy-makers have access to information that permits them to understand and assess the operation of all levels of government. This is especially true when the entities control significant public resources. Special districts, particularly enterprise districts, must be required to make information about their reserve funds visible. They must be required to participate with and have those resources considered by the public and policy-makers as they build California’s future. The following reforms would help prevent costly controversies and minimize expensive and time-consuming responses to individual problems.

Recommendation 4: The Governor and Legislature should enact policies that will ensure prudent management of special district reserve funds and incorporate these resources into regional and statewide infrastructure planning. Specifically, the State should require: q Districts to publicize their reserves. Districts should be required to clearly identify and publicly report, in terms understandable to the public, the size and purpose of reserves and how they are invested. The information should be included in budgets and audited financial statements, highlighted on district Web sites, reported to boards of supervisors and city councils and sent to customers, as described in Recommendation 1. Special districts also should be required to adopt and publicize policies for the accumulation and use of reserves by the district.

65 LITTLE HOOVER COMMISSION

q Policy-makers to integrate enterprise district reserve information into infrastructure planning. The services and assets of enterprise districts should be included in regional and statewide infrastructure planning. To this end, special districts should be required to coordinate their activities with other districts and general-purpose governments and to participate in the development of county general plans.

q Guidelines for prudent reserves. The Governor and Legislature should appoint a panel including experts in finance, management and government, and community representatives, to recommend guidelines for establishing and maintaining prudent reserves by special districts. The panel also should review the investment policies and practices of districts and determine if additional oversight is warranted.

66 PROPERTY TAX ALLOCATIONS TO ENTERPRISE DISTRICTS

Property Tax Allocations to Enterprise Districts

Finding 5: Property tax allocations to some enterprise districts create inequities among districts and distort the true costs of services. A significant portion of the property tax allocated to all enterprise districts subsidizes districts with the highest reserves.

Enterprise special districts that levied property taxes on their customers before Proposition 13 was enacted in 1978 continue to receive a portion of the property tax revenues that are now allocated by the State. The policy of sharing property tax revenue with some enterprise districts made sense immediately after Proposition 13 – which cut tax rates and severed the link between specific taxpayers and specific government agencies. With property tax revenue pooled at the State, there was some logic to divide it among agencies that historically received it. That policy, however, makes less sense with each passing day.

In 1996-97, enterprise special districts received $421 million in property tax revenue. A sizable portion of that revenue – more than $100 million – went to 15 enterprise districts that also had some of the largest reserves.

One consequence of this policy is the inequity among districts offering similar services. To some degree, all taxpayers are effectively subsidizing the services received by the customers of districts receiving property tax revenue. The policy also raises questions about the allocation of scarce resources among all agencies providing local services. Property tax revenue that goes to enterprise districts is not going to public safety, parks and recreation, libraries and other “non-enterprise” community Property Tax Allocations, 1997-1998 services that cannot recover their 60% costs through fees. Many of those 53.1% districts struggle to provide services 50% with declining resources. 40%

The State should reconsider the 30% allocation of property taxes to 18.3% enterprise districts generally, and 20% 10.7% should specifically examine those 8.8% 7.9% 10% districts that receive property taxes 1.2% and have large and growing 0% Cities Counties Schools Less than Special Redevelop- reserves. countywide districts ment

Source: Senate Committee on Local Government (1999), page 8.

67 LITTLE HOOVER COMMISSION

Historical Formulas

Property owners in California pay more than $20 billion in property taxes each year, making these revenues the third largest source of tax revenues in California.63 For public agencies, property taxes are a coveted source of revenue because of their predictability and relative stability over time. Policy-makers, however, continually grapple with issues of property tax equity, control and reallocation.

The Legislature, as authorized by the California Constitution, allocates property tax revenues to counties, cities, special districts, redevelopment agencies, community college districts and schools. The property tax base and tax rates are prescribed by the Constitution, while state statutes guide the allocation of the revenues. The allocation formulas are based on numerous statutes created over the years to address the impact, first of Proposition 13, and later, of the Educational Revenue Augmentation Fund (ERAF), which was created during the fiscal crisis of the early 1990s. The allocation system is commonly referred to as “AB 8,” after the legislation (Chapter 282, Statutes of 1979, L. Greene) that implemented the system. Schools, a state responsibility, receive 53 percent of all property tax revenues.

Allocations of the 1 percent property tax rate to special districts are based on policies adopted by the Legislature in the weeks following the passage of Proposition 13 in 1978. At that time, remaining property tax revenues were allocated based on shares of the property tax that agencies received from 1975-1978.64 Those agencies that had levied

Property Tax Allocated to Independent Enterprise Districts

in millions $200 $181 $180

$160

$140

$120 $99 $100

$80 $74

$60 $39 $40

$14 $20 $9 $2 $3 $0 airport CSD harbor/ hospital transit utility waste water port

# receiving 90 of 92 of 251 of 4 of 9 7 of 13 59 of 75 6 of 22 40 of 62 property tax 194 117 577

Source: State Controller, 1996-97 Property Tax Data, on file.

68 PROPERTY TAX ALLOCATIONS TO ENTERPRISE DISTRICTS higher rates to provide enhanced services prior to the passage of the initiative captured and continue to receive higher revenues. Agencies that levied lower or no taxes received lower or no revenues. The allocation formula, which cemented the differences in place, continues today. In 1997-98, special districts received 8.8 percent of property tax revenues. 65 Independent special districts received $437 million in 1996-97 – $420.6 million was allocated to enterprise districts and $16.7 million to non-enterprise districts. 66

The Legislature in 1987 recognized the inequity created by the formula and shifted some property tax revenue from counties to cities that previously received little or no property tax revenue. Policy-makers, however, did not include special districts in that reallocation of revenue.

Allocation Formulas are Outdated

The allocation of property tax revenues is difficult to administer and understand, complicating the work of policy-makers and confounding taxpayers. Formulas for allocating property taxes enacted in the late 1970s often fail to reflect the contemporary needs and desires of local communities. Formulas are now locked in place that provide subsidies to some districts, prevent others from delivering services that the public wants, and preclude understanding by the public of what their property tax buys and from whom.

The Legislature – in enacting AB 676 (Brewer) declared that California’s system for allocating property taxes is “seriously flawed.”67 It stated that the system does not reflect modern needs and preferences of local communities, or the relative need for funding by cities, counties, special districts, redevelopment agencies and schools to deliver their mandated and discretionary services.

Special districts are an important part of the growing debate over how to revise tax structures to improve the control by local communities of local resources and how to improve accountability of government to taxpayers. One issue is the role of independent special districts in providing specialized services. Revenue flowing to a district dedicated to a single purpose – such as abating mosquitoes – is not easily reallocated to other public health or even broader community needs. A second factor is that some districts can charge fees for services while others cannot. Among the resulting problems: q Inequities among enterprise districts. In 1996-97, 562 enterprise districts received $421 million in property tax revenue. Ninety-two of those districts received at least 25 percent of their gross revenue from

69 LITTLE HOOVER COMMISSION

property taxes. The remaining 549 enterprise districts had to rely entirely on fees – such as water and sewer rates – to cover the costs of providing service.

Prior to Proposition 13, districts could choose to assess higher property taxes on their particular customers rather than raise rates, and often did to pay off bonds used to finance capital projects. Proposition 13, however, rolled back property taxes to a uniform 1 percent of assessed value and limited the rate at which the valuation can be increased for tax purposes.

In the wake of Proposition 13, state policy-makers decided to distribute property tax revenue based on what districts historically collected, which prevented tax-dependent districts from having to drastically raise rates to cover expenses. The customers of those districts, however, were no longer paying higher rates, and so their service was effectively subsidized by taxpayers outside of those districts. And over time, the inequities have grown.

The reasons why districts relied on property taxes, and how they use that revenue now, varies greatly among the districts consulted by the Commission. In some districts property tax revenue was used to pay for project debt that has since been How Districts Use the Property Tax paid off. In other districts, the tax revenue is used to finance new capital Irvine Ranch Water District said that the district’s projects or to service debt that is property tax revenue is pledged to the payment of debt service. They added that the district has continually being “rolled over” to finance used property taxes to pay for its bonded new projects. indebtedness since the 1960s, and that it has bonds outstanding until 2033. In 1996-97, Several districts told the Commission property tax revenues represented 6.4 percent that their property tax revenue is used to of IRWD’s revenue. pay their bond debt service to the State San Bernardino Valley Municipal Water District, Water Contract. Others said the original in 1996-97, received 19.8 percent of its revenue purpose for their tax assessment no from property tax shares. The district reported it longer exists and the revenue is now allocated those funds to debt service on the State Water Contract and its own general used to offset rates or pay for specific obligation bond debt. operational costs. Most districts reported that eliminating their property Central Contra Costa Sanitary District received tax revenues would result in rate 11.1 percent of its revenue from property taxes increases to their customers. 68 None of in 1996-97. The district stated that it exercises discretion in allocating those revenues to capital the districts said they would scrutinize projects or to pay its bond debt. expenses to reduce costs or would contribute less to their growing reserves.

Some districts that perform primarily enterprise functions also perform non-enterprise functions. For example, the Santa Clara

70 PROPERTY TAX ALLOCATIONS TO ENTERPRISE DISTRICTS

Valley Water District imports water, recharges groundwater and wholesales water to cities and counties – all enterprise services that it charges fees to provide. It also is responsible for flood control, a non-enterprise activity that the district describes as heavily dependent on the property tax. Approximately 17 percent of the district’s revenue is property tax shares. Sixty-eight percent of that amount annually is allocated to non-enterprise flood control activities.69

Property tax revenues have allowed many enterprise districts to charge less than neighboring districts charge for a like service. In addition to the inequities created, this policy distorts the true cost of providing services. q Property tax revenues flow to some districts with large reserves. Among the enterprise districts receiving property tax revenues are some that have accumulated the largest reserves. Some 36 percent of all of the property tax revenue received by enterprise districts goes to just 15 districts that also are among the top 25 districts in terms of retained earnings. Those 15 districts are listed in the table below.

15 Districts are in the “Top 25” (In Millions) Property Tax as % of: For Both Retained Earnings Property Gross Retained Gross All Prop. Tax* to and Property Tax Revenue Tax Revenue Earnings Revenue Enterprise Districts Santa Clara Valley Water $17.3 $101.7 $391.0 17.0% 6.1% Inland Empire Utilities (San Bern.) $11.1 $63.8 $187.4 17.4% 3.9% Orange Co. Sanitation No. 3 $9.4 $37.7 $211.7 25.0% 3.3% Eastern Mun. Water (Riverside) $9.4 $104.8 $217.2 9.0% 3.3% Orange Co. Sanitation No. 2 $8.9 $35.9 $192.4 24.7% 3.1% Moulton-Niguel Water (Orange) $8.3 $56.7 $216.1 14.7% 2.9% Central Contra Costa Sanitary $5.6 $50.3 $214.7 11.1% 2.0% East Bay Mun. Utility (Alameda) $4.9 $266.4 $597.3 1.8% 1.7% Irvine Ranch Water (Orange) $4.9 $77.4 $279.6 6.4% 1.7% San Bernardino Valley Mun. Water $4.5 $22.9 $192.5 19.8% 1.6% El Dorado Irrigation (Alpine, Amador, $4.2 $28.1 $137.2 15.1% 1.5% Sac.) Coachella Valley Co. Water (Riverside) $4.1 $84.0 $281.2 4.9% 1.4% L.A. County Sanitation No. 5 $4.1 $38.0 $141.3 10.8% 1.5% San Diego Co. Water $3.9 $259.4 $435.0 1.5% 1.4% Calleguas Municipal Water (Ventura) $2.6 $67.9 $168.2 3.9% 0.9% Total $103.2 $1,295. $3,863. 8.0% 36.4%

*Does not include transit or hospital districts. Source: State Controller, 1996-97 retained earnings and property tax for enterprise districts, data on file.

q Property tax revenues fund districts that no longer provide the service for which the district was formed. In 1998-99, approximately $17 million in property taxes were allocated to 14

71 LITTLE HOOVER COMMISSION

health care districts that no longer operate hospitals.70 Five of those districts report spending less than 25 percent of their revenue on direct services in their community. Additional health care district information is contained in Finding 3.

q Non-enterprise districts have been hit the hardest. In the aftermath of the 1992-93 ERAF shift of funds from local governments to the schools, a number of non-enterprise and non-public safety special districts, which do not have the option of raising fees, have been impacted the most.

Counties and cities and some public safety districts have been granted relief through a number of measures – including Proposition 172, the half-cent sales tax increase for public safety services; state funding of trial courts; the state COPS program; and changes in state formulas for fines and property forfeitures. But non-enterprise districts that do not provide public safety services have not received comparable relief. Recreation and park districts have been forced to charge higher fees, reduce services and close facilities. Many small independent library districts have struggled to remain open.

Despite the losses experienced by non-enterprise districts, enterprise districts have continued to receive taxes based on the pre-Proposition 13 formula. While policy-makers have touched on the issue in a number of forums, the problems have not been resolved.

Of Enterprise Districts and Property Tax Revenues

The property tax revenue received by enterprise special districts is a small part of a much larger debate over the need to reform state and local finances. But as an issue, it can be separated and solved without fundamentally restructuring the state and local fiscal relationship. Numerous policy reviews have come to that conclusion, although few have been willing to instigate the controversy likely to ensue from a serious attempt to address this inequity.

J. Fred Silva, who has been involved in state fiscal policy-making for years and is now a government relations expert at the Public Policy Institute of California, testified:

What issues should be the focus of the Little Hoover Commission’s work… Finance issues. Focus on the financing of enterprise and non-enterprise districts. Specifically, review the use of the property tax to finance enterprise services.

In principal it is easy to say that enterprise districts should not receive property taxes. But the individual circumstances of special districts vary

72 PROPERTY TAX ALLOCATIONS TO ENTERPRISE DISTRICTS significantly. Any change in the status quo will be difficult and much of the applicable law is constitutional rather than in statute. As a result, the approach has to be more sophisticated.

Other studies of state and local government finance have considered property tax allocations to special districts. Alternatives have been discussed, but consensus on solutions has been elusive: q California Constitution Revision Commission. The California Constitution Revision Commission recommended the creation of a citizens charter commission on local government efficiency and restructuring in each county. The commissions would develop government services plans, reallocate local costs and revenues, and let the voters decide on new “Community Charters.” To foster local control, the non-school share of the property tax would be allocated by the charter, not state law. q The Commission on Governance for the 21st Century. The commission heard testimony on property tax allocations to enterprise districts, but did not examine the issue in depth. In its final report, Growth within Bounds, the commission suggested that “future government reformers may wish to consider reallocating a portion of property tax revenues currently accruing to enterprise districts….” 71 q Speaker’s Commission on State and Local Government Finance. The commission heard that there is inadequate public understanding of which agencies receive property tax allocations. It recommended that to increase public understanding of how local services are funded that a state agency or county auditors report the amount of property tax revenues that individual agencies receive and the services funded by that revenue. 72 q Senate Committee on Local Government. The Senate Committee on Local Government identified property tax allocations to enterprise special districts as one of four policy issues on this topic that lawmakers will grapple with in 2000. The committee raised the following policy questions in its summary report of the September 1999 interim hearing:73

3 Should the Legislature stop enterprise districts from subsidizing their operations with property tax revenues?

3 Should the Legislature reallocate property tax revenues from enterprise districts to other local governments, including non- enterprise districts?

73 LITTLE HOOVER COMMISSION

3 If so, should the Legislature phase-out these subsidies to avoid price increases?

q Legislative Analyst. In AB 676, the Legislature directed the LAO to identify alternatives for restructuring the property tax allocation system to accomplish three goals: 1) increase taxpayer knowledge of the allocation of property taxes; 2) provide greater local control; and 3) correct the skewed land use incentives faced by local governments. Among the LAO’s conclusions:74

3 The current property tax allocation system presents particular problems for cities and counties that provide municipal services through independent special districts. Local officials and citizens, lacking the authority to change the allocation of property taxes, are stuck with formulas that do not reflect the current priorities of the community. The LAO cites as examples water districts that continue to receive property taxes based on 25 year-old formulas. They continue to receive tax revenues despite changed community needs and the general trend for water and other enterprise services to be funded by user charges rather than general taxes.

