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City of Palo Alto
City Manager's Report
HONORABLE CITY COUNCIL
CITY MANAGER
1_ fl, 19!15
DEP AR1'ME!II7: CIIy J\.faaageI"
CMR:.1OO:9S
ResoIutioa or Ihe CooDcII or Ihe City or ......, Alto Ex(>ressin8
Opposition 10 Assemb17 Bill 318 Regarding Municipal Water
IIDd Power UUIity lta~
AssemIlIy BiD 318, if enacled, would resWJ in serious intnlsioo by the Slate into local rue
selling auth<JriIy lOr !l-.ose cities whlc~ have municipal water and power ublities and would
restrict the abilily 0( suek cities \0 transfer utilities revenue 10 their general fund. The
Council is asked \0 adopt the attached resorutioo as • means 0( further publicizing the
CiIy's oppooitioo \0 the bill.
RFCOMMENDATIONS
It is ~ 1ha! !he Council adopIlhe resoIu6on expressing opposition 10 Assembly
Bill 31 S regarding municipal water and power utility rates.
Assembly Bill US h .. been amended several times during its progress through the Slate
AsaembIy. When inlroduced, the bill stringently defined wbal costs could be covered by
die niles charged 10 utility users and probibittd the lransfer 0( any utility revenues 10 the
diy's general fund. Subsequent amendments have expanded the expenditures which can
be included in the costs of operating the utilities. The most recent versloo 0( the bill, as
amended 1une I, 1995. also provides IOOIe exceplions \0 the prohibition on tile transfer of
utility EeVCIIUCS. Foe the full !ext 0( the bill. see Attachment A. Nevertheless. the bill is
• direct dlallenge \0 the City'. charier authority.
The author. Assemblyman Richard Katz, introduced the bill in the belief that many cities
are av~arging ratepayers in order 10 transfer large profits 10 their general fund. The
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City cl Los Angeles Department cl Watec and Power was specifically singled out IS an
example, PrcponcDts of die Iegislalion have circulated data about municipal utilities'
• 'I' ""'. Ind 'profiIs" dial are seriousIJ Ilawed and indicate a Iwic lack of undentanding
of municipal entcJprise finaJlcing.
FoIIov.ing approval by die Aasembly Local Government CooImittee (6-1), AB 318 came
up lOr. volle 0II1be Assembly F100r 011 June I, 1995, 1be most recent amendments were
made on !he floor and volOd 011 befOl'e being in print. Assemblyman Byron SIler.
repreenIBlive foe Palo Alto, orgucd vig()l'()OJS],. againsIdIe bill 011 !he Assembly Floor.
TIle final Volle wu ayes44. ooes-l2, IIOt voQDS·24.
Assembly Bill 318 ill slro/IgIy ~ by die League of Cclifumia Cme. and die
c.IiftrIIia Munkipal Utilities Association. Worldng in concert with Iho6e O<gllIllzaOOcs,
Palo Alto ..,'" letten from die Mayor 10 &1l Ihe members of Ihe Assembly Local
GoIiezM>ea! Committee and COOlIIIunkated frequently with Assembl)'TIIM Sher, Renewed
effort! musl now be direcIed aI!he members of !be Se .. te Local Government CooImittee.
Memben of die Senate, and ped!aps ultimately !be Governor, must be helped 10
uoderstand how severely passage of this bill will impact cities with municipal utilities.
FISC'" IMPACf
The equity lransferfrom !be UtiliI)' turds 10 Ihe Genom Fund for FY 1995-96 will be
$10.19 miIlioo. Prohibiting the transfer of any utiliI)' W'-'llllCa 10 the city"xenera1 fund
would amount 10 • U.S pettelll reductioo ;g die City', operating and capital budgets.
ENVIRONMENTAl, ASSFS£MENT
NlA
ATIACBMENTS
A. Assembly Bill 318 (Katz) IS amended Iune I, 1995.
B, Draft RcsoIution ia. Opposition 10 AB 318.
