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HomeMy WebLinkAbout06.(Handout 2) SB 937 Veto Request Coalition Final60 CMUA CALIFORNIA MUNICIPAL UTILITIES 0 A S S O C I A T I O N Monterey One Water 06. (Handout 2) Inland Empire Utilities Agency .ver A MUNICIPAL WATER 0ISTPICT \ot~— ELSINORE VALLEY MUNICIPAL WATER DISTRICT wdgaQ. — CENTRAL CONTRA COSTA SANITARY DISTRICT CLEAN WATER SOCAL CREATING SUSTAINABLE SOLUTIONS Delta Diablo Rancho water Town of Windsor C A L I F O R N I A SVCW Ong amp gp a T—. September 6, 2024 The Honorable Gavin Newsom Governor of California 1020 O Street Sacramento, CA 95814 �A Of colo Es7 lss6 10 Dublin San Ramon Services District Water, wastewater, recycled water oomo LOS ANGELES COUNTY SANITATION DISTRICTS Converting Waste Into Resources c)r is.. ORANGE COUNTY SANITATION DISTRICT LEUCADIA `,'VAS I EW/,1( F- R DISTRICT GOLETA SANITARY Water Resource Recovery District `r CITY OF \ `� ROSE LE C A L I F O R N I A VALLEY SANITARY ,jj DISTRICT INIDIn CAI IFnRNIa LEADERS IN ENVIRONMENTAL PROTECTION 10 emwd RE: SB 937 (Wiener) — Veto Request Giving Water Mother Chance LAS VIRGENES CIPAL Irvine Ranch Water District li iW VALLECITOS ATER DISTRICT ater and Wastewater Specialists since 1955 Dear Governor Newsom, The California Association of Sanitation Agencies (CASA), the California Municipal Utilities Association (CMUA), and other undersigned organizations representing utilities providing public water and wastewater services in California have an "oppose" position on SB 937 (Wiener) and respectfully request your veto of the measure. This bill introduces a new and conflicting legal standard for the collection of water and sewer connection and capacity charges, which could significantly complicate the process for collecting revenues for the construction of public utility infrastructure necessary to support new development. Water and sewer connection and capacity fees are essential local revenue sources that enable public utilities to provide infrastructure necessary to make new developments habitable. Connection fees and capacity charges are one-time fees assessed on new customers to install physical infrastructure necessary for a parcel to be habitable and to "buy in" to the fair and proportional share of the entire system. Utilities are constitutionally obligated to assess these fees in a manner that reflects the reasonable cost of providing water and sewer service to the parcel. While these fees are treated the same under the law, there are distinct purposes for each: Connection fees are assessed whenever an agency physically connects a parcel to the water or sewer system, and capacity charges are assessed to recover the cost of maintaining or constructing system wide infrastructure necessary to meet the additional water or sewer demand for new users of the system. Capacity fees typically support infrastructure that is necessary to deliver service to new development but is not part of the direct connection to a parcel, such as sewer and water treatment facilities, conveyance mains and pump stations, and additional resource capacity, such as the procurement of additional water resources necessary to support the new population served. Connection and Capacity Fees (GC Ch. 7, 60013) are not Developer Fees (GC Ch. 5, 66000) Connection and capacity charges have been identified as a distinct and separate category of fees consistently by California courts and the State Legislature. In fact, the California Supreme Court has upheld that water and sewer connection and capacity fees are separate and distinct from other types of developer fees in Capistrano Beach Water Dist. v. Taj Development Corp. (1999) 72 Cal.App.4th 524, 530, which held that a capacity charge is not a development fee under the Mitigation Fee Act (Gov.Code, § 66000 et seq.). (Richmond, supra, 424-425.) Simply put, under current law, only land use agencies approve development projects, so a fee can be imposed as a condition of approval of a development project only by the pertinent land use agency. Because water and sewer agencies do not have land use authority, their connection and capacity fees are not considered the same as other developer fees. Therefore, these fees are collected up- front in advance of construction activities, during the only interaction a developer has with the servicing utility. SB 937 would limit the collection of some developer fees (those assessed under the Mitigation Fee Act, GC Chapter 5, Section 66000) until a certificate of occupancy (COO) is issued by the land use agency. However, the final amended version of the bill included language that attempted to clarify which fees could be collected on an up -front basis for new development. These substantive changes are a significant deviation from previous language our organizations negotiated with the author and sponsors to address concerns about utility connection and capacity fees and had the opposite effect of imposing new conditions on the collection of connection and capacity fees in the Mitigation Fee Act. Most significantly, the new conditions outlined in Government Code Chapter 5, Section 66007, would impose new and conflicting conditions for how and when utilities can collect water and sewer connection and capacity fees, in a code section that regulates a different and distinct type of fees for new development that are imposed by a land use authority. These new conditions, in this particular code section, could be interpreted as a new legal standard that would undermine and directly conflict with existing caselaw (Capistrano) and Government Code Section 66013, which is the operative statute governing the collection of connection and capacity fees — or "fees for specific purposes." If signed, this new section could create significant uncertainty about which Section is the operative statute and if indeed it was the intent of the Legislature to intermingle connection and capacity fees with fees imposed by a land use agency under