3 Special purpose agencies vs. general purpose governments is one of four key tensions inherent in local finance and property tax allocation system reform proposals.

3 State laws controlling the allocation of property taxes may have discouraged some special purpose governments, such as water and sanitation districts, from evolving away from property taxes to user fees.

Among the LAO’s alternatives: Maintain property tax rate stability, state control over tax allocation and the current role of special district governments. Shift the emphasis toward local control of the property tax rate and therefore modestly toward general purpose government. Shift the emphasis significantly toward general purpose government by making property taxes formerly allocated to special districts available to cities and counties as general purpose revenues. And finally, promote general purpose government by assigning responsibility for providing all local services to cities and counties, which could in turn delegate responsibilities to special districts.

The LAO expressed optimism that despite the failures of past efforts reforms could be accomplished if policy-makers are mindful of three considerations: 1) No perfect solution exists; 2) Solution of the problem requires focused attention; and 3) funds are needed.

74 PROPERTY TAX ALLOCATIONS TO ENTERPRISE DISTRICTS

The alternatives contained in the LAO report – and the work of other commissions and Property Tax Allocation Policy Questions task forces that have reviewed the issue – Because of the diversity of districts, any could advance the goal of meaningful tax reallocation of property tax revenues will likely allocation reform, including property tax have to be based on a case-by-case review of allocations to enterprise districts. Those who districts and how they use that revenue. Among have studied the issue and witnessed first- the questions that should guide these public decisions: hand the difficulty that policy-makers have with resolving it told the Commission that 3 How do property tax allocations impact rate policy-makers have the information needed structures and exaggerate inequities among to begin to make reforms now. ratepayers? Between big and small users? Between commercial and residential users? Between low-income users who have trouble The Little Hoover Commission also found paying for essential services and customers that a relative handful of enterprise districts who do not? with the highest reserves receive a 3 How do property tax allocations factor into the substantial portion of the property tax abilities of enterprise districts to build and use allocation to all enterprise districts. These reserves? are resources that might be better allocated 3 What is the history of property tax use by to reflect present-day community needs and districts? Is it tied to specific projects? Would priorities. The Legislature could address user fees more appropriately fund those these possible inequities now and, at the projects? same time, contribute to the larger analysis 3 If the community could, would it reallocate this of property tax allocations to enterprise revenue to a higher public priority? districts.

Alternative mechanisms that would permit a case-by-case review of property tax allocations to enterprise districts, include: q Joint legislative review. The Legislature, through the Joint Legislative Sunset Review Committee, has provided valuable scrutiny to the licensing boards within the Department of Consumer Affairs. The systematic review provided for detailed evaluations of individual boards, and provided for the Legislature a basis for making case-by- case changes to the entities. A similar review of enterprise districts with large reserves and large property tax allocations could be an effective means of assessing changes on a district-by-district basis. q State Auditor Review. The Legislature could direct the State Auditor to examine enterprise special districts that receive property taxes and that have the highest reserves. The Auditor could be directed to assess how the property tax revenue is used, whether those functions could be funded through established fees, and the potential for a reduction in property taxes to be offset by more efficient operations on the part of the district.

75 LITTLE HOOVER COMMISSION

q Reviews by County Supervisors. The State could encourage and empower county boards of supervisors to initiate audits and public examination of enterprise districts that receive property tax revenues. As an incentive, counties that conduct reviews and reach conclusions that the property tax revenue could serve a higher community need could be allowed to reclaim and reallocate that revenue. Summary

Property tax allocations to enterprise special districts are just one of many issues that must be considered in any comprehensive analysis of the current property tax allocation system. But lawmakers should specifically review property tax allocations to enterprise special districts – particularly those districts with the largest reserves. A number of mechanisms could be used to explore these issues on a district-by- district basis, including ones that would allow state or local officials to determine if the revenue should be reallocated elsewhere.

Recommendation 5: Policy-makers should scrutinize the appropriateness of maintaining property tax allocations to enterprise districts. Among the alternatives:

q Annually review the level of property tax support. The Controller could annually report the property tax revenue distributed among enterprise districts with the largest reserves. With the assistance of the Legislative Analyst, and as part of the budget process, the Legislature could decide whether to continue or modify this allocation of property taxes.

q Examine all allocations to enterprise districts. The Legislature could appoint a task force to examine how individual enterprise districts use property tax revenues. The task force could identify districts that should continue to receive the revenues, those that should receive smaller allocations, and those that should no longer receive property tax revenue.

q Require a state audit of some districts. The Legislature could require the State Auditor to examine enterprise districts that receive property taxes and also have the highest reserves. The Legislature could then take specific action to reduce or eliminate the allocations to those districts without a strong rationale for tax funding.

q Allow counties to reclaim and reallocate property tax revenues. The Legislature could provide a mechanism for counties, following a public review process, to reclaim property tax revenues from

76 PROPERTY TAX ALLOCATIONS TO ENTERPRISE DISTRICTS

enterprise districts and reallocate those funds to meet contemporary community needs and priorities. q Enhance public understanding of property tax allocations. Property tax bills should identify for taxpayers the independent special districts that provide services to them, along with the tax allocation, reserves and other financial information about those districts.

77 LITTLE HOOVER COMMISSION

78 CONCLUSION

Conclusion

Through this review, the Commission has come to understand that thousands of special districts provide valuable services to millions of Californians. But it also found reason to be concerned that the government closest to the people is not always visible or accountable to the people.

When special districts first emerged, they were state-of-the-art government. All of their attributes were tailored to the unique needs of their communities – their boundaries, their functions, their governance and their finances.

Need irrigation water to make the desert bloom? The first step was to create a special district. Need port facilities to capture international trade, form a district. Want to stop encephalitis, form a district. Inspired to build strong bodies and strong minds, form a park district and a library district.

Many of these independent government entities continue to evolve in ways that increase their value and relevance to the citizens they serve.

But others are reluctant to change and to open themselves to scrutiny. Their boundaries are meaningless relics of communities that have lost distinctions. They spend money on their defined missions, regardless of other community needs. In some cases, they hold vast financial reserves that have simply not been publicly examined. In extreme cases, the governing boards are only “governing” contracts with private service providers.

In some cases, small districts that were created to serve once-isolated communities should be merged to efficiently provide services to large urban areas. In a few cases, the districts as separate units of government are no longer warranted and should be put out of business.

In this report, the Commission did not make judgments about individual districts. Not because these districts shouldn’t be judged, but because they should be judged by the citizens they serve. The problem is the public and community leaders often do not have the information necessary to determine whether the quality of service is good, the price is fair, and the choices made by special districts reflect the priorities of their communities.

79 LITTLE HOOVER COMMISSION

The Commission found this scrutiny and evolution occurring in communities where special districts are well known to the public and where Local Agency Formation Commissions are assertive catalysts for change.

The Commission’s recommendations call for state policy-makers to help special districts function in ways that would reconnect them to their communities. The recommendations also would provide local agency formation commissions with the structure, the resources and the tools necessary to be the force of change that the State expects them to be. And the recommendations provide mechanisms and incentives for examining on a case-by-case basis some nagging issues – including an inequitable reliance on property taxes by some enterprise districts.

80 APPENDICES & NOTES

Appendices & Notes

81 LITTLE HOOVER COMMISSION

82 APPENDICES & NOTES

Appendix A

Little Hoover Commission Public Hearing Witnesses

Witnesses Appearing at Little Hoover Commission Special Districts Public Hearing on June 24, 1999

Fred Silva Advisor, Governmental Relations Dana M. Smith Public Policy Institute of California Executive Director Orange County Local Agency Formation Stephen P. Morgan Commission Professor, University of Southern California, Sacramento Center and Phil Batchelor California State University, Hayward County Administrator Contra Costa County Thomas M. Gardner Director of Public Management Consulting Herb Moniz, Vitetta Group City Manager City of San Ramon Harry Ehrlich, President California Special Districts Association and Deputy General Manager of Capital Programs Olivenhain Municipal Water District

Witnesses Appearing at Little Hoover Commission Special Districts Public Hearing on August 26, 1999

Keith McCarthy John S. O’Farrell Mayor Executive Officer City of Downey Sacramento County Local Agency Formation Commission Marc Titel City Council Member Michael Dunbar City of Lakewood General Manager South Coast Water District Robert Goldsworthy President, Board of Directors Kenneth Frank Water Replenishment District of Southern City Manager California City of Laguna Beach

Edward C. Little Joyce Crosthwaite Member, Board of Directors Former Assistant Executive Officer West Basin Municipal Water District Orange County Local Agency Formation Commission Charles A. Horel President, Board of Directors Dana M. Smith American River Fire District Executive Officer Orange County Local Agency Formation Dean O. O’Brien Commission President, Board of Directors Sacramento County Fire District James Evans President, Board of Directors Midway City Sanitary District

83 LITTLE HOOVER COMMISSION

84 APPENDICES & NOTES

Appendix B

Little Hoover Commission Special Districts Survey Questionnaire Director/Trustee Benefits and Compensation

Please respond to the following questions. You may use this form and return it in the enclosed envelope, attaching additional pages if necessary, or respond by e-mail to [email protected], using the same format. Thank you for your assistance.

District:

Survey Respondent Name & Title: Phone number:

(1) What services does the district provide?

(2) How many directors/trustees serve on the district board of directors?

(3) How often does the board meet?

(4) How many subcommittees does the board maintain? a) Number of subcommittees: ______

b) How often does each subcommittee meet?

(5) On average, how much time do directors/trustees spend per month preparing for board and subcommittee meetings and conducting board activities?

85 LITTLE HOOVER COMMISSION

(6) Do directors/trustees receive daily compensation for board and subcommittee meeting attendance? Yes _____ No ______If no, go to question 7.

a) What is the district’s daily compensation rate to directors/trustees for meeting attendance? $ _____

b) What is the maximum number of days in a month for which a director/trustee can be compensated for meeting attendance (include subcommittee meetings)? No. of days: ______

c) What was the total dollar amount of daily compensation paid to directors/trustees for meeting attendance (include subcommittees) in fiscal year 1998-99? $______

(7) Does the district send directors/trustees to continuing education opportunities such as conferences, seminars and other workshops? Yes _____ No______If no, go to question 8.

a) What was the total amount paid by the district for director attendance at conferences, seminars or workshops in fiscal year 1998-99? Please include registration fees, travel, per diem and any other costs associated with such attendance that were paid by the district. $______

(8) Does the district provide health benefits to directors/trustees? Yes _____ No ______If no, go to question 10.

a) Does the district extend these benefits to spouses and/or dependents of directors/trustees? Yes_____ No ______

b) What was the total amount expended by the district in fiscal year 1998-99 for health benefits for directors/trustees and their spouses and/or dependents? $ ______

86 APPENDICES & NOTES

(9) Does the district provide health benefits to any former directors/trustees? Yes_____ No _____ If no, go to question 10. a) If yes, please describe the coverage provided.

b) What was the total amount paid by the district in 1998-99 for health benefits for former directors/trustees? $______

(10) Do district directors/trustees receive life insurance benefits? Yes_____ No ______If no, go to question 11. a) If yes, describe the type of policy provided.

b) Is this benefit extended to former directors/trustees? Yes_____ No ______

c) What was the total amount expended by the district in 1998-99 for life insurance benefits for current and former directors/trustees? $______

(11) Do district directors/trustees receive any other benefits or compensation? Yes_____ No ______If yes, please explain.

87 LITTLE HOOVER COMMISSION

(12) In the last 10 years, has your district considered reorganization activities such as consolidation, intergovernmental agreements, annexation or others? Yes____ No ____ Please explain.

(13) In your experience, have benefits and compensation provided to directors/trustees ever been a deterrent to district consolidation or reorganization? a) Yes____ No ____ Please explain.

b) Please describe any other issues that have been a deterrent to consolidation or reorganization efforts.

Thank you for completing this questionnaire. Please return it to the Little Hoover Commission in the enclosed envelope by November 19, 1999, or by e-mail using the same format. If we do not receive your response by the above date, Commission staff will contact you to conduct the survey by telephone.

88 APPENDICES & NOTES

Appendix C

Little Hoover Commission Health Care Districts Survey Questionnaire

Please respond to the following questions. You may use this form and return it in the enclosed envelope, attaching additional pages if necessary, or respond by e-mail to [email protected], using the same format. Thank you for your assistance.

District:

Survey Respondent:

(1) When was the district formed and what was its mission when formed?

(2) What is the district’s current mission? If different from the original mission, when and why did it change?

(3) If the mission of the district changed, has the board of trustees or other district or agency explored dissolving the district? If yes, please describe what actions have been taken in this regard and the status of these efforts. If no, please describe why not.

(4) Who does the district serve and what are the most important services provided by the district?

(5) Do other local entities provide the same or similar services? Yes_____ No_____ If yes, please identify the entities.

89 LITTLE HOOVER COMMISSION

(6) Has the district formed partnerships with other local agencies to deliver services? Yes_____ No_____ If yes, please identify the agencies and types of services provided collaboratively.

(7) Please provide the following information regarding the district’s budget for fiscal years 1995-96 through 1999-2000: Anticipated 1995-96 1996-97 1997-98 1998-99 1999-2000 a) Gross revenue $ $ $ $ $ b) Property tax allocation received $ $ $ $ $ by the district c) Other sources of revenue (include source and $ amount) d) Retained earnings or reserve $ $ $ $ $ funds

(8) What percentage of the district’s revenue is expended on direct, health-related services in the community?

(9) What happened to the acute care hospital once administered by the district?

(10) What role, if any, does the district continue to play in the governance or monitoring of services provided by the hospital?

90 APPENDICES & NOTES

(11) If the hospital previously administered by the district is now administered by another entity, does the district provide any revenue to the hospital? a) Yes_____ No _____ If yes, what dollar amount?

(12) How many trustees serve on the district board?

(13) How often does the board meet and what is the district’s daily compensation rate to trustees for meeting attendance?

(14) On average, how much time does each trustee spend per month preparing for meetings and conducting board activities?

(15) What was the total dollar amount of daily compensation paid to trustees for meeting attendance (including subcommittees) in fiscal year 1998-99?

(16) Does the district send directors to conferences, seminars and other workshops? a) Yes______No______If no, go to question 17.

b) What was the total amount paid by the district for trustee attendance at conferences, seminars or workshops in fiscal year 1998-99? Please include registration fees, travel, per diem and any other costs associated with such attendance that were paid by the district.

(17) Does the district provide health coverage to trustees? a) Yes _____ No ______If no, go to question 19.

b) Does the district extend these benefits to directors’ spouses and/or dependents? Yes_____ No ______

c) Please describe the coverage provided.

d) What was the total amount expended by the district in fiscal year 1998-99 for health benefits for trustees and trustees’ spouses and/or dependents?

91 LITTLE HOOVER COMMISSION

(18) Does the district provide health benefits to any former trustees? a) Yes_____ No _____ If no, go to question 19. If yes, how many? ______

b) What was the total amount paid by the district in fiscal year 1998-99 for health benefits for former trustees?

(19) Does the district provide life insurance benefits to trustees? a) Yes_____ No ______If no, go to question 20. If yes, describe the type of policy provided.

b) Is this benefit extended to former trustees? Yes_____ No ______

c) What was the total amount expended by the district in 1998-99 for life insurance benefits for current and former trustees?

(20) Do any trustees of the district also serve as directors or trustees of the acute care hospital once operated by the district? Yes _____ No ______If yes, how many? ______

Thank you for completing this questionnaire. Please return it, the1998-99 district audit, and the district business and strategic plans to the Little Hoover Commission by November 8, 1999.