PREPARED BY: VICCi Rudin, Assistanl. to die City Manager
REVIEWED BY: Bernard M. Strojny, A"islllnt City Manager
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California 1995-95 Regular session
1995 CA AI! 318
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Itato
AMENDED 1M ASSnmLY
AMENDE!> III ASSEMBLY
AMENDED 1M ASSDlBLY
loKENDED III ASSEKBLY
AJlBNDED III ASSEMBLY
JUKE 1, 1995
KAY 25, .1995
KAY 16, 1995
1O.Y 8, 1919'S
APRIL 26, 1995
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ASSEMBLY BILL Mo. 318
lliTROOOCED BY Assembly Member Itatz
(Coauthors: Assembly Members Bowen, Johnson ... and :Knex:)
(Coauthors: senat~rs ~opp and O'Connell)
FEBRUARY 9, 1995
An act.. t,o add Sections 113 and. 114 to the Water Code, relating to
vater ..
LEGISLATIVE COOIISEL'S DIGEST
AB 31 •• as amended, htl:.. Cit.ies: vater and power: rates ..
Existill9 Ill'" authorizes aunicipd corp<>rations to establish and
operate publIc works to furnish their inhabitants vith water and power.
This bill would li.it the rates that may be charged by .. munIcipal
vater and power 6qency. as defined, to an amount that qeLerates
sufficient revenue t:. pay the. direct and indirect costs of acquiriJl9',
-transportinq, treating, storinq, delivering, and eonservinq water ... or
vater and power" inoludinq the cost of atainistration. the cost of
1IU1tiyear capital outlay pr~ams, the repayment of debt and the
.. 1ntenance of approprl"te operatill9 reserves, capitel slnk1ll9 funds,
and other .I.lIar rea.rve funds for the purposes of the agency, the
dIrect and indirect costa of a city Gr city and county attributable to
the aqency,. and the costs of carryinq out the powers and purposes of the
aqency. The bill would authorize a municipal water and power agency to
iwplement ~he ~ill those llaltations in phases I as
prucribed. f'lle bIll l'oulcf pcovIcfe tbat the Ji .. it"tions do not
apply to « aunlc1pal water and power agency in specified circumstances.
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~e bill would provide that ~eee the limitatIons do
not apply to any rataa i_pose4 in connection with the sale of vater or
po-Iu by •• unicipl!ll "Iter and power 119'ency to persons or entitles
oubolds the ~ui ... of that .... ncy or to any rotes impose4 on public
entit~e.. The bill would also provide, notvlthstandlng speeifie4
proviaiona o! law, that if a municipality has adopted a utility user
taxI a aunlclpa.l vater and. power aqency may collect, on behalf of~ a.nd
transfer to, the auniclpallty, the revenues qanerated ~y that utility
tal<.
The bill would provide that the Le .. iolature shall reduce, by a
specified U><>Unt., generol fu.')(\s appropriated to the incorporated cit)' of
lIhlcb ...... lcipal vater and pover ag-"ncy Is a part if that a .. .,nc)'
violattia the rat.e Ii_itationa prescribed by the bill. The bill would
provide that it shall become operative on the first day of the first
U_l year of each .unlcipal wahr and paver .. gency follovill9 the
effective date o~ the section.
Vote: majority. Appropriation: no. Fiscal c01Dllittee: no~
State-aandated local proqraa: no~
THE P!:QPLE OF THE STATE OF C1.LI FOPJHI.. 00 ENACT 1..5 FOLLOWS,
SECTIOS_1. Section 11) is a~ed to the Water Code, to read:
111. The Legislature finds and declares all of the follQ~ing:
(a) rbe delIvery of essential utility services. including vater and
power, is critical to the health and welfare of the citizens of this
s"tate.
(b) Kunieipal water and power aqencies should be able to recover
their direct and indirect QOsts associated with acquirinq, transportIng,
treating. a~ delivering sufficient vater an4 power supplies to
ratepay.ers.",
ee) The powers and p~~ses of municipal water and po~er agencies
are generally liaited to the provision of yater and power to their
ratepayers and, to the greatest extent possible, these agencies should
undertake vater conservation and reclamation services in order to
aaxiaize the use of li.lted resources.