the Mitigation Fee Act. Conflicts Between Existine Statute and New Conditions Outlined in SB 937 Connection fees vs. Capacity Charges: What can be collected up front under SB 937? SB 937 provides in 66007 (C)(1)(a)(ii) that "utility service fees related to connections may be collected at the time an application for service is received, provided that those fees do not exceed the costs incurred by the utility provider resulting from the connection activities." There is significant uncertainty about how this provision could be interpreted both at the local level for implementation purposes and potentially through the legal system under a challenge for the collection of a capacity charge under this new section. If indeed a court were to rule that capacity charges were excluded from being collected up -front under SB 937 in GC 66007, it would open public agencies up to significant legal liability for capacity charges that would become the burden of existing users of the system until a COO was issued. In other words, agencies could be required under this new statute to charge existing customers for a disproportionate share of capacity upgrade costs because developers refuse to pay for those upgrades until a COO is issued (which often occurs well after necessary upgrade costs are incurred). Such a circumstance is constitutionally and practically untenable. Furthermore, if capacity charges are precluded until a COO, it would present substantial logistical challenges for recovery of this revenue because water and sewer utilities are not land use agencies privy to individual COO determinations and they often serve multiple cities with land use authority in their service areas. Tracking individual COOs on a development -by -development basis would be burdensome and resource intensive and could result in stranded assets and direct subsidization of capacity revenue on existing users of the system for incomplete development projects, which is illegal under the California Constitution. Up Front Fees vs. Reimbursements Furthermore, SB 937 allows for certain fees to be collected prior to the COO for "expenditures previously made to the extent those expenditures have not been paid or reimbursed by another party." Connection and capacity fees are collected at the point of permit issuance, before construction is started, to ensure the revenue necessary to support the improvements to sustain and connect new development, not as a reimbursement for work completed. By definition, a capacity charge is imposed to recoup the new user's proportional benefit of systemwide improvements previously made or planned for the future, defined in GC 66013(b)(3) as: (3) "Capacity charge" means a charge for public facilities in existence at the time a charge is imposed or charges for new public facilities to be acquired or constructed in the future that are of proportional benefit to the person or property being charged, including supply or capacity contracts for rights or entitlements, real property interests, and entitlements and other rights of the local agency involving capital expense relating to its use of existing or new public facilities." There is a direct discrepancy in the language of SB 937 that we are concerned could preclude a water or sewer agency from collecting a capacity charge in advance, based on the very nature of capacity charges and the language limiting the collection of fees in the bill. In addition to the constitutional issues discussed above, this could have significant unintended consequences for new development, as this capacity revenue is necessary to support public improvements not directly associated with connections, which are still equally important and necessary to service new users. For these reasons, our organizations must respectfully oppose SB 937 and request that you veto the bill. We believe there is substantial evidence that demonstrates the conflicting requirements imposed by this legislation directly impede a public utility's ability to collect water and sewer connection and capacity fees, and if enacted would contradict existing requirements governing the collection of these fees, present significant liability to public agencies, and would be difficult if not impossible to implement. Thank you for your consideration of our comments. Sincerely, Jessica Gauger Danielle Blacet Director of Legislative Advocacy and Public Affairs Deputy Executive Director California Association of Sanitation Agencies California Municipal Utilities Association Mike McCullough, MPA Director of External Affairs Monterey One Water Roger S. Bailey General Manager Central Contra Costa Sanitary District Steve D. Wagner, P.E. General Manager/District Engineer Goleta Sanitary District Bruce Houdeshelt Mayor City of Roseville Vince De Lange General Manager Delta Diablo Sanitation District Joe Mouawad, P.E. General Manager Eastern Municipal Water District Robert C. Ferrante Chief Engineer and General Manager Los Angeles County Sanitation Districts Paul Bushee General Manager Leucadia Wastewater District Jason Martin Interim General Manager Rancho California Water District Miguel J. Guerrero, P.E. General Manager San Bernardino Municipal Water Department Shivaji Deshmukh, P.E. General Manager Inland Empire Utilities Agency Greg Thomas General Manager Elsinore Valley Municipal Water District Tom Moody General Manager City of Corona Steve Jepsen Executive Director Clean Water SoCal Jan Lee General Manager Dublin San Ramon Services District Paul Cook, P.E. General Manager Irvine Ranch Water District Jeremy Wolf Legislative Program Manager Las Virgenes Municipal Water District Rob Thompson General Manager Orange County Sanitation District James Peifer Executive Director Regional Water Authority Teresa Herrera, P.E. Manager Silicon Valley Clean Water Shannon Cotulla Public Works Director/Engineer Town of Windsor Jason Dafforn General Manager Valley Sanitary District James H. Gumpel, P.E. General Manager Vallecitos Water District