92 APPENDICES & NOTES

Appendix D

Enterprise Districts with the Largest Retained Earnings

Retained Earnings Gross % of Gross County Name Revenue Dollars Revenue 1. Los Angeles Metropolitan Water District of So. Calif. $916,495,658 $3,592,609,447 392%

County Sanitation No. 2 Refuse 2. Los Angeles $234,486,701 $638,272,450 272% Disposal - Working Capital Funds Alameda & 3. East Bay Municipal Utility $266,448,000 $597,332,000 224% Contra Costa 4. Imperial Imperial Irrigation $252,356,744 $561,988,395 223% 5. San Diego San Diego Unified Port $149,404,265 $496,430,559 332% 6. San Diego San Diego County Water Authority $259,383,247 $435,049,278 168% 7. Santa Clara Santa Clara Valley Water $101,664,957 $391,029,634 385% 8. Contra Costa Contra Costa Water $87,587,842 $360,869,552 412% 9. Sacramento Sacramento Regional County Sanitation $101,240,872 $345,276,046 341% Riverside, 10. Imperial & San Coachella Valley County Water $84,023,076 $281,262,098 335% Diego 11. Orange Irvine Ranch Water $77,399,000 $279,625,000 361% Sacramento & 12. Sacramento Municipal Utility $735,039,025 $217,234,482 30% Placer Riverside & 13. Eastern Municipal Water $104,786,335 $217,181,106 207% Orange 14. Orange Moulton-Niguel Water $56,749,289 $216,127,257 381% 15. Contra Costa Central Contra Costa Sanitary $50,322,689 $214,723,540 427% 16. Orange County Sanitation No. 3 $37,730,251 $211,669,228 561% 17. Alameda Union Sanitary $38,500,000 $202,442,000 526% San Bernardino 18. San Bernardino Valley Municipal Water $22,854,120 $192,483,302 842% & Riverside 19. Orange County Sanitation No. 2 $35,915,857 $192,442,891 536% 20. San Bernardino Inland Empire Utilities Agency $63,787,832 $187,371,675 294% 21. Ventura Calleguas Municipal Water $67,863,150 $168,164,580 248% 22. Los Angeles County Sanitation No. 5 $38,002,041 $141,306,672 372% El Dorado, 23. Alpine, Butte & El Dorado Irrigation $28,079,246 $137,229,187 489% Sacramento 24. Solano Vallejo Sanitation and Flood Control $18,939,348 $136,949,813 723%

25. Alameda Alameda County Water $49,280,900 $133,227,500 270%

93 LITTLE HOOVER COMMISSION

94 APPENDICES & NOTES

Notes i. The retained earnings presented in this report were provided by the State Controller’s office. Prior to the release of the report, the Controller’s office asserted that its definition of retained earnings did not include fixed assets or infrastructure. As part of its research, the Commission contacted several districts, which confirmed the accuracy of the Controller’s information. Subsequent to the report’s release, the Commission has become aware that some districts include some of their fixed assets in the values they report to the Controller as retained earnings. The Controller’s office now believes that to accurately separate fixed assets from other retained earnings would require a detailed case-by-case analysis. 1. Kenneth Frank, city manager, city of Laguna Beach, personal communication, Jul. 1999. 2. State Controller, 1996-97 data on special district retained earnings and fund balances, on file. The term reserves refers to retained earnings, fund balances, or a combination. 3. California Government Code, Section 56036. 4. Senate Local Government Committee, What’s So Special About Special Districts? A Citizen’s Guide to Special Districts in California, Second Edition, Nov. 1993. 5. Senate Local Government Committee, 1993. 6. Counts taken from data on gross revenues and reserves, State Controller, 1996-97 data requested by the Commission, on file. 7. State Controller, 1996-97 data requested by the Commission, on file. 8. State Controller, 1996-97 data requested by the Commission, on file. 9. California Government Code, Section 12463.1. 10. California Government Code, Section 12463.1. 11. California Government Code, Section 56001. 12. Former Assembly Speaker Curt Pringle, personal communication, Jul. 1999. 13. Steve Hayashi, General Manager, Union Sanitary District, personal communication, Mar. 1999. 14. Office of State Senator Polanco, personal communication, Mar. 2000. 15. Paul G. Lewis, Deep Roots: Local Government Structure in California. Public Policy Institute of California, 1998. 16. Stephen P. Morgan, The Impact of Special District Reorganization, dissertation presented to the faculty of the School of Public Administration, University of Southern California, Aug. 1996. 17. John Bahorski, City Manager, City of Dana Point, personal communication, Jul. 1999. 18. Latent powers are those powers which are authorized in statute but are not exercised by the district. 19. Commission on Local Governance for the 21 Century, Growth Within Bounds, Jan. 2000. 20. Nancy Burns, The Formation of American Local Government: Private Values in Public Institutions (1994), page 12. 21. The Commission collected special district and city council elections data from Sacramento and Contra Costa counties. In Contra Costa, there was insufficient data available to calculate voter participation rates over time. Due to the reporting format, voter registration information was only consistently available for odd-year elections, which tend to have lower turnout than general elections. Information on unopposed candidates and appointees also

95 LITTLE HOOVER COMMISSION

was unavailable from Contra Costa County. As a result, the Commission has reported voter participation and detailed information on uncontested seats for Sacramento County only. 22. Detailed information on unopposed candidates and appointees was not available from Contra Costa County. 23. The differences between city council and each type of special district elections are significant for a 99% confidence interval, using a two sample t-Test assuming unequal variances. 24. In districts or city councils that elect by division, each division is counted as a separate election. Elections to fill short-term vacancies are also counted separately from the full- term elections for the same districts. 25. In many special district and city council races, several seats are available, and voters have the option to vote for multiple candidates. One item, for instance, may direct the voter to “vote for no more than 3.” The Commission determined the voter participation rate by comparing the total number of votes cast to the total number of votes possible if all eligible registered voters had voted for all available seats (“allowed” votes). The resulting number is the average number of votes cast per registered voter. There are many reasons why voters may choose to cast only a portion of their allotted votes. In some instances, voters may feel uninformed about the candidates or district. In other cases, they may not want to support candidates who could nudge out their top choice. 26. Differences are significant for a 95% confidence interval. 27. Commission on Governance for the 21 Century. 28. Commission on Governance for the 21 Century. 29. Commission on Governance for the 21 Century. 30. Does not include Orange County dependent districts, as this information was not available from the county. 31. Fran Sutton, executive officer, Stanislaus County LAFCO, interview, Oct. 1999. 32. Commission on Governance for the 21 Century. 33. George Spiliotis, executive officer, Riverside County LAFCO, interview, Nove. 1999. 34. The Commission requested the total amount spent by each district on meeting stipends, health and life insurance benefits in 1999. For comparative purposes, these figures have been converted to average expenditures per board member. Several districts did not report the requested information on meeting compensation total expenditures. When possible, this data has been extrapolated from the district’s reported meeting stipend and average number of meetings per month. 35. Mike Dunbar, general manager, South Coast Water District, Little Hoover Commission Survey response, Nov. 1999. 36. Personal communication, Mar. 24, 2000. 37. Kevin P. Eggleston, fire chief, San Miguel Consolidated Fire Protection District, Little Hoover Commission Survey response, Nov. 1999. 38. Joyce Crosswaithe, former assistant executive officer, Orange County LAFCO, personal communication, Dec. 1999. 39. George Spiliotis, Riverside County LAFCO executive officer, interview, Nov. 1999. 40. Theodore H. Poister and Gregory Streib, “Performance Measurement in Municipal Government: Assessing the State of the Practice,” Georgia State University, Public Administration Review, Jul./Aug. 1999, Vol.59, No.4.

96 APPENDICES & NOTES

41. Theodore H. Poister and Gregory Streib. 42. Theodore H. Poister and Gregory Streib. 43. California Government Code, Section 53601 et seq. 44. Pat Beal, State Treasurer’s Office, personal communication, Apr. 2000. 45. Marianne O’Malley, Legislative Analyst’s Office, personal communication, Mar. 2000. 46. Thomas M. Gardner, DPA, Director, Vitetta Group, personal communication, Jun. 1999. 47. The description of the Metropolitan Water District’s retained earnings is based on written response to the Commission’s questionnaire. Subsequent to the release of the report, MWD provided written clarification that its $4 billion in retained earnings includes some of its infrastructure. The district reported a $921 million cash and investment balance as of June 30, 1999. 48. California State Auditor, Water Replenishment District of Southern California, Dec. 1999. 49. California Government Code, Section 65350 et. seq. 50. California Department of Finance, Capital Outlay & Infrastructure Report, 1999. 51. California Business Roundtable, Building a Legacy for the Next Generation, Aug. 1998. 52. Legislative Analyst’s Office, Overhauling the State’s Infrastructure Planning and Financing Process, Dec. 1998. 53. Stephen K. Hall, executive director, Association of California Water Agencies, Letter to the Editor, Sacramento Bee, 2000. 54. Legislative Analyst’s Office, Ballot Proposition Analysis, Proposition 13, for Election Tuesday, Mar. 7, 2000. 55. Rudy Muravez, Chief Financial Officer, Santa Clara Valley Water District, personal communication, Jan. 27, 2000. 56. Joe Aguilar, Principal, Vavrinek, Trine, Day & Co., LLP, personal communication, Mar. 2000. 57. Dave Hawley, chief financial officer and Tom Hammatt, controller, personal communication, January, March 1999, Apr. 2000. 58. California State Auditor, Dec. 1999. 59. California State Auditor, Dec. 1999. 60. Joseph F. Young, written correspondence to the Little Hoover Commission, Sep. 1999. 61. Mike Dunbar, general manager, South Coast Water District and Ron Kennedy, general manager, El Toro Water District, personal communication, Mar. 1999. 62. Dan Harrison, Asst. Director, Administrative Services, League of California Cities, personal communication, Jan. 2000. 63. Legislative Analyst report, Reconsidering AB 8: Exploring Alternative Ways to Allocate Property Taxes, Feb. 3, 2000. 64. Summary Report from the Interim Hearing of the Senate Committee on Local Government, Property Tax Allocation, Sep. 21, 1999. 65. Senate Committee on Local Government, 1999, page 8. 66. State Controller, data requested by the Commission, on file. 67. Chapter 94, Statutes of 1999. 68. Telephone interviews with enterprise districts with the largest reserves.

97 LITTLE HOOVER COMMISSION

69. Rudy Muvarez, Santa Clara County Water District, personal communication, Jan. 2000. 70. Data from Little Hoover Commission survey. Two districts did not respond to this question, and five districts did not respond to the survey. Property tax revenue for these districts is not included in the $17 million figure. 71. Commission on Local Governance for the 21 Century. 72. The Final Report of the Speakers Commission on State and Local Government Finance, Mar. 2000. 73. Senate Committee on Local Government, 1999, page 23. 74. Legislative Analyst, Reconsidering AB 8: Exploring Alternative Ways to Allocate Property Taxes, Feb. 2000.

Special Acknowledgements

The Commission would like to acknowledge Joyce Crosthwaite for her assistance in developing survey questionnaires, for conducting interviews with LAFCO executive officers and for her insights into the operation of LAFCOs.

The Commission also appreciates the assistance of the California Special Districts Association and the Association of California Healthcare Districts in the Commission’s surveys of special districts.

98 Assembly Bill No. 2022

Passed the Assembly August 24, 2016

Chief Clerk of the Assembly

Passed the Senate August 18, 2016

Secretary of the Senate

This bill was received by the Governor this day of , 2016, at o'clock m.

Private Secretary of the Governor AB 2022 Ð 2 Ð

CHAPTER

An act to add Section 111070.5 to the Health and Safety Code, and to add Section 13570 to the Water Code, relating to water.

legislative counsel’s digest AB 2022, Gordon. Advanced puri®ed demonstration water. Existing law requires the State Department of Public Health to, on or before December 31, 2013, adopt uniform water recycling criteria for indirect potable reuse for groundwater recharge and to investigate and, on or before December 31, 2016, report to the Legislature on the feasibility of developing uniform water recycling criteria for direct potable reuse. Existing law transferred these powers and responsibilities to the State Water Resources Control Board on July 1, 2014. Under existing law, the State Department of Public Health licenses and regulates water bottlers, distributors, and vendors. Existing law prescribes various quality and labeling standards for bottled water and limits the levels of certain contaminants that may be contained in those water products. Violation of these provisions is a crime. This bill would authorize the operator of an advanced water puri®cation facility to cause advanced puri®ed demonstration water to be bottled and distributed as samples for educational purposes and to promote water recycling, as speci®ed. The bill would prohibit the advanced puri®ed demonstration water in each bottle from exceeding 8 ounces and would prohibit that water from being distributed unless the water, among other requirements, meets or exceeds all federal and state drinking water standards. The bill would authorize advanced puri®ed demonstration water to be bottled at a licensed water-bottling plant in compliance with speci®ed provisions. The bill would further establish bottling and labeling requirements for advanced puri®ed demonstration water and would prohibit a facility from causing more than 1,000 gallons of the water to be bottled in a calendar year. The bill would require an operator of an advanced water puri®cation facility seeking to bottle advanced puri®ed demonstration water to establish a collection and recycling program for distributed bottles. The bill

95

Ð 3 Ð AB 2022 would require the operator to maintain a daily record of the number of individuals to whom the water is distributed, served, made available, or otherwise distributed and to submit a report based on those records, as speci®ed and under penalty of perjury, to the state board. By creating a new crime, this bill would impose a state-mandated local program. This bill would require a bottler of advanced puri®ed demonstration water to submit sample labels and speci®ed analyses of the advanced puri®ed demonstration water to the department and to conduct a full sanitation of the bottling and ®lling equipment immediately after bottling advanced puri®ed demonstration water. The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement. This bill would provide that no reimbursement is required by this act for a speci®ed reason.

The people of the State of California do enact as follows:

SECTION 1. Section 111070.5 is added to the Health and Safety Code, to read: 111070.5. (a) ªAdvanced puri®ed demonstration waterº means product water from an advanced water puri®cation facility that satis®es both of the following requirements: (1) The product water is treated by all of the following treatment processes: (A) Micro®ltration, ultra®ltration, or other ®ltration process that removes particulates before reverse osmosis. (B) Reverse osmosis. (C) Advanced oxidation. (2) The product water meets or exceeds all federal and state drinking water standards and is produced in accordance with the advanced treatment criteria for puri®ed water speci®ed in Section 60320.201 of Title 22 of the California Code of Regulations. (b) A bottler of advanced puri®ed demonstration water shall do all of the following: (1) Submit sample labels to the department for review at least 30 days before bottling advanced puri®ed demonstration water.

95

AB 2022 Ð 4 Ð

(2) Submit the analyses of the advanced puri®ed demonstration water required under subdivision (e) of Section 13570 of the Water Code to the department at least seven days before bottling advanced puri®ed demonstration water. (3) Conduct a full sanitation of the bottling and ®lling equipment immediately after bottling advance puri®ed demonstration water. SEC. 2. Section 13570 is added to the Water Code, to read: 13570. (a) As used in this section, ªadvanced puri®ed demonstration waterº means product water from an advanced water puri®cation facility that satis®es both of the following requirements: (1) The product water is treated by means of all of the following treatment processes: (A) Micro®ltration, ultra®ltration, or other ®ltration processes to remove particulates before reverse osmosis. (B) Reverse osmosis. (C) Advanced oxidation. (2) The product water meets or exceeds all federal and state drinking water standards and is produced in accordance with the advanced treatment criteria for puri®ed water speci®ed in Section 60320.201 of Title 22 of the California Code of Regulations. (b) As used in this section, ªadvanced water puri®cation facilityº means a water recycling treatment plant that produces advanced puri®ed demonstration water in accordance with the advanced treatment criteria speci®ed in Section 60320.201 of Title 22 of the California Code of Regulations. (c) As used in this section, ªbatchº means an increment of advanced puri®ed treatment water that has completed the treatment process, is separate from incoming water, and is not receiving any additional source water. (d) Except as expressly set forth in this section, the operator of an advanced water puri®cation facility may cause advanced puri®ed demonstration water to be bottled and distributed as samples for educational purposes and to promote water recycling, without complying with the requirements of Article 12 (commencing with Section 111070) of Chapter 5 of Part 5 of Division 104 of the Health and Safety Code. The volume of advanced puri®ed demonstration water in each bottle shall not exceed eight ounces.