(d) Municipal vat~r and ,poYer agencies should not !Serve as surrogate
tax collectors. For example, the Los Angeles Department of Water and
Power transfers an averaqe of one hundred .illion dollars ($lGO.OOO,OOO)
annually to the City of Los Angeles tor nonutility related services
undertakan by that city~ These transfers are not proper and constitute
a bidden tax on the ratepayers of any Ilunicipal water and power aqency.
SEC. 2. section 11~ is adde4 to the Water Code, tG read:
114. Cal For the purposes of this section~ a -municlpal water and
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power agency-t. an agency of an lnoorpor~ted city that acquire.,
tranaportl" treat.., stores, and deliver. water, o-r water and power, at
retail.
(1)) ilJ A 1IWl1cipel vater and p".,.r agem:y lIIoy tra.ouf .. r .Ilrpl ••
funds to tbe incorporated city of "bicb It Is an agency in eitber of the
LollovLng clrcu .. t4DC.~:
tA) IL tbe city, Yitbln tva years Lro. tba efLective date oL
this section, bolds an election in vhich the qualiLied voters within the
cjty .pproV8, by a .ajorlty vote, the transfer oL surplus Lunds to the
city.
(~) If tho city, vithin the 50 yeers prIor to tbe effective date
of this sectloa, beld an election in whicb ~,e qualified voters of tbe
cIty a~ed, by • aajorlty vote, the transfer of surplus runds to the
city.
(2] If .. JfU1Jlc1pal ""ter and paver agem:y Is "utborilled to
transfer surplas funds pursuant to this subdivision., subdivislO1lS (e),
(dJ, (e), and (L) db not apply to tbat agency.
rCJ A municipal water and power 6qency may impose rates on
its ratepayers only to generate sufficient revenue fer the folleving:
(1) The direct and indirect costs of acquiring, t.ransporting.
treating, storing, delivering, and: cons.ervinq vater, or 'Vater and power,
including the costs of adDinistratlon~
(2) Ta pay for the direct and indirect costs of a city or city and
COUl'!ty that are attributable to the agency. Cost allocation methods MY
be used in deter1lin inq those cost ••
(3) To qenerate revenue to pay for the costs of aultiyear capital
outlay programs, including the deSign and construction o~ new projects
for the purpose of conserving or recycling water~
(4) ro qenerate revenue for the repayment of de~. and to maintain
appropriate operatinq reserves, capital sinking funds, and other sl.llar
reserve tund. for the purposes of the agency.
(5) To pay foe tbe costs of cauyinq out the povers and purposes o~
the agency.
Cd} To the extent rates ~mpo$e~ upon ratepayers by a
aunlclpal water ~~ power aqency prior to January I, 1996, qenerated
revenue in exceStl Clf that revenue ne.eded for the purposes specif"ied in
subdlvloion -tet-(e) • the aunicipal Yater and power
~9ency shall reduce the rates on its ratepayers only to generate
Bufficient revenue in aooordance with subdivision -fBt-(e)
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(.) (1) A aunicipal water and power agency may implement
thi ••• ction in phasea by reducing the transfer or surplus funds to the
incorporated city of Which it 10 an agency, following the operative date
of this sectlon l as fells.8.
ft.) ""e~ five pe!'eefl.:' in 'etl:e li!'_" liaeal yeal!'.
(83 Aft a,.'ti:leftal 25 ,e:FSl!ftt' ift 'Ute-aeelSnd '!eleal year.
(a) BJlli:relj' ift 'Qe: ~ir. IllS8a1 year.
per year tor 11v. consecutive fiscal years.
by tventy percent
(Z) If the mun1cipal vater and power aqency implements this section
In phasea pursuant to thl. subdivlsionl the aqency shall correspondingly
reduce the rates on its ratepayers, pur$u~nt to subdivisioc ~
(d) • in each fiscal year.
If) {1} If any IlUnicipal water and power agency imposes a
rate, or uses funds derived therefr08, in violatIon of this section, the
Legislat&re shall reduce any appropriation of qeneral funds to the
l~ated city o~ which that municipal water and power agency is a
part.
(2) rile a.ount of the reduction shllll equal the amount of funds that
is Cjenerated by that portion of the rate that is unauthorized -pursuant
to !:hIs aection.