95

Ð 5 Ð AB 2022

(e) Any operator of an advanced water puri®cation facility seeking to bottle advanced puri®ed demonstration water shall collect water samples from the batch prior to the commencement of the bottling process, and test that batch in accordance with Section 111165 of the Health and Safety Code. Advanced puri®ed demonstration water shall not be distributed unless the following requirements are met: (1) The water meets or exceeds all federal and state drinking water standards, including all maximum contaminant levels applicable to public drinking water systems. (2) The advanced water puri®cation facility meets or exceeds all puri®cation requirements imposed by regulatory agencies to produce the advanced puri®ed demonstration water, including the removal of constituents of emerging concern where the removal is otherwise required of an advanced water puri®cation facility. (3) The water is produced using a treatment process that is consistent with the advanced treatment criteria for puri®ed water speci®ed in Section 60320.201 of Title 22 of the California Code of Regulations and, if established by the state board, in accordance with any uniform statewide water recycling criteria developed for the direct potable reuse of recycled water. (f) (1) Advanced puri®ed demonstration water may be bottled only at a licensed water-bottling plant in compliance with Sections 111070.5, 111080, 111120, 111145, and 111155 of the Health and Safety Code. (2) Before bottling advanced puri®ed demonstration water, an advanced water puri®cation facility shall follow all pretreatment and labeling regulations for water bottling, including the requirements described in Section 111070.5 of the Health and Safety Code and the requirements for bottled water and vended water pursuant to Section 111080 of the Health and Safety Code. (g) Advanced puri®ed demonstration water shall be handled from the point of production to the completion of bottling in accordance with all regulations governing the transportation, bottling, labeling, and handling of bottled water, as de®ned in subdivision (a) of Section 111070 of the Health and Safety Code, including, but not limited to, subdivisions (a), (b), (f), and (h) of Section 111075 of the Health and Safety Code and Section 111070.5 of the Health and Safety Code. A water-bottling plant that bottles advanced puri®ed demonstration water in accordance

95

AB 2022 Ð 6 Ð with this section may also bottle potable water, subject to compliance with Article 12 (commencing with Section 111070) of Chapter 5 of Part 5 of Division 104 of the Health and Safety Code. (h) An advanced water puri®cation facility shall not provide bottled advanced puri®ed demonstration water to any person under 18 years of age without the consent of that person's parent or legal guardian. (i) An advanced water puri®cation facility shall not provide advanced puri®ed demonstration water for human consumption, as de®ned in Section 116275 of the Health and Safety Code, including, but not limited to, in bottles, to more than 25 individuals per day for 60 or more days in a calendar year. (j) Advanced puri®ed demonstration water shall be bottled in nonreturnable (one-way) bottles or packages with labels containing the following information in an easily readable format that complies with all of the following: (1) The label shall state ªsample water--not for saleº and ªAdvanced Puri®ed Water Sourced From Wastewater.º (2) The label shall set forth the name, address, telephone number, and Internet Web site of the operator of the facility producing the advanced puri®ed demonstration water. (3) The label shall include a brief description of the advanced puri®ed demonstration water, including its source and the treatment processes to which the water is subjected. (k) A single advanced water puri®cation facility shall not cause more than 1,000 gallons of advanced puri®ed demonstration water to be bottled in a calendar year. (l) Advanced puri®ed demonstration water shall not be sold or otherwise distributed in exchange for ®nancial consideration. (m) Any operator of an advanced water puri®cation facility seeking to bottle advanced puri®ed demonstration water shall establish a collection and recycling program for distributed bottles. (n) The operator of an advanced water puri®cation facility that is bottling advanced puri®ed demonstration water shall do all of the following: (1) Maintain a daily record of the number of individuals to whom advanced puri®ed demonstration water is distributed, served, made available, or otherwise provided, including, but not limited to, from a bottle.

95

Ð 7 Ð AB 2022

(2) Compile a report of all daily records described in paragraph (1) for each calendar year. (3) Certify under penalty of perjury that the report is accurate. (4) Provide the report within 45 days of the end of the calendar year for which the report was made to the deputy director of the Division of Drinking Water of the State Water Resources Control Board. (o) This section does not exempt an advanced water puri®cation facility from any standard for bottling water imposed pursuant to federal law. SEC. 3. No reimbursement is required by this act pursuant to Section 6 of Article XIIIB of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the de®nition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.

95

Approved , 2016

Governor

M E M O R A N D U M

To: Orange County Water District

From: Townsend Public Affairs, Inc.

Date: August 23, 2016

Subject: Monthly Political and Activity Report

Specific Activities for the Month:

• TPA is working with OCWD on AB 2022 (Gordon), legislation to bottle advanced purified drinking water for educational purposes. Most recently, the bill passed off of the Senate Floor on August 18th, with a 38-0 vote. The measure is eligible to be taken up for a concurrence vote on the Assembly Floor at any time. Once approved by the Assembly, the measure will be sent to the Governor for his consideration; the Governor will have until September 30th to act on the bill. Activities on since the last committee meeting has included: o Scheduled and participated in advocacy meetings in preparation for the bill to be heard in the Senate Appropriations Committee, including meetings with the following offices: . Senator Ricardo Lara, Chair . Senator Pat Bates, Vice Chair . Senator Jerry Hill . Senator Mike McGuire . Senator Jim Nielsen . Senator Tony Mendoza o Met with each individual office leading up to the Senate Appropriations Committee hearing to provide background information on the bill and GWRS, as well as respond to any questions or concerns from the Committee Members. o Testified on behalf of OCWD in support of AB 2022 at the Senate Appropriations Committee hearing. The measure passed out of committee with a 7-0 vote. o Participated in meetings and conference calls with the other sponsors of the bill to discuss potential amendments to AB 2022, as requested by the SWRCB. o Coordinated and attended a meeting between OCWD staff, WateReuse, Assemblymember Gordon’s staff and Deputy Legislative Secretary Martha Guzman- Aceves in the Governor’s Office to discuss the bill and the amendments that were taken at the request of the SWRCB. o Worked closely with Assemblymember Gordon as the author of the legislation including frequent check in meetings and calls with Assemblymember Gordon and his key staff. These meetings largely focused on the amendments for AB 2022 and discussing what amendments the SWRCB wanted and what amendments the supporters of the bill were willing to support. o Worked with Assemblymember Gordon’s staff to ensure that the Senate Floor Manager for AB 2022, Senator Pat Bates, had all of the materials and information needed to take the bill up on the Senate Floor.

Southern California Office ▪1401 Dove Street, Ste. 330, Newport Beach, CA, 92660 • Phone (949) 399-9050 • Fax (949) 476-8215 Northern California Office ▪ 436 14th Street • Suite 732 • Oakland, CA 94612• Phone (510) 835-9050 • Fax (510) 835-9030 State Capitol Office ▪ 1121 L Street • Suite 607 • Sacramento, CA 95814 • Phone (916) 447-4086 • Fax (916) 444-2063 Federal Office • 600 Pennsylvania Avenue, SE, Suite 207 • Washington, DC • Phone (202) 546-8696 • Fax (202) 546-4555 o Drafted a letter from OCWD to the Governor requesting his signature on AB 2022.

• On July 8, TPA attended the ACWA State Legislative Committee meeting.

• On August 12, TPA attended the ACWA State Legislative Committee meeting.

• TPA provided OCWD staff with a legislative matrix that summarized and provided an analysis of the legislation being considered by ACWA, CalDesal, MET and SAWPA legislative committees.

• TPA researched miscellaneous state water programs/policies, meetings and other developments per OCWD staff requests.

Page 2 of 4

State Political Update

The Legislature returned from Summer Recess on August 1. All attention was placed on passing bills out of the Appropriations Committees before the deadline on August 12. Over 500 hundred bills were taken up by the Appropriations Committees the day before this legislative deadline. The Legislature has approximately two weeks to address the several hundred remaining bills that are still moving through the legislative process. The Legislature will then adjourn on August 31 and will return in January 2017 to start the first year of a new two-year legislative session. Below is a list of the key remaining deadlines for the legislative session:

• August 31 – Last day for any bill to be passed • September 30 – Last day for the Governor to sign or veto bills

Climate Change and Cap and Trade

A new Public Policy Institute of California poll has found that 68 percent of adults that were surveyed support a proposal that would force the State to reign in its greenhouse gas emissions to 40% below 1990 levels by 2040. This would expand on the existing law created by AB 32 (Nunez, 2006) that would reduce statewide greenhouse gas emissions to 1990 levels by 2020.

The proposal, SB 32 (Pavley) passed the Assembly Floor on August 23. It will now go back to the Senate for a concurrence vote before heading to the Governor’s desk. While the bill had been held up in the Legislative process for the past two years, it became one of the main items of focus in the remaining month of the legislation session.

SB 32 is seen as a vital step toward the extension of the Cap and Trade program. The Administration has been expecting pushback regarding the extension of the Cap and Trade program, with opponents of the program citing poor auction proceeds in May’s quarterly auction as a sign of the program ineffectiveness. The next quarterly auction, held on August 16, also produced poor auction results according to preliminary auction data. The final report from the auction will not be available until next month, however it is expected that the revenue from the auction will be even less than the $10 million raised in the May auction.

Additionally, the legality of the program has been questioned as many state that the program is an unlawful tax on carbon and should be subject to a two-thirds vote in the Legislature instead of the simple majority vote as was required of SB 32. The Governor has stated he is committed to the Cap and Trade program and will extend the program past 2020 one way or another. Currently, it is unclear whether or not the Cap and Trade program will be extended administratively, legislatively, or through a ballot initiative.

Drinking Water System Operating Fees

In April, the State Water Resources Control Board (SWRCB) released their first draft of the annual drinking water fee schedule. Since then, the SWRCB has been gathering stakeholder feedback to use when crafting a final drinking water fee schedule. Stakeholder comments on the annual draft fee regulation schedule stated that the initial draft would increase the annual fees by more than 1,000 percent for some water suppliers. Since then, the SWRCB has released a revised drinking water fee schedule. Public comments to the revised draft were due to the SWRCB by July 29. The SWRCB is expected to respond to the public comments shortly.

Page 3 of 4

California WaterFix

On August 10, the Joint Legislative Audit Committee voted to conduct a comprehensive audit of the funding mechanisms proposed by the State’s California WaterFix project. The project, which would build two 30-mile long tunnels under the Sacramento-San Juaquin River Delta, is estimated to cost approximately $16 billion. The audit was requested by Assemblymember Susan Eggman and Senator Lois Wolk, who both represent Districts in the Delta. Opponents of the plan cite, among various other issues, the lack of oversight and transparency in regards to the project’s high cost and ongoing operations and maintenance. The audit will determine if the proposed funding mechanisms are appropriate for the project, as well as investigate how millions of dollars were spent in the planning phase of the project. The audit is expected to be concluded by mid-year 2017.

Additionally, the State Water Resources Control Board (SWRCB) has started a series of public hearings to receive feedback from stakeholders regarding the Department of Water Resource’s (DWR) request to add three new points of diversion in the Delta for the California WaterFix Project. The hearings are expected to take place over the next several months and will set the stage for discussions in January 2017 regarding public trust issues such as fish and wildlife preservation and recreation.

State Water Use: June 2016

June was the first month in over a year in which California water supplier’s no longer had to comply with mandated water conservation standards. Despite this, Californian’s reduced their water use by 21.5 percent in June 2016 when compared to water use in June 2013. This is a decrease of about 6.7 percent from May 2016 when the State conserved 28.2 percent. This decrease was expected, as many California water agencies removed conservation requirements and determined they had sufficient water supplies to withstand three additional dry years. Residential gallons per capita per day (GPCD) increased dramatically in June 2016, to 104.9 gallons (an 18 percent increase).

In June:

• Statewide water savings for June 2016 was 21.5 percent (143,130 acre feet or 46.6 billion gallons), a decrease from May 2016’s 28.1 percent savings, and also a decrease from June 2015’s 27.5 percent statewide savings (60.6 billion gallons).

• Cumulative statewide percent reduction for June 2015 – June 2016 (thirteen months) is 24.2 percent, which equates to 1,752,918 acre-feet (571.2 billion gallons).

• Statewide average R-GPCD for June 2016 was 104.9 gallons; (an 18 percent increase) up from 86.7 R-GPCD in May 2016 and also above 98.1 R-GPCD reported for June 2015.

Page 4 of 4

2016 Association Bill Tracker August 23, 2016

LAST AMENDED ASSOC. OCWD BILL AUTHOR SUMMARY OCWD IMPACT/PRODUCER IMPACT DATE TRACKING Position

OCWD PRIORITY BILLS AB 2022 Gordon OCWD co-sponsored Bottling Bill. This bill would allow the 8/15/2016 ACWA, Co-Sponsor Co-Sponsor bottling of advanced purified water for educational purposes. It WateReuse would also authorize the distribution of small amounts of this advanced purified water for free for educational purposes. Under current law, consumers must visit a water recycling facility in person in order to taste this clean, safe water

AB 2087 Levine Would authorize the Department of Fish and Wildlife, or any 8/19/2016 Potential interest, though no adverse other public agency, to propose a "regional conservation impacts since Fish and Wildlife habitat investment strategy," to be developed in consultation with conservation guidance would be applicable local agencies that have land use authority, for the voluntary and nonbinding. Previous bill purpose of informing science-based conservation actions and language was more ambigous regarding habitat enhancement actions that would advance the potential new regulatory framework. conservation of focal species and providing voluntary nonbinding guidance for various activities. The bill would require the strategy to contain specified information and would authorize the strategy to include a regional conservation assessment proposed by the department or any other public agency and approved by the department.

AB 2488 Dababneh Would permit the Department of Fish and Wildlife to authorize, 8/19/2016 ACWA, MET Mesa water took a support position on under the California Endangered Species Act, the take of the this bill-it impacts OCWD's producers unarmored threespine stickleback (Gasterosteus aculeatus williamsoni) attributable to the periodic dewatering, inspection, maintenance, or repair of the Metropolitan Water District of Southern California's Foothill Feeder water supply facility from Castaic Dam to the Joseph Jensen Treatment Plant in the County of Los Angeles, as specified, if certain conditions are satisfied. Amendments on August 19 made this bill contingent on the passage of AB 1845 and AB 2001.

1 2016 Association Bill Tracker August 23, 2016 AB 2594 Gordon Current law, the Stormwater Resource Planning Act, authorizes 8/17/2016 ACWA, Watch Potential interest one or more public agencies to develop a stormwater resource SAWPA, MET plan that meets specified standards to address the capture of stormwater, as defined, and dry weather runoff, as defined. This bill would authorize a public entity that captures stormwater from urban areas, in accordance with a stormwater resource plan, before the water reaches a natural channel to use the captured water under certain circumstances.

AB 2874 Gaines The Sustainable Groundwater Management Act authorizes a Signed into law ACWA OCWD removed their concerns after groundwater sustainability agency to impose fees, including, by the Governor amendments were taken. but not limited to, permit fees and fees on groundwater extraction or other regulated activity, to fund the costs of a groundwater sustainability program. This bill would require a groundwater sustainability agency, before imposing or increasing a fee pursuant to this authority relating to a groundwater basin that includes a water corporation regulated by the Public Utilities Commission, to notify the Public Utilities Commission.

AB 2890 Assembly Would require the State Water Resources Control Board to Currently on the ACWA YES, Impacts OCWD's plant operator Environmenta appoint an advisory committee to assist it in carrying out its Governor's desk training l Safety and responsibilities to examine and certify people to operate water Toxic treatment plants and water distribution systems. This bill would Materials require the advisory committee to review all proposed regulations and make recommendations to the board. Amendments taken on May 25 were insignificant

2 2016 Association Bill Tracker August 23, 2016 SB 163 Hertzberg SB 163 was amended the last week of last year's Legislative 6/8/2016 ACWA, YES, OCWD submitted policy comments session to address wastewater treatment. The bill would WateReuse, as well as suggested, new, language to declare that the discharge of treated wastewater from ocean Bill is dead MET Senator Herzberg. Senator Hertzberg outfalls, except in compliance with the bill's provisions, is a decided to pull the bill, and recently gut waste and unreasonable use of water in light of the cost- and amended it to address bail effective opportunities to recycle this water for further hearings. This bill will be back next beneficial use. Amendments taken on June 8 changed the date session. of compliance to January 1, 2033 to achieve a 50% beneficial reuse of treated wastewater. Additionally, these amendments make it a waste of water for water replenishment districts or water districts to not accept this treated water. Second hearing in the Assembly Environmental Safety and Toxic Materials Committee was canceled by author. This bill is dead, however the author has indicated he will re-explore this topic next session.

SB 471 Pavley Would include reduction of greenhouse gas emissions Bill is dead WateReuse Potential impacts for a desalination associated with water treatment among the investments that project. are eligible for funding from the Greenhouse Gas Reduction Fund. Would establish a grant and loan program for water projects that result in the net reduction of water-related greenhouse gas emissions SB 551 Wolk Would declare the policy of the state that water use and water Bill is dead WateReuse Support OCWD supports this bill. treatment shall operate in a manner that is as energy efficient as is feasible and energy use and generation shall operate in a manner that is as water efficient as is feasible. This bill would require all relevant state agencies to consider this state policy when revising, adopting, or establishing policies, regulations, and grant criteria when pertinent to these uses of water and energy.

3 2016 Association Bill Tracker August 23, 2016 SB 814 Hill Would declare that during prescribed periods excessive water Currently on the ACWA, Will impact OCWD Producers and will use by a residential customer in a single-family residence or by Governor's desk SAWPA, MET likely have potential policy concerns. a customer in a multiunit housing complex, as specified, is prohibited. This bill, during prescribed periods, would require each urban retail water supplier to establish a method to identify and discourage excessive water use. This bill would authorize as a method to identify and discourage excessive water use the establishment of a rate structure that includes block tiers, water budgets, or rate surcharges over and above base rates for excessive water use by residential customers.

SB 859 Budget Public Resources Trailer Bill. 8/19/2016 New provision in the bill allows the Committee SWRCB to enact emergency regulations that could increase the licensing costs/fees for all accredited labs in the State, in order to recover costs. Could impact fees assessed for accrediting OCWD's Advanced Water Quality Assurance Laboratory.

SB 919 Hertzberg Would require the Public Utilities Commission, before January 8/11/2016 ACWA Support Unlikely to have any impact on OCWD 1, 2018, in consultation with the Independent System based on long-term energy contracts. Operator, to address the oversupply of renewable energy In Senate for However, the bill promotes good public resources through a tariff or other economic incentive for concurrance policy by addressing the over-supply of electricity purchased by customers operating "facilities that renewable energy with potential create or augment local water supplies," as defined, to reduce benefits for water recycling agencies. the cost of electricity to those facilities. This bill contains other Board approved letter of support. related provisions and other existing laws.

4 2016 Association Bill Tracker August 23, 2016 SB 1262 Pavley The Sustainable Groundwater Management Act, requires all 6/15/2016 ACWA, Impacts groundwater basins designated as high- or medium-priority SAWPA, MET basins by the Department of Water Resources (that are In Senate for designated as basins subject to critical conditions of overdraft) concurrance to be managed under a groundwater sustainability plan or coordinated groundwater sustainability plans by January 31, 2020, and requires all other groundwater basins designated as high- or medium-priority basins to be managed under a groundwater sustainability plan or coordinated groundwater sustainability plans by January 31, 2022, except as specified. This bill would, if a water supply for a proposed project includes groundwater, require certain additional information to be included in the water supply assessment.

SB 1387 De Leon Current law establishes the South Coast Air Quality 8/19/2016 No direct impact. Would allow the Management District vested with the authority to regulate air Legislature to add three (presumably emissions from stationary sources located in the South Coast Currently on the Democratic members) to the South Air Basin and establishes a district board, consisting of 13 Assembly Floor Coast Air Quality Management District. members. This bill, until January 1, 2025, would add 3 members However, the bill is worrisome because to the district board, as specified. The bill would make various it would dilute local control. Nearly 40% conforming changes. This bill contains other related provisions. of the seats on the regional board would be appointed by state officials.

BILLS TO REVIEW

AB 779 Garcia Would require a city, county, city and county, or special district, 8/3/2016 ACWA Possible impacts on or before April 30 of each year, to post compensation information in a conspicuous location on its Internet Web site that contains the names, positions, and total compensation, including a breakdown of the types of compensation provided, of each elected official within that entity for the previous calendar year. By increasing the duties of local officials, this bill would impose a state-mandated local program. This bill contains other related provisions and other existing laws.

5 2016 Association Bill Tracker August 23, 2016 AB 938 Rodriguez Amended on March 9, 2016, this would authorize the 3/9/2016 WateReuse Possible impacts watermaster or local agency administering an adjudicated basin to elect that the adjudicated basin be subject to the provisions of the Sustainable Groundwater Management Act. The bill would authorize the court with jurisdiction over the adjudicated basin to issue an order setting a hearing to determine whether the adjudicated basin shall be subject to the act, as prescribed.

AB 1180 Garcia Would, until January 1, 2022, authorize a water corporation 8/8/2016 SAWPA Potential interest for OCWD Producers with more than 10,000 service connections to seek commission approval, through its general rate case application, to operate a pilot program designed to evaluate customer interest in, and utilization of, bill payment options, including, but not limited to, credit card, debit card, and prepaid card bill payment options, and to assess the cost-effectiveness of, and customer interests served by, customer access to those bill payment options. The bill would limit the duration of a pilot program to the duration of the water corporation's rate case cycle.

AB 1550 Gomez Current law requires the Department of Finance, in 8/18/2016 ACWA Potential interest. Would impact DAC consultation with the State Air Resources Board and any other communities in Orange County, could relevant state agency, to develop, as specified, a 3-year include Santa Ana, Westminster, investment plan for the moneys deposited in the Greenhouse Stanton and a few others. Gas Reduction Fund. This bill would require the investment plan to allocate a minimum of 25% of the available moneys in the fund to projects located within, and benefiting individuals living in, disadvantaged communities, as described, and an additional minimum of 5% to projects that benefit low-income households or to projects located within, and benefiting individuals living in, low-income communities, as defined. This bill contains other related provisions.

6 2016 Association Bill Tracker August 23, 2016 AB 1661 McCarty and Would require local agency officials, as defined, to receive 8/15/2016 ACWA Potential HR impacts depending on Gonzalez sexual harassment prevention training and education if the what type of HR procedural training local agency provides any type of compensation, salary, or Currently in OCWD/OCWD Producers provide. stipend to those officials, and would allow a local agency to Assembly for require employees to receive sexual harassment prevention concurrance training or information. The bill would also require an entity that develops curricula to satisfy this requirement to consult with the Attorney General, city attorney, or county counsel regarding the sufficiency and accuracy of that proposed content. Amendments taken in August were inconsequential.

AB 1755 Dodd Would enact the Open and Transparent Water Data Act. The 8/1/2016 ACWA, A- OCWD has done water transfers- act would require the Department of Water Resources, in SAWPA, MET IRWD and ACWA are ok as long as consultation with the California Water Quality Monitoring existing transfers are not impacted, no Council, the State Water Resources Control Board, and the staff are added to DWR, and no Department of Fish and Wildlife, in accordance with a specified mandatory exchange is required of schedule, to create, operate, and maintain a statewide water in the future integrated water data platform that, among other things, would integrate existing water and ecological data information from multiple databases and provide data on completed water transfers and exchanges. This bill contains other existing laws.

AB 1773 Obernolte Under existing law, the Public Utilities Commission is vested 4/13/2016 ACWA Potential impacts if OCWD participates with regulatory authority over public utilities. Existing law in the Renewable Energy Self- authorizes a local governmental entity, except a joint powers Currently on the Generation Bill Credit Transfer authority, to receive a bill credit to a designated benefiting Governor's desk Program. Would expand the account, for electricity exported to the electrical grid by an Renewable Energy Self-Generation Bill eligible renewable generating facility and requires the Credit Transfer Program to include all commission to adopt a rate tariff for the benefiting account. JPA's. This bill would include as a local governmental entity for this purpose a joint powers authority, except as specified.

7 2016 Association Bill Tracker August 23, 2016 AB 1787 Gomez The Ralph M. Brown Act requires a local legislative body to 8/2/2016 ACWA Possible impacts provide an opportunity for members of the public to directly address the body concerning any item described in a notice of meeting. The act authorizes the legislative body to adopt reasonable regulations limiting the total amount of time allocated for public testimony for each individual speaker. This bill, if a local legislative body limits the time for public comment, would require the legislative body to provide at least twice the allotted time to a member of the public who utilizes a translator to ensure that non-English speakers receive the same opportunity to directly address the legislative body, unless simultaneous translation equipment is used to allow the body to hear the translated public testimony simultaneously.

AB 1842 Levine Current law imposes a maximum civil penalty of $25,000 on a 8/2/2016 ACWA, Could expose water agencies to liability, person who discharges various pollutants or other designated SAWPA even from unintentional discharges. materials into the waters of the state. This bill would impose an Currently on the additional civil penalty of not more than $10 for each gallon or Governor's desk pound of material discharged. The bill would require that the civil penalty be reduced for every gallon or pound of the illegally discharged material that is recovered and properly disposed of by the responsible party. This bill contains other related provisions and other current laws.

AB 1866 Wilk Mandates that no further bonds be sold for high speed rail and 2/10/2016 ACWA, Potential additional funding for water they be repurposed to fund capital expenditures for water SAWPA projects, however, bill would be in projects, including the construction of desalination facilities, direct conflict with Governor's HSR wastewater treatment and recycling facilities, reservoirs, water priority conveyance infrastructure, and aquifer recharge.

8 2016 Association Bill Tracker August 23, 2016 AB 1923 Wood Would, for the purposes of the bioenergy feed-in tariff, revise a 8/29/2016 ACWA Would impact if OCWD is a part of the generally applicable interconnection requirement for electric FIT program through the PUC generation facilities, as specified. The bill would also require the Public Utilities Commission to direct the electrical corporations to authorize a bioenergy electric generation facility with an effective capacity of up to 5 megawatts to participate in the bioenergy feed-in tariff if the facility delivers no more than 3 megawatts to the grid at any time and complies with specified interconnection and payment requirements. This bill was amended to only go into effect if AB 1612 and SB 840 are signed into law.

AB 1928 Campos This bill would postpone the date by which the State Energy 8/15/2016 ACWA Potential impacts to producers for Commission and DWR is to adopt the performance standards landscape irrigation controllers and labeling requirements to January 1, 2018, and would Currently in prohibit, on and after January 1, 2020, the sale of that Assembly for equipment unless it meets the performance standards and concurrance labeling requirements. The bill would additionally require the commission, in adopting those standards and requirements, to consider developments in landscape irrigation efficiency occurring on or after January 1, 2010. Amendments on August 15 were clarifying in nature

AB 1979 Bigelow Would authorize a conduit hydroelectric facility with an 8/19/2016 ACWA Potential Impacts effective capacity of up to 4 megawatts to participate in the renewable feed-in tariff if the facility delivers no more than 3 megawatts to the grid at any time, was operational on January 1, 1990, and complies with specified interconnection and payment requirements.changes to the bill.

9 2016 Association Bill Tracker August 23, 2016 AB 2099 Stone Would require the State Department of Social Services to, on or 6/16/2016 ACWA Watch-AB 2099 impacts our producers before February 1, 2017, convene a workgroup to develop and Region 10 to fund low income recommendations for delivering a water benefit to supplement Bill is dead house holds to get assistance to pay for the purchase of drinking water for low-income households with their water-there is concern a tax will inadequate access to safe drinking water, as specified. The bill be added to all other customer bills would also make relating findings and declarations. Amendments on June 16 were insignificant.

AB 2257 Maienschein The Ralph M. Brown Act requires the legislative body of a local 6/22/2016 ACWA Possible Impacts agency to post, at least 72 hours before the meeting, an agenda containing a brief general description of each item of Currently on the business to be transacted or discussed at a regular meeting, in Governor's desk a location that is freely accessible to members of the public and to provide a notice containing similar information with respect to a special meeting at least 24 hours prior to the special meeting. This bill would require an online posting of an agenda for a meeting occurring on and after January 1, 2019, of a legislative body of a city, county, city and county, special district, school district, or political subdivision established by the state that has an Internet Web site to be posted on the local agency's primary Internet Web site homepage accessible through a prominent, direct link, as specified.

AB 2405 Gatto Current law prohibits an employer who employs 25 or more 5/31/2016 ACWA Potential HR impacts employees working at the same location from discharging or discriminating against an employee who is a parent, as defined, having custody of a child in a licensed child day care facility or in kindergarten or grades 1 to 12, inclusive, for taking off up to 40 hours each year to find, enroll, or reenroll their child in a school, to participate in school activities, or address emergency situations at school, subject to specified conditions. This bill would require an employer to annually provide an employee at least 8 hours of paid time off for the purposes of a planned absence under these provisions, except as specified, and would instead authorize an employee to use vacation or paid time off, or use unpaid time off, if available, when taking time off under these provisions. Amendments on May 31 changed the required time-off amount from 24 hours to 8 hours.

10 2016 Association Bill Tracker August 23, 2016 AB 2444 Garcia Under current law, programs have been established pursuant 8/19/2016 ACWA, MET Potential impacts to bond acts for, among other things, the development and enhancement of state and local parks and recreational facilities. This bill would enact the California Parks, Water, Climate, and Coastal Protection and Outdoor Access For All Act of 2018, which, if approved by the voters, would authorize the issuance of bonds in an amount of $3,497,500,000 pursuant to the State General Obligation Bond Law to finance a parks, water, climate, and coastal protection and outdoor access for all program. Bill was amended to increase the funding from $2 billion to $3.5 billion, as well as clarify that this bond would be for the 2018 ballot. AB 2480 Bloom Would declare it to be state policy that source watersheds are 8/15/2016 ACWA, Potential impacts recognized and defined as integral components of California's SAWPA, MET water infrastructure. The bill would state the particular importance to maintaining the reliability, quantity, timing, and quality of California's environmental, drinking, and agricultural water supply as climate change advances of source watersheds that supply the majority of the state's drinking and irrigated agricultural water.

AB 2515 Weber Would require the Department of Water Resources, on or 5/27/2016 ACWA, Impacts to Orange County before January 1, 2020, and every three years thereafter, to SAWPA, MET either update the model water-efficient landscaping ordinance or make a finding that an update to the model water-efficient landscaping ordinance at that time is not a useful or effective means to improve either the efficiency of landscape water use or the administration of the ordinance. Amendments on May 27 were minor.

AB 2535 Ridley Current law requires an employer to provide his or her Signed into law ACWA Potential HR impacts Thomas employee an accurate itemized statement in writing containing by the Governor specified information, either semimonthly or at the time the employer pays the employee his or her wages. This bill would exempt from that requirement for information on total work hours an employee exempt from payment of minimum wage and overtime under specified statutes or any applicable order of the Industrial Welfare Commission.

11 2016 Association Bill Tracker August 23, 2016 AB 2561 Irwin Current law, until January 1, 2017, exempts from the definition 8/19/2016 No direct impact of "project" a proposed photovoltaic or wind energy generation facility that would demand no more than 75 acre-feet of water annually. This bill would remove the January 1, 2017, sunset date, which would indefinitely exempt the above-described proposed photovoltaic or wind energy generation facilities from the definition of "project."

AB 2613 Achadjian Would authorize a special district, until January 1, 2027, by Signed into law ACWA Possible impacts unanimous request of its governing board and with unanimous by the Governor approval of the board of supervisors, to replace the annual audit with an annual financial compilation of the special district to be performed by the county auditor, or an agreed-upon procedures engagement, in accordance with professional standards, if certain conditions are met.