(~) fbis seotion addresses a matter of statewide concern
requiring unifora &tatevJde regulation to ensure tbat all municipal
vater and power agencies use the funds qanerated by the imposition of
vat.r 9r power rates solely for purposes relating to their respective
agencies.
(bJ (1) TIlls section 6088 not apply to any rates imposed in
connection with the sale of water ~ power by a municipal water and
power aqency to persons or entities outs!~e the boundaries of that
agency or to any rates i=posed on public entities.
(1) This section shall not apply to revenue generated by the sale or
lease of land owned by the .unlcipal water and power 4qency.
fl) RDtvithstanding subdivision td) of Section 113 as added by this
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ac.t, if a llWIlclpal1ty has adcpted a utility user tax, a aunlcipal water
and power a'Janey uy collect, on behalf ot, and transfer to, the
.unicipality. the revenue. 'Jenerated by that utility tax.
tl, Tht • .ectlon .ball becoae operative on the first day
the tint fiscal year of aacb aunicipal yater and power "qen<:y
the .ffectiva date of this aection.
of
followill9
SI!C. ,'. ~ Leqlslat.""e finds and declares that section" 1 and 2 ot
thIs act, whicb ar. applicable only to certain aunlcipol water and power
agenei .... ara necessary be(:&U". ot unique and specIal problems
a •• ociated vith the t.position of water and power rates by those
a9e.ncil8;.. I.t. ial' theret.e>re. declared that a qene.r.al laW' within the
aeanlnq of section 16 of Article IV of the Callforhia constitution
cannot. be _die applicable to those agencies and that tbe enactment. of
this specIal law is necessary tor the eonservation l developaent,
control, and use o~ that water for the public qood:~
Elo" OF REPOR'l
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ATTACHIIENT a
J1E.SOLOTION NOo __ _
RESOLOTION OF 1'I!E COUNCIL OF 1'I!E CITY OF PALO ALTO EXPRESSING
OPPOSITIOIiI TO ASSEllBLT BILL US lIEGARDING MUNICIPAL WATER AND
POWER UTILITY RATES
1iIIBRZAS, the Palo Alto Ci ty Charter has vested in the city
councIl the authority to establish rates for all revenue producing
utl1itl •• owned, controlled, or operated by the City; and
WBEREAS 1 the Palo Alto City Charter further provides for the
purposes and prioritized order in which the utIlities revenues
shall be usedi and
WIiEItEAS, the authority qranted bY the Palo Alto city Charter
includes ~ranaters to the qeneral fundi and
~, munici~l utility ownership represents a substantial
invest..ent and transfers to the geneeal :fund are comparable. to ~e
divicSendS whicb would be paid to tlte investe-rs if the municipal
utility vere a private utility; and
~, the longstanding practice of enterprise transfers to
the general fund enables the city to maintain the levels of service
deaanded by Palo Alto residents and businesses; and
WHEREAS, Assembly [li11 311 would severely nstrict the ability
of cities to transfer revenue from their water and powec utilities
to the lr q-enera 1 fund; and
WBEREAS 1 Assembly Sill 318 constitutes an unwarranted state
intrul!lion int.o local rate satting autborit.y and is inconsistent
with the California Sta'te const.itut.ion which provides \:bat a
Chartered city .ay ~ and enforce all regulations affecting its
.unicipal public utility operation; and
WHERZAS, cities ~ich have their own water and power utilities
would experience eevere. revenue reductions in their budgets if the
passaqe of Asse=bly Bill 31'8 should occur; and
WHEREAS, Assembly BIll 3.18 passed t.he Assembly on June I.
1995, despite the opposition expressed bY our representative Byron
Sber. whoa ve commend:
MOW, THERE.FOR£" 8E IT I'<ESOLVEO tlJat the Council of the City of
PAlo Alto does hereby express its stronq opposition to Assembly
8ill )18 and urges its dereat in the State Legislature.
[IITROOOCED AND PASSED:
AYES:
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1fOlIS:
ABSENT:
JiIlsTENTIOliS'
ArnsT.
City Clerk
API'IlOYED.... '1'0 FOIM:
City Attorney
APPROVE!).
:Mayor
City Manager