AB 2618 Nazarian Current law authorizes a community facilities district formed 8/19/2016 ACWA Potential impacts pursuant to an alternative procedure under which the district initially consists solely of territory proposed for annexation to the community facilities district in the future and territory is annexed and subjected to special taxes only upon unanimous approval of the owners, to finance and refinance the acquisition, installation, and improvement of energy efficiency, water conservation, and renewable energy improvements. This bill would authorize a community facilities district that is formed pursuant to the alternative procedure to additionally finance seismic retrofitting, as specified.

12 2016 Association Bill Tracker August 23, 2016 AB 2909 Levine Would require the State Water Resources Control Board to 6/21/2016 ACWA, Water transfer impacts. develop and implement an expedited 30-day review process for SAWPA, MET approval of petitions to temporarily change the point of Bill is dead diversion, place of use, or purpose of use due to a transfer or exchange of water or water rights if the transfer is for a reoccurring water transfer, as defined, or an environmentally beneficial transfer, as defined. The bill would require the Department of Water Resources to develop a 30-day review process for reoccurring water transfers between contractors for State Water Project water and for reoccurring water transfers that utilize facilities of the State Water Project. The bill would repeal its provisions as of January 1, 2022.

ACA 8 Bloom [D] Would create an additional exception to the 1% limit for a rate Introduced ACWA Potential impacts. Constitutional imposed by a city, county, city and county, or special district to 2/18/16 amendment. Will need to pass the service bonded indebtedness incurred to fund the construction, Legislature with a 2/3 vote and then be reconstruction, rehabilitation, or replacement of wastewater placed on the 2016 ballot. treatment facilities and related infrastructure, potable water producing facilities and related infrastructure, nonpotable water producing facilities and related infrastructure, and stormwater treatment facilities and related infrastructure, that is approved by 55% of the voters of the city, county, city and county, or special district, as applicable, if the proposition meets specified requirements, and would authorize a city, county, city and county, or special district to levy a 55% vote ad valorem tax. This bill contains other related provisions and other existing laws.

SB 7 Wolk Would express the intent of the Legislature to encourage the 8/19/2016 ACWA, MET Potential impacts to producers for conservation of water in multifamily residential rental buildings submetering residential rental through means either within the landlord's or the tenant's buildings. control, and to establish that the practices involving the submetering of dwelling units for water service are just and reasonable, and include appropriate safeguards for both tenants and landlords.

13 2016 Association Bill Tracker August 23, 2016 SB 32 Pavley Would require the State Air Resources Board to approve a 8/19/2016 No direct impact. Statewide policy statewide greenhouse gas emissions limit that is equivalent to relating to greenhouse has emissions. 40% below the 1990 level to be achieved by 2030. This bill also loosely gives the ARB the authority to carry out actions to get to the goal. Additionally, amendments to SB 32 also packaged it with AB 197, a bill that increases ARB oversight.

SB 122 Jackson CEQA establishes a procedure for the preparation and 8/15/2016 WateReuse Potential impacts if OCWD is the CEQA certification of the record of proceedings upon the filing of an lead agency on any projects action or proceeding challenging a lead agency's action on the grounds of noncompliance with CEQA. This bill would require the lead agency, at the request of a project applicant and consent of the lead agency, to prepare a record of proceedings concurrently with the preparation of a negative declaration, mitigated negative declaration, EIR, or other environmental document for projects.

SB 552 Wolk Would authorize the State Water Resources Control Board to 8/19/2016 MET Cleanup to SB 88 (water consolidation order consolidation where a public water system or a state trailer bill last year). No direct impact small water system is serving, rather than within, a on OCWD. disadvantaged community, and would limit the authority of the state board to order consolidation or extension of service to provide that authority only with regard to a disadvantaged community. This bill would make a community disadvantaged for these purposes if the community is in a mobilehome park even if it is not in an unincorporated area or served by a mutual water company.

14 2016 Association Bill Tracker August 23, 2016 SB 554 Wolk Current law establishes a delta levee maintenance program 8/19/2016 ACWA, Potential interest. This bill would make pursuant to which a local agency may request reimbursement SAWPA, MET permanent a 75% State cost-share in for costs incurred in connection with the maintenance or Delta levee maintenance and improvement of project or nonproject levees in the improvement projects in a recognition Sacramento-San Joaquin Delta. This bill would extend the of the Delta’s statewide benefit. authorization to reimburse eligible local agencies under the program and advance funds until July 1, 2020. This bill,, on and after July 1, 2020, would declare legislative intent to reimburse eligible local agencies under this program in an amount not to exceed 50% of the costs

SB 995 Pavley Would, on or before January 1, 2019, require the Department 8/1/2016 ACWA, No direct Impact of Water Resources to update well standards for water wells, SAWPA monitoring wells, and cathodic protection wells based on Bill is dead existing knowledge and to submit these standards to the State Water Resources Control Board. This bill contains other related provisions and other existing laws.

SB 1170 Wieckowski Would prohibit a public entity, charter city, or charter county 8/1/2016 ACWA, MET Possible Impacts from requiring a contractor on a public works contract that includes compliance with a plan to assume responsibility for Bill is dead the completeness and accuracy of a plan developed by that entity. The bill would provide that these prohibitions do not apply to contracts that use specified procurement methods if the contractor or construction manager at risk is required by the bid or procurement documents to retain a plan developer for the project owners. The bill would also declare that this is a matter of statewide concern.

15 2016 Association Bill Tracker August 23, 2016 SB 1298 Hertzberg Articles XIII C and XIII D of the California Constitution generally 8/11/2016 ACWA, Possible impacts to producers require that assessments, fees, and charges be submitted to SAWPA, MET property owners for approval or rejection after the provision of written notice and the holding of a public hearing. Current law, the Proposition 218 Omnibus Implementation Act, prescribes specific procedures and parameters for local jurisdictions to comply with Articles XIII C and XIII D of the California Constitution and defines terms for these purposes. This bill would define the term "sewer" for these purpose. The bill was amended in August to remove any mention of fees or tariffs, and instead only focus on stormwater/sewers.

SB 1398 Leyva Would require a public water system to compile an inventory of 8/18/2016 ACWA, MET Possible impacts to producers known lead user service lines in use in its distribution system and identify areas that may have lead user service lines in use in its distribution system by July 1, 2018. This bill would require a public water system, after completing the inventory, to provide a timeline for replacement of known lead user service lines in the distribution system to the State Water Resources Control Board. Amendments on August 18 were minor.

ADDITIONAL ASSOCIATION LEGISLATION

AB 33 Quirk This bill would require the commission to evaluate and analyze 8/19/2016 ACWA None. Focused on energy storage the potential for all types of long duration bulk energy storage resources to help integrate renewable generation into the electrical grid, as specified.

AB 453 Salas Would authorize the Semitropic Water Storage District to 8/8/2016 WateReuse None. collect groundwater extraction information and to require the reporting of groundwater information, as specified. This bill would authorize the district to impose fees on the extraction of groundwater from the basin, as prescribed.

16 2016 Association Bill Tracker August 23, 2016 AB 935 Salas Current law establishes in the Natural Resources Agency the 8/17/2016 ACWA Gut and Amended. No impact Department of Water Resources, which manages and undertakes planning with regard to water resources in the state. This bill would require, upon appropriation by the Legislature, the department to provide funding for a certain project provided that certain conditions are met.

AB 1242 Gray Would require the Department of Water Resources to increase 9/1/2015 WateReuse None, specific to storage statewide water storage capacity by 25% by January 1, 2025, and 50% by January 1, 2050, as specified. The bill would require the department, on or before January 1, 2017, to identify the current statewide water storage capacity and prepare a strategy and implementation plan to achieve those expansions in statewide water storage capacity, and would require the department to update the strategy and implementation plan on January 1, 2018, and every 2 years thereafter, until January 1, 2050.

AB 1588 Mathis Would require the State Water Resources Control Board to 8/16/2016 ACWA, No impact. Program is specific to establish a program to provide funding to counties to award SAWPA individual homeowners. New version of low-interest loans and grants to eligible applicants for specified Currently in the AB 954 (Mathis) and SB 127 (Vidak, purposes relating to drinking water and wastewater treatment. Assembly for 2015). This bill would authorize a county to apply to the board for a concurrance grant to award loans or grants, or both, to residents of the county, as prescribed. This bill would create the Water and Wastewater Loan and Grant Fund and provide that the moneys in this fund are available, upon appropriation by the Legislature, to the board to administer and implement the program. Amendments taken on May 31 changed the appropriation from $20 million to $10 million. Amendments on June 15 were technical in nature.

17 2016 Association Bill Tracker August 23, 2016 AB 1662 Chau Would require, except as specified, the operator of any 8/19/2016 ACWA No water impact. Drone policy. unmanned aircraft system involved in an accident resulting in injury to an individual or damage to property to immediately land the unmanned aircraft at the nearest location that will not jeopardize the safety of others and provide certain information to the injured individual or the owner or person in charge of the damaged property or place that information in a conspicuous place on the damaged property.

AB 1794 Garcia Would require the board of directors of the Central Basin 8/15/2016 SAWPA None. Specific to Central Basin Municipal Water District to be composed of 8 directors, until Municipal Water District the directors elected at the November 6, 2018, election take Currently in office, when the board would be composed of 7 directors, as Assembly for prescribed. This bill would require the Central Basin Municipal concurrance Water District to establish a technical oversight committee composed of 5 water purveyors selected every 2 years, as specified, to meet on at least a quarterly basis for certain purposes. By imposing new duties on the district, this bill would create a state-mandated local program.

AB 1845 Dahle Would permit the Department of Fish and Wildlife to authorize, 8/2/2016 ACWA No impact. under the California Endangered Species Act, the take of the rough sculpin (Cottus asperrimus) resulting from impacts Currently on the attributable to replacing the Spring Creek Bridge in the County Governor's desk of Shasta if certain conditions are satisfied.

AB 2001 Mathis Under current law, the Department of Fish and Wildlife is 8/2/2016 None authorized to permit the taking of a fully protected fish for necessary scientific research, including efforts to recover fully Currently in protected, threatened, or endangered species. This bill would Assembly for authorize the department to permit the taking of the Owens concurrance pupfish in the Owens River and Mojave River watersheds if the take is authorized under a safe harbor agreement.

18 2016 Association Bill Tracker August 23, 2016 AB 2002 Stone Would require a California Coastal Commission member to fully 4/12/2016 No direct impact. disclose in writing 24 hours before a commission hearing any ex parte communication conducted within 7 days of the commission hearing relating to a matter that will be discussed at the hearing, and would prohibit a commission member or an interested person from conducting such an ex parte communication within 24 hours before the commission hearing. AB 2139 Williams Current law establishes the Ocean Protection Council in state 8/15/2016 ACWA No direct impact. government and prescribes the membership, functions, and duties of the council with regard to the protection and Currently in conservation of ocean and coastal resources. This bill would, Assembly for subject to the availability of funding, authorize the council to concurrance develop an ocean acidification and hypoxia science task force to ensure that council decisionmaking is supported by the best available science, and require the council to take specified actions to address ocean acidification and hypoxia, as prescribed, and, beginning January 1, 2018, and annually thereafter, at its first meeting of the year, adopt recommendations for further actions that may be taken to address ocean acidification and hypoxia.

AB 2148 Holden Would make it unlawful for any person to operate an 8/19/2016 Would develop guidelines for drone unmanned aircraft system in, or fly an unmanned aircraft policy as they fly over public lands. system over, lands or waters managed by the Department of Fish and Wildlife and Department of Parks and Recreation, except as authorized or unless exempted from this prohibition. The bill would authorize the consideration of certain factors when reviewing a request for authorization for the use of an unmanned aircraft system.

19 2016 Association Bill Tracker August 23, 2016 AB 2389 Ridley Would authorize a governing body of a special district, as 5/9/2016 ACWA No direct impact, but a MALDEF Thomas defined, to require, by resolution, that the members of its sponsored bill governing body be elected using district-based elections Currently on the without being required to submit the resolution to the voters Governor's desk for approval. This bill would require the resolution to include a declaration that the change in the method of election is being made in furtherance of the purposes of the California Voting Rights Act of 2001. Amendments on May 9 were insignificant

AB 2446 Gordon The Porter-Cologne Water Quality Control Act, within 30 days 8/1/2016 ACWA No direct impact of any action or failure to act by a California regional water quality control board under specified law, authorizes an Currently in aggrieved person to petition the State Water Resources Control Assembly for Board to review that action or failure to act. Current law concurrance authorizes the state board, in the case of such a review, upon notice and hearing, if a hearing is requested, to stay in whole or in part the effect of the decision and order of a regional board or of the state board. This bill would expand that provision to authorize the state board to issue a stay in the case of review by the state board of a decision or order issued under authority delegated to an officer or employee of the state board where the state board by regulation has authorized a petition for reconsideration by the state board. Amendments on May 10 require the state board to issue or deny the stay within 90 days of receipt of a request for stay, as specified, and would deem the request for stay denied AB 2470 Gonzalez Current law authorizes a district to sell water under its control, 4/26/2016 ACWA None without preference, to cities, other public corporations and agencies, and persons, within the district for use within the Currently in district. Current law authorizes a district to sell or otherwise Assembly for dispose of water above that required by consumers within the concurrance district to any persons, public corporations or agencies, or other consumers. This bill, upon the request of an Indian tribe and the satisfaction of certain conditions, would require a district to provide service of water at substantially the same terms applicable to the customers of the district to an Indian tribe's lands that are not within a district, as prescribed, if the Indian tribe's lands meet certain requirements and the Indian tribe satisfies prescribed conditions.

20 2016 Association Bill Tracker August 23, 2016 AB 2551 Gallagher Would allow a local agency to use the construction manager at- 8/19/2016 ACWA No direct impact, would amend Chapter risk, design-build, or design-build-operate method of delivery 4 of Proposition 1 relating to storage. on a surface storage project, as described. The bill would require these contracts to be awarded on a best value basis or to the lowest responsible bidder, and establish a procurement process for these contracts. The bill would require the bidder to certify specified information under penalty of perjury. By expanding the crime of perjury, the bill would impose a state- mandated local program.

AB 2853 Gatto Would authorize a public agency that posts a public record on 6/16/2016 ACWA Possible Impacts its Internet Web site to refer a member of the public that requests to inspect the public record to the public agency's Currently on the Internet Web site where the public record is posted. This bill Governor's desk would require, if a member of the public requests a copy of the public record due to an inability to access or reproduce the public record from the Internet Web site where the public record is posted, the public agency to promptly provide a copy of the public record to the member of the public, as specified.

SB 807 Gaines Would further limit the exposure to civil liability of an 8/18/2016 ACWA No water impact. Drone policy. emergency responder, defined as a paid or an unpaid volunteer or private entity acting within the scope of authority implicitly Currently in or expressly provided by a public entity or a public employee to Senate for provide emergency services, for damage to an unmanned concurrance aircraft or unmanned aircraft system, if the damage was caused while the emergency responder was performing specific emergency services and the unmanned aircraft or unmanned aircraft system was interfering with the provision of those emergency services.

21 2016 Association Bill Tracker August 23, 2016 SB 953 Lara Would prohibit the Central Basin Municipal Water District from 8/15/2016 SAWPA None. Specific to Central Basin using sole source contracts, except as prescribed. This bill Municipal Water District, prohibiting would require the district to rebid a contract if the district Currently in the district from using sole source significantly changes the scope of work of the contract. This bill Senate for contracts, except as prescribed. This bill would require the general manager of the district to submit a concurrance would require the district to rebid a quarterly report to the district's board detailing all of the contract if the district significantly district's contracts, contract amendments, and contract and changes the scope of work of the amendment dollar amounts. By imposing new duties on a contract. This bill would also add 2 municipal water district, this bill would impose a state- additional Board Members, increasing mandated local program. the Board from 5 to 7 Members. SB 1089 Pavley Would expand the composition of the Wildlife Conservation 8/4/2016 None Board to include 4 public members to serve terms of 4 years each and would require one public member to be appointed by Currently in the Speaker of the Assembly, one public member to be Senate for appointed by the Senate Committee on Rules, and 2 public concurrance members to be appointed by the Governor. This bill would require the public members appointed to the board to have demonstrated interest and expertise in land acquisition for conservation purposes.

SB 1112 Cannella Would provide that if a water or sewer system corporation or 8/11/2016 ACWA, Only impact those with less than 2,000 an entity merging with or acquiring control of a water or sewer SAWPA service connections system corporation with less than 2,000 service connections Currently in the fails to receive the Public Utilities Commission's approval Senate for before entering into any of the specified transactions valued at concurrance $5,000,000 or less, the transaction is voidable by the commission until the commission either retroactively approves or conditionally approves the transaction. The bill would authorize the commission to delegate this approval authority to a specified division director.

22 2016 Association Bill Tracker August 23, 2016 SB 1263 Wieckowski Would require a person submitting an application for a permit 8/19/2016 ACWA, Only impacts the development of a new for a proposed new public water system to first submit a SAWPA, MET public water system preliminary technical report to the State Water Resources Control Board at least 6 months before initiating construction of any water-related improvement, as defined. Because a misstatement in the report could be a crime under the provision described above, this bill would impose a state- mandated local program by expanding the scope of a crime.

SB 1328 Lara Would authorize the State Water Resources Control Board to 8/18/2016 ACWA, No direct impacts expend moneys from the Greenhouse Gas Reduction Fund, SAWPA upon appropriation by the Legislature, to provide grants to Currently in public entities to implement stormwater and dry weather Senate for runoff collection and treatment projects that are intended to concurrance reduce greenhouse gas emissions by decreasing the demand for electricity needed to pump, transport, and deliver water from natural sources to serve water consumers, as prescribed.

SB 1340 Wolk The Water Conservation in Landscaping Act requires the 6/21/2016 ACWA, MET No direct impacts Department of Water Resources to update a specified model water efficient landscape ordinance by regulation and Currently in prescribes various requirements for the updated model Senate for ordinance. Current law requires each local agency to adopt concurrance either the updated model water efficient landscape ordinance or an ordinance that is at least as effective in conserving water as the updated model ordinance. If the local agency does not make a selection, the model ordinance shall apply within the jurisdiction of the local agency. This bill would allow the governing body of a local agency to adopt an ordinance prescribing fees for filing an application for the permit, subject to the restrictions that the fees not exceed the amount reasonably required to review applications and issue the permits and that the fees not be levied for general revenue purposes

23 2016 Association Bill Tracker August 23, 2016 SB 1374 Lara Would specifically authorize the establishment of the Lower Los 8/19/2016 ACWA No direct impacts Angeles River Recreation and Park District, by petition or resolution submitted to the Los Angeles County Local Agency Currently in Formation Commission before January 1, 2019, subject to Senate for specified current laws governing recreation and park districts, concurrance including their formation, except as provided. The bill would authorize specified city councils and the Los Angeles County Board of Supervisors to appoint the initial board of directors of the district.

SB 1456 Galgiani Current law, for community public water systems and not-for- 8/18/2016 SAWPA No direct impact profit noncommunity public water systems, allows planning and preliminary engineering studies, project design, and Currently in construction costs incurred by those public water systems to be Senate for funded by loans and other repayable financing. This bill would concurrance authorize the above-described costs to be funded by loans or other repayable financing, grants, principal forgiveness, or a combination of grants and loans or other financial assistance, regardless of whether the community water system or not-for- profit noncommunity water system is owned by a public agency or private not-for-profit water company.

24 2016 Association Bill Tracker August 23, 2016

25 4 AGENDA ITEM SUBMITTAL

Meeting Date: September 8, 2016 Budgeted: N/A Budgeted Amount: N/A To: Communications/Leg. Liaison Cte Cost Estimate: N/A Board of Directors Funding Source: N/A Program/Line Item No.: N/A From: Mike Markus General Counsel Approval: N/A Engineers/Feasibility Report: N/A Staff Contact: E. Torres CEQA Compliance: N/A

POLICY ISSUE: DEDICATIONS OF COMPLETED PROJECTS

SUMMARY

The following Orange County Water District (OCWD; the District) infrastructure projects will be completed in fall of 2016: Fletcher Basin, La Palma Basin, Burris Pump Station and the Imperial Headway Project. Traditionally, the District has hosted dedications for projects such as basins, the laboratory, the water exhibit, and the GWRS. Staff will discuss dedication plans for Fletcher and La Palma Basins.

RECOMMENDATION

Agendize for September 21 Board meeting: Take action as appropriate

BACKGROUND

Staff is planning the dedication of two OCWD projects: Fletcher and La Palma Basins. Fletcher Basin will be dedicated on Wednesday, October 26. The tentative date to dedicate La Palma is Thursday, October 20, in conjunction with the Groundwater Adventure Tour which will include approximately 140 guests. Staff will discuss the events with the Committee.

1

5

AGENDA ITEM SUBMITTAL

Meeting Date: September 8, 2016 Budgeted: N/A Budgeted Amount: N/A To: Communications/Leg. Liaison Cte Cost Estimate: N/A Board of Directors Funding Source: N/A Program/Line Item No.: N/A From: Mike Markus General Counsel Approval: N/A Engineers/Feasibility Report: N/A Staff Contact: E. Torres/G. Ayala CEQA Compliance: N/A

POLICY ISSUE: PUBLIC AFFAIRS OUTREACH REPORT [JULY-AUGUST]

SUMMARY

Outreach for Orange County Water District (OCWD) projects, including the Groundwater Replenishment System (GWRS), continues with a major focus to build and maintain support for OCWD projects and the GWRS, as well as field media interest and media coverage. Following is list of outreach and media activity.

Attachment(s): July and August 2016 clip report

RECOMMENDATION

Informational

RELEVANT STANDARDS

• Maintain a transparent role within the community by educating stakeholders about OCWD’s roles, priorities and strategic initiatives. • Build confidence and support with the community. • Build and maintain support for OCWD and its projects and educate stakeholders about them.

DISCUSSION/ANALYSIS

Tours: Approximately 1,154 guests toured the GWRS (more than 600 at Open House) and other OCWD facilities in July and August; following is a list of groups, companies, schools and organizations that participated in the tours. • Two public tours • Orange Coast College • Three groups from California State University, Fullerton (CSUF) nursing program • Two groups from CSUF exchange program • Morningside Men’s Club

1 • West Coast University nursing program • Mesa Water District • Kimberly-Clark • STEMQuest Summer Institute • Community United Methodist Church • Two groups from University of California, Irvine exchange program • Two Chinese delegations • Orange County Grand Jury • Black & Veatch board of directors • Department of Water Resources in association with delegates from El Salvador • City of La Habra • Members of the public during Open House

Upcoming tours: • West Coast University, September 1 • University of California, Riverside, September 8 • Orange County Association of Realtors, September 12 • NV5 Engineering, September 16 • Las Virgenes Water District, September 21 • Terminal Island Water Reclamation Plant, September 22 • West Coast University & California State University, Long Beach (CSULB), September 23 • Padre Dam Municipal Water District, September 27 & October 17 • Korean delegation, September 29 • Costa Mesa High School in association with OC Coastkeeper, September 29 & 30 • City of La Habra, September 30 • San Juan Hills High School, October 3 • CSULB, October 10 • CSUF, October 11 & 12 • Anaheim High School, October 14 • San Bernardino Valley College, October 19

Speakers Bureau: As part of OCWD’s standard to forge and maintain long-term, positive and proactive relationships with members of the community and be transparent about its operations and programs, OCWD board members and staff participate, regularly, at community events and speak before civic groups. Below is a listing of the July and August speakers’ bureau engagements. • Aquarium of the Pacific Lecture Series: Ocean Desalination Reconsidered • Lincoln Club • Kiwanis of Huntington Beach

2 • Association of Environmental Professionals & the OC Chapter of the American Planning Association • Groundwater Resources Association, Southern California Branch • Orange County Business Council Infrastructure Committee • Association of California-Nevada Section Water Education Seminar • 2016 National Environment Measurement Symposium in Orange County • Sustain OC Water Solutions Conference • Alamitos Barrier Improvement Project

Upcoming Speakers Bureau: (The Speakers Bureau schedule is provided via email on a weekly basis) • Buena Park Rotary Club, September 7 • OCSD PS Neighborhood Workshop, September 10 • 2nd Annual Anaheim Family Health and Resource Fair Hosted by Assemblyman Tom Daly, September 17 • Placentia Rotary Club, September 28 • American Filtration Society, October 25 • Western Pacific Regional Conference at CSULB, November 12 • IWATER, November 15-17 • AWRA Sandor Csallany Award at Annual American Water Resources Conference, November 16

Media Clips and Inquiries There were 16 media inquiries during July and August from local, national and international outlets.

There were 300 global news hits for OCWD, the GWRS and other District programs and projects. This number reflects multiple hits of the same story. The news clip report for July and August is attached.

Social Media: Following are social media statistics for OCWD social media channels for July & August. • OCWD Twitter (4,373 followers) o Gained 89 followers in the last 62 days o July posts: 45 o August posts: 57 o July-August impressions: 146,000 (average of 2,300 per day) (Impressions include the number of times a user is served a Tweet in timeline or search results. Impressions equal potential exposure.)

3

• OCWD Facebook (313 likes) o Gained 36 more page likes in the last 61 days o July posts: 41 o August posts: 50 o July-August reach: 366 (Organic reach is the number of unique users who saw OCWD page posts in news feed, ticker or on OCWD’s page.)

Press Releases and Electronic Publications: • Staff wrote and distributed the July and August issues of Hydrospectives, OCWD’s monthly e-newsletter. o http://www.ocwd.com/news-events/newsletter/2016/august-2016/ o http://www.ocwd.com/news-events/newsletter/2016/july-2016- hydrospectives/ 4 • Staff wrote and distributed two media alerts and one press release: o H20 Learning Center Dedication media alert http://www.ocwd.com/media/4582/h20-learning-center-dedication_final.pdf o OCWD/OCSD Community Open House media alert http://www.ocwd.com/media/4597/open-house-2016-media-alert_final.pdf o Orange County Water and Sanitation Districts Invite the Community to Learn About Their Roles in Providing Water Reliability and Recovery http://www.ocwd.com/media/4475/open-house-2016_final.pdf • Eight editions of OCWD’s weekly Water Lines were distributed electronically to keep stakeholders informed of important water news and issues. The most recent issues are posted on OCWD’s website: http://www.ocwd.com/news-events/ocwd-in-the-news/

5 JULY 2016 MEDIA HITS Agent Name OCWD | Global News Number of hits 150

Outlet/Publication Country Date Headline Publicnow Canada 07/21/16 19:01OCSD & OCWD Community Open House - August 13 Noodls-India India 07/21/16 13:19OCSD & OCWD Community Open House - August 13 Orange Juice Blog United States 07/20/16 18:07Poseidon plays the Race Card, LULAC dances to their tune. Santa Barbara News-Press(AP) United States 07/20/16 10:32Editorials : Guest Opinion: In Case of drought, do nothing! Orange County Register United States 07/19/16 05:37Desalination is worth considering Orange County Register United States 07/19/16 00:23Letters: Desalination is worth considering AWRA Water Blog United States 07/18/16 17:30AWRA Congratulates 2016 Award Winners Sustainable Brands United States 07/15/16 11:56Mattel Plans to Cut Utility Bills 40% Using Recycled Water Environmental Leader United States 07/11/16 07:32Mattel Plans to Cut Utility Bills 40% Using Recycled Water Orange County Register United States 07/15/16 00:23Huntington Beach desalination plant a matter of environmental justice In Lower #ColoradoRiver Basin, Small Fixes Are Hoped to Avoid the Big Fix — Colorado Coyote Gulch - WordPress.com United States 07/14/16 04:28Public Radio #COriver I-News Network United States 07/13/16 13:05In Lower Colorado River Basin, Small Fixes Are Hoped to Avoid the Big Fix OCWeekly United States 07/13/16 09:06Poseidon Project Moves Forward, But Now Faces Critical Issues Energy Global United Kingdom 07/13/16 02:06Evoqua supports water reclamation plant Culver City Crossroads United States 07/12/16 09:10West Basin Offering Water Workshops KLTV 7 News United States 07/12/16 08:11Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant KTVQ.com United States 07/12/16 08:08Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant Spoke United States 07/12/16 08:05Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant NBC Right Now KNDO-TV United States 07/12/16 08:04Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant KFVS 12 United States 07/12/16 08:03Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant KRGV.com United States 07/12/16 08:01Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant Live5News.com United States 07/12/16 08:01Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant FOX19-WXIX TV United States 07/12/16 07:57Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant Mississippi News Now United States 07/12/16 07:57Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant News9.com United States 07/12/16 07:57Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant TulsaCW.com United States 07/12/16 07:53Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant KXXV-TV ABC United States 07/12/16 07:50Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant KXLH.com United States 07/12/16 07:49Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant KCBD NewsChannel 11 United States 07/12/16 07:49Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant WRCBtv.com United States 07/12/16 07:48Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant KVOA.com United States 07/12/16 07:48Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant KRTV.com United States 07/12/16 07:46Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant WAVE 3 News United States 07/12/16 07:46Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant WIS News 10 United States 07/12/16 07:46Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant KPTV FOX 12 United States 07/12/16 07:45Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant KAUZ-TV: NewsChannel 6 Now United States 07/12/16 07:45Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant Page 1 of 5 JULY 2016 MEDIA HITS Outlet/Publication Country Date Headline WTOC.com United States 07/12/16 07:45Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant WTOL.com United States 07/12/16 07:45Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant Koaa.com United States 07/12/16 07:44Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant KSWO-TV 7 United States 07/12/16 07:44Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant WECT TV6 United States 07/12/16 07:44Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant Erie News Now United States 07/12/16 07:44Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant KSBY.com United States 07/12/16 07:44Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant WBOC.com United States 07/12/16 07:44Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant FOX5Vegas.com United States 07/12/16 07:44Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant WFLX Fox 29-TV United States 07/12/16 07:44Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant Hawaii News Now United States 07/12/16 07:43Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant NewsOn6.com United States 07/12/16 07:43Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant KOAM-TV United States 07/12/16 07:43Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant NewsChannel 10 United States 07/12/16 07:43Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant NewsCenter 1 United States 07/12/16 07:43Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant WTVM.com United States 07/12/16 07:42Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant WDAM - Channel 7 United States 07/12/16 07:42Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant WLOX-TV United States 07/12/16 07:42Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant Cleveland 19 News United States 07/12/16 07:42Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant KCTV 5 United States 07/12/16 07:42Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant WAFF 48 News United States 07/12/16 07:41Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant The CW GA-BAMA United States 07/12/16 07:41Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant KMOV.com United States 07/12/16 07:40Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant YourOhioValley United States 07/12/16 07:40Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant KTRE ABC-9 United States 07/12/16 07:40Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant KPLC 7 News United States 07/12/16 07:39Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant WOWK-TV United States 07/12/16 07:39Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant FOX29 Lake Charles United States 07/12/16 07:39Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant KXNet.com United States 07/12/16 07:38Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant KFVE The Home Team United States 07/12/16 07:38Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant NBC29 United States 07/12/16 07:38Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant KMIR News United States 07/12/16 07:38Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant KTVN Channel 2 United States 07/12/16 07:38Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant WALB.com United States 07/12/16 07:38Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant KZTV10.com United States 07/12/16 07:38Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant WSILTV United States 07/12/16 07:38Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant KTBS.com United States 07/12/16 07:37Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant WV Illustrated United States 07/12/16 07:37Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant WVUE New Orleans United States 07/12/16 07:36Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant WNKY.com United States 07/12/16 07:36Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant Page 2 of 5 JULY 2016 MEDIA HITS Outlet/Publication Country Date Headline KTEN.com United States 07/12/16 07:36Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant KXLF.com United States 07/12/16 07:36Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant KHQ Right Now United States 07/12/16 07:35Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant CBS 58 News United States 07/12/16 07:35Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant Kuam News United States 07/12/16 07:35Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant WSFA 12 News United States 07/12/16 07:35Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant WSFX - FOX Wilmington United States 07/12/16 07:35Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant FOX Wilmington United States 07/12/16 07:35Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant Kiii-tv.com United States 07/12/16 07:35Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant KBZK.com United States 07/12/16 07:35Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant KSLA News 12 United States 07/12/16 07:34Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant WFXG FOX 54 United States 07/12/16 07:34Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant WWBT-TV United States 07/12/16 07:34Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant Tucson News Now United States 07/12/16 07:33Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant NewsWest 9 United States 07/12/16 07:33Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant The CW Richmond United States 07/12/16 07:33Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant Yahoo! Finance United States 07/12/16 07:32Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant KLKNTV ABC-8 United States 07/12/16 07:32Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant KFBB.com United States 07/12/16 07:32Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant WMBF News United States 07/12/16 07:32Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant Hometownstations.com United States 07/12/16 07:32Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant News 12 Mankato United States 07/12/16 07:32Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant WandTV.com United States 07/12/16 07:32Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant KYTX CBS 19 United States 07/12/16 07:31Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant Telemundo Amarillo United States 07/12/16 07:31Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant FOX29 Lake Charles United States 07/12/16 07:31Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant WeAreWVproud United States 07/12/16 07:31Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant Morningstar United States 07/12/16 07:31Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant KAIT ABC-8 United States 07/12/16 07:31Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant 14 News United States 07/12/16 07:31Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant WMC Action News 5 United States 07/12/16 07:31Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant KFMB-TV CBS-8 United States 07/12/16 07:30Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant WBOY-TV United States 07/12/16 07:30Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant FOX 14 TV United States 07/12/16 07:30Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant KUSI News United States 07/12/16 07:30Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant NBC-2.com United States 07/12/16 07:30Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant KULR-8 United States 07/12/16 07:30Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant Enhanced Online News United States 07/12/16 07:07Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant StreetInsider.com United States 07/12/16 07:05Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant Benzinga United States 07/12/16 07:05Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant Page 3 of 5 JULY 2016 MEDIA HITS Outlet/Publication Country Date Headline Sector Publishing Intelligence United Kingdom 07/12/16 07:05Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant Yahoo! India Finance India 07/12/16 01:35Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant Yahoo! Singapore Finance Singapore 07/11/16 23:05Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant Digital Journal Canada 07/11/16 22:05Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant Evoqua Named to Support LA Sanitation's Hyperion Water Reclamati - WFMJ.com WFMJ TV-21 United States 07/12/16 07:58News weather sports for Youngstown-Warren Ohio Evoqua Named to Support LA Sanitation's Hyperion Water Reclamati - WDRB 41 WDRB 41 Louisville United States 07/12/16 07:43Louisville News Evoqua Named to Support LA Sanitation's Hyperion Water Reclamation Plant | Business Business Wire United States 07/12/16 07:20Wire Evoqua to Supply Boiler Feedwater Makeup System For 100% Renewal Energy Biogas AP (Hosted) United States 07/12/16 07:05Co-Gen Plant Utility Dive United States 07/12/16 06:40Advanced Microgrid Solutions secures $200M funding for aggregated storage projects See News Bulgaria 07/11/16 22:38Macquarie puts USD 200m in California energy storage project by AMS Water Online United States 07/11/16 22:31Evoqua Named To Support LA Sanitation's Hyperion Water Reclamation Plant West Basin and Mattel Collaborate to Save Up To Two Million Gallons of Drinking Water Sustainable Brands United States 07/11/16 15:28Per Year West Basin and Mattel Collaborate to Save up to Two Million Gallons of Drinking Water Association of California Water AgenciesUnited States 07/11/16 12:23Per Year Association of California Water AgenciesUnited States 07/11/16 12:08West Basin Announces First-Ever Greywater Workshop Series Solar Industry United States 07/11/16 10:23Advanced Microgrid Solutions Inks Capital For $200M Energy Storage Projects Smart Grid News United States 07/11/16 08:01Macquarie Capital invests $200M in distributed energy storage Orange County Register United States 07/09/16 19:32Jose Solorio making plans to enter Santa Ana city council race Grading and Excavation Contractor United States 07/08/16 10:35Protecting Drinking Water from Saltwater Intrusion Profesionaleshoy Spain 07/08/16 03:22El Fórum Iwater abordará las claves de la gestión futura del agua Noodls-China China 07/08/16 01:43City of Lakewood, CA Voice of OC United States 07/07/16 19:46Solorio Resigns from Board of Rancho Santiago Community College District Voice of OC United States 07/07/16 03:10Jose Solorio Seeks Return to Santa Ana City Council Los Angeles Times United States 07/07/16 00:108 things to know about Senate hopeful Loretta Sanchez's 20-year political career Compton Herald United States 07/06/16 16:42West Basin, Mattel collaborate to conserve water | Compton Herald Bay News 9 United States 07/06/16 14:53Algae bloom: Gov. Rick Scott announces septic tank grant plan News 13 United States 07/06/16 14:53Algae bloom: Gov. Rick Scott announces septic tank grant plan Con 80 ponentes, las sesiones tratarán sobre la resiliencia, gobernanza y financiación del aguaEl Fórum Iwater abordará las claves de la gestión futura del agua en áreas con Observatorio del Plástico Spain 07/06/16 13:31alto estrés hídrico Noodls-China China 07/06/16 03:03West Basin Municipal Water District Orange Juice Blog United States 07/05/16 13:58Dispatches from the Battle Against Poseidon, summer 2016 El Fórum Iwater abordará las claves de la gestión futura del agua en áreas con alto Interempresas Spain 07/04/16 06:59estrés hídrico Can Mua United States 07/03/16 05:32When in SoCal, do as the Romans (and the Greeks) do Page 4 of 5 JULY 2016 MEDIA HITS Outlet/Publication Country Date Headline Los Angeles Times United States 07/03/16 05:10When in SoCal, do as the Romans (and the Greeks) do TecnoAqua Spain 07/01/16 02:01Iwater abordará las claves de la gestión futura del agua en áreas con alto estrés hídrico Orange County Register United States 07/01/16 00:24Political Perspectives: Voters to decide on several local contests in November

Page 5 of 5 AUGUST 2016 MEDIA HITS

Agent Name OCWD | Global News Number of hits 150

Outlet/Publication Country Date Headline Voice of San Diego United States 08/30/16 14:56The Desalination Plant Is Finished But the Debate Over It Isn’t Toledo Blade (AP) United States 08/28/16 21:03Reverse osmosis seen as solution for toxin OC Politics Blog United States 08/27/16 22:05Orange County lobbyist Curt Pringle’s client list revealed at last Orange Juice Blog United States 08/27/16 21:03Pringle’s Trough: the OC uber-Lobbyist’s (partial) Client List, as assembled by Sean Paden. Orange Juice Blog United States 08/27/16 18:01Sign This Please: The OC Water District Needs to Livestream its Damn Meetings! StreetInsider.com United States 08/26/16 10:31Form N-Q EATON VANCE CALIFORNIA For: Jun 30 Orange County Register United States 08/26/16 02:25Political Perspectives: Making statements for the November ballot Orange Juice Blog United States 08/25/16 19:33Jordan Brandman’s Bald-faced Districting Lies Culver City Crossroads United States 08/24/16 09:01Fiesta La Ballona This Weekend – All the Deets! Treatment Plant Operator Magazine United States 08/23/16 06:36Water Environment Federation Announces 2016 WEF Awards H.B. candidate names police chief, ex-mayor and hospital in small-claims case over wife's Los Angeles Times United States 08/22/16 17:29death Orange County Breeze United States 08/20/16 17:28Poseidon working to streamline permitting for Huntington Beach Desalination Project News Deeply United States 08/18/16 04:59Nine Experts to Watch on California Water Reuse The Sacramento Bee United States 08/17/16 15:00Drought, cancer, guns and barriers Orange County Register United States 08/16/16 23:57California water suppliers expecting no shortage Voice of OC United States 08/15/16 10:03Maestas: OC needs Desal As Much As Another Beige, Cookie-Cutter Housing Development Society of Chemical Industry United Kingdom 08/12/16 00:58Dr Abhishek Roy announced as 2016 Gordon E. Moore Medalist District 5: New GOPer Mark Lopez Requested Democrat Ballot In 2008 and 2012 Presidential Anaheim Blog United States 08/10/16 18:00Primaries Los Angeles Times United States 08/10/16 14:45Councilwoman Jill Hardy says she'll keep fighting for open space if she's reelected KATC.com United States 08/09/16 11:24Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable KLTV 7 News United States 08/09/16 10:10Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable Yahoo! Finance United States 08/09/16 10:07Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable WSFA 12 News United States 08/09/16 10:07Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable WNEM TV 5 United States 08/09/16 10:07Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable WMBF News United States 08/09/16 10:07Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable KFMB-TV CBS-8 United States 08/09/16 10:06Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable KFBB.com United States 08/09/16 10:06Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable KZTV10.com United States 08/09/16 10:06Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable Kuam News United States 08/09/16 10:06Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable News 12 Mankato United States 08/09/16 10:06Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable KMOV.com United States 08/09/16 10:06Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable Hometownstations.com United States 08/09/16 10:06Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable The CW GA-BAMA United States 08/09/16 10:05Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable Page 1 of 5 AUGUST 2016 MEDIA HITS

Outlet/Publication Country Date Headline FOX Wilmington United States 08/09/16 10:05Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable FOX 14 TV United States 08/09/16 10:05Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable KPLC 7 News United States 08/09/16 10:05Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable My ND Now United States 08/09/16 10:05Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable KRGV.com United States 08/09/16 10:05Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable ABC FOX Montana United States 08/09/16 10:05Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable The CW Richmond WUPV United States 08/09/16 10:05Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable KUSI News United States 08/09/16 10:05Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable KTBS.com United States 08/09/16 10:04Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable Tucson News Now United States 08/09/16 10:04Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable WGEM.com United States 08/09/16 10:04Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable 14 News United States 08/09/16 10:04Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable WSFX - FOX Wilmington United States 08/09/16 10:04Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable NewsWest 9 United States 08/09/16 10:04Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable WandTV.com United States 08/09/16 10:03Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable WDAM - Channel 7 United States 08/09/16 10:03Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable KSLA News 12 United States 08/09/16 10:03Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable WAFF 48 News United States 08/09/16 10:03Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable KLKNTV ABC-8 United States 08/09/16 10:03Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable WBOY-TV United States 08/09/16 10:03Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable WWBT-TV United States 08/09/16 10:03Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable Live5News.com United States 08/09/16 10:03Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable KAIT ABC-8 United States 08/09/16 10:03Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable ABC57 United States 08/09/16 10:02Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable NBC Right Now KNDO-TV United States 08/09/16 10:02Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable KHQ Right Now United States 08/09/16 10:01Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable FOX19-WXIX TV United States 08/09/16 10:01Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable Mississippi News Now United States 08/09/16 10:01Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable ABC-7.com United States 08/09/16 10:00Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable KFVS 12 United States 08/09/16 09:59Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable KRISTV.com United States 08/09/16 09:58Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable WOWK-TV United States 08/09/16 09:58Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable YourOhioValley United States 08/09/16 09:58Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable WPSD Local 6 United States 08/09/16 09:58Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable Erie News Now United States 08/09/16 09:57Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable WCAX.com United States 08/09/16 09:57Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable Spoke United States 08/09/16 09:57Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable Western Mass News United States 08/09/16 09:57Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable Page 2 of 5 AUGUST 2016 MEDIA HITS

Outlet/Publication Country Date Headline WeAreWVproud United States 08/09/16 09:57Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable KCBD NewsChannel 11 United States 08/09/16 09:57Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable WAOW - News Line 9 United States 08/09/16 09:57Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable TulsaCW.com United States 08/09/16 09:54Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable WRCBtv.com United States 08/09/16 09:53Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable FOX29 Lake Charles United States 08/09/16 09:52Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable WFXG FOX 54 United States 08/09/16 09:51Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable NBC29 United States 08/09/16 09:49Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable KCTV 5 United States 08/09/16 09:49Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable KXLF.com United States 08/09/16 09:48Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable KXXV-TV ABC United States 08/09/16 09:47Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable WAVE 3 News United States 08/09/16 09:47Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable KSBY.com United States 08/09/16 09:47Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable ABC6 United States 08/09/16 09:47Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable WLOX-TV United States 08/09/16 09:47Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable KBZK.com United States 08/09/16 09:47Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable WNKY.com United States 08/09/16 09:46Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable KSWO-TV 7 United States 08/09/16 09:46Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable Koaa.com United States 08/09/16 09:46Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable Hawaii News Now United States 08/09/16 09:46Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable FOX29 Lake Charles United States 08/09/16 09:46Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable KFVE The Home Team United States 08/09/16 09:46Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable WECT TV6 United States 08/09/16 09:46Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable WTVM.com United States 08/09/16 09:46Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable WBRC.com United States 08/09/16 09:46Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable NewsChannel 10 United States 08/09/16 09:46Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable WIS News 10 United States 08/09/16 09:46Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable Telemundo Amarillo United States 08/09/16 09:46Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable WQOW TV United States 08/09/16 09:46Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable WFLX Fox 29-TV United States 08/09/16 09:45Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable WTOC.com United States 08/09/16 09:45Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable KPTV FOX 12 United States 08/09/16 09:45Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable KOAM-TV United States 08/09/16 09:45Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable NewsCenter 1 United States 08/09/16 09:45Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable WBOC.com United States 08/09/16 09:45Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable KMIR News United States 08/09/16 09:45Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable KTVN Channel 2 United States 08/09/16 09:45Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable WTOL.com United States 08/09/16 09:45Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable Page 3 of 5 AUGUST 2016 MEDIA HITS

Outlet/Publication Country Date Headline KAUZ-TV: NewsChannel 6 Now United States 08/09/16 09:45Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable KTRE ABC-9 United States 08/09/16 09:45Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable Lex18.com United States 08/09/16 09:45Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable NewsOn6.com United States 08/09/16 09:45Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable WALB.com United States 08/09/16 09:43Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable WREX.com United States 08/09/16 09:43Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable WSMV Channel 4 United States 08/09/16 09:43Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable Cleveland 19 News United States 08/09/16 09:43Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable WBTV 3 News United States 08/09/16 09:40Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable Telemundo Midland/Odessa United States 08/09/16 09:40Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable KXLH.com United States 08/09/16 09:39Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable News9.com United States 08/09/16 09:39Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable KTVQ.com United States 08/09/16 09:38Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable WLTZ 38 United States 08/09/16 09:38Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable WMC Action News 5 United States 08/09/16 09:38Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable WFSB Channel 3 United States 08/09/16 09:38Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable KTEN.com United States 08/09/16 09:38Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable CBS 58 News United States 08/09/16 09:38Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable KVOA.com United States 08/09/16 09:37Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable KULR-8 United States 08/09/16 09:37Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable KRTV.com United States 08/09/16 09:37Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable WXOW News 19 United States 08/09/16 09:37Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable NBC-2.com United States 08/09/16 09:37Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable WKOW 27 United States 08/09/16 09:37Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable WVVA.com United States 08/09/16 09:37Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable WVUE New Orleans United States 08/09/16 09:37Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable Digital Journal Canada 08/09/16 09:09Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable AP (Hosted) United States 08/09/16 09:06Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable Benzinga United States 08/09/16 09:06Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable Morningstar News United States 08/09/16 09:06Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable StreetInsider.com United States 08/09/16 09:06Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable Sector Publishing Intelligence United Kingdom 08/09/16 09:06Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable Yahoo! India Finance India 08/09/16 03:36Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable Yahoo! Singapore Finance Singapore 08/09/16 01:06Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable - WFMJ TV-21 United States 08/09/16 10:05WFMJ.com News weather sports for Youngstown-Warren Ohio Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable - WDRB 41 Louisville United States 08/09/16 09:48WDRB 41 Louisville News Page 4 of 5 AUGUST 2016 MEDIA HITS

Outlet/Publication Country Date Headline Fitch Rates Irvine Ranch Water Dist, CA's COPs 'AAA' & Affirms Outstanding; Outlook Stable | Business Wire United States 08/09/16 09:27Business Wire Agua Latino America United States 08/09/16 07:10El Arte del Reciclaje,Parte 2: Mejorando la Productividad del Agua (pdf) Times Publishing Group United States 08/05/16 12:51Partnering is “New Norm” in Local Water World Culver City Observer United States 08/04/16 13:56West Basin Announces Greywater Workshop Series Orange County Register United States 08/04/16 00:22O.C. needs desalination like it needs another housing development

Page 5 of 5