PROFESSIONAL CORPORATION ATTORNEYS AT LAW 8 I 3 SIXTH STR<;:ET THIRD FLOOR SACRAMENTO, CA 9S8 I I 6) FACSIMILE (916)

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1 SOMACH, SIMMONS & A PROFESSIONAL CORPORATION ATTORNEYS AT LAW 8 I 3 SIXTH STR<;:ET THIRD FLOOR SACRAMENTO, CA 9S8 I I 6) FACSIMILE (916) DUNN,.,..._- ~-'.r: r 'r-.-.. r--:-,..~:--',... ~:... f _', Richard Jantz Deputy Executive Officer ChiefExecutive Office th Street, Suite 6800 Modesto, CA Dear Richard: Enclosed with this letter is a memorandum that compares four different types of govemmental entities, each ofwhich could serve as the vehicle for providing water service to the unincorporated area ofstanislaus County generally referred to as the Salida Community Plan area. The four types ofgovemmental structures reviewed include: (1) County Service Area; (2) Community Services District; (3) California Water Agency; and (4) County Water District. In drafting the comparison, we reviewed each agency's latent powers; how each entity is formed; each agency's ability to finance capital improvements and provide a continuous revenue stream for operation and maintenance; the governance of each entity' and the ability ofeach agency to reorganize sometime in the future to provide other types of services or to extend services to other areas. The information set forth in the attached memorandum serves as the basis for the recommendation that follows. While each ofthe agencies are formed in a slightly different manner, they all require that some type of formal process be followed, which does include approval by LAFCO and may in some instances require approval through an election. It is also important to emphasize that formation of anyone of these govemmental entities would be a "project" for purposes of the California Environmental Quality Act ("CEQA"). Accordingly, CEQA compliance would be required as an important first step in the formation process. If water service is the only municipal service the newly formed entity will ever provide, there isn't a huge difference in how each ofthese agencies would operate. They all have the ability to generate revenues and they have fairly broad authority to do what is necessary to secure and provide water within their jurisdictional boundaries. However, because it is conceivable that this entity may be called upon in the future to provide a host of other municipal services, we also considered the flexibility ofeach agency to take on those additional duties.

2 Page 2 Although I would not recommend that the entity be initially vested with authority to provide all municipal services, I I do recommend that the agency have latent powers to expand its role as future circumstances may dictate. Consequently, that leads to the recommendation that either a county service area or a community services district be formed. Both ofthose entities have the latent authority to perform a wide variety ofmunicipal services. While it would be necessary to go through a formal process to expand the types of. services provided, it may not be as difficult an approval process as essentially forming a new entity, which is what would be required ifa California water agency or countywater district were the governmental structure originally formed. 2 As between a county service area and a community services district, there are pluses and minuses to both. The formation process is perhaps somewhat easier in the case ofa county service area. For instance, an election on the formation can be avoided ifall the landowners in the affected area have given their written consent. With a community services district, however, an election can be avoided only if 80 percent ofthe registered voters within the proposed district have signed the formation petition. A community services district can, however, operate independently ofthe County once it is formed. At the time offormation, the County Board of Supervisors can appoint a separate board ofdirectors or can appoint itself as the board for the community services district. (Gov. Code, ) Ten percent ofthe registered voters can force the question of governance onto the ballet with a majority ofthe vote being determinative. (Gov. Code, ) The ability to be an independent district, entirely separate from San Joaquin County, was a major factor leading to the decision to form Mountain House Community Services District. In the case ofa county service area, the County Board ofsupervisors would always be the board ofdirectors for the community services area. There is no similar provision to a community services district that would allow for an elected board to be created. It is not possibleat this time to anticipate the full range of services this entity might be expected to provide. Therefore, it is appropriate to designate only those critical services that must be provided at the time of. formation. 2 It is important to emphasize that any of the various types of districtsanalyzedhave the ability to reorganize themselves to includenew territories or to expand the types of servicesprovided. In fact, in County offresno v. Malaga County Water District (2002) 100 Cal. 4th 937, the Court of Appeal concludedthat the MalagaCountyWater Districthad the abilityto incorporate and becomethe City of Malaga. Nevertheless, it would be easier to gain approval of the decisionto expand the types of servicessince statutorilyit is contemplated that both a community services districtand community servicearea perform a broad range of services. A California water agency or a county water district would requirea change in organization to expand the typesof servicesprovided. The change in organization wouldbe a dissolution wherein the initial agency wouldbe totally dissolvedand a new entity established.

3 Page 3 Should Salida incorporate, either of these two entities can be merged into the newly formed city. Until such time, those people living in the affected area will generally be more satisfied ifthey are served by an independent entity with a board ofdirectors that is directly accountable to the residents. For that reason, I would favor a community services district over a community service area. The question was also raised as to whether the entity formed would be able to contractwith a private company to manage the utilities and, ifso, would the Public Utilities Commission ("PUC") obtain jurisdiction. A contract can be entered into with a private company. Inthat instance, however, the utilities are still technically ownedby whatever governmental agency is formed and also would be responsible for establishing water rates. Since the public agency would be setting rates and charges, the PUC has no jurisdiction. This is what recently happened in the City ofstockton. Stocktonowns the utilities and set water rates but OMI-Thames has the contract to manage and operate the utilities. Should a community services district ("CSD") be formed for the Salida Community Plan area, the board of the CSD could similarly contract with a private utility to perform the general day-today operations of the district. I hope this provides some assistance in deciding in what direction to go regarding the formation ofa water purveyor for the Salida Community Plan area. Ifthere are other questions or if! can elaborate on any ofthe items, please let me know.j, SKD:sb Enclosure cc: Paul Chapman David Romano

4 SOMACH, SIMMONS & DUNN A PROFESSIO~AL CORPORAnON Hall of Justice Building 813 Sixth Street, Third Floor Sacramento, CA Telephone: (916) Facsimile: (916) MEMORNADUM To: From: Subject: Client: Matter: Date: Richard Jantz Sandra K. Dunn A/vr;:;:r- Daniel Kelly ~ Comparison ofgovernmental Water Service Providers Pacific Union Ventures River Ranch August 11,2003 This memorandum sets forth a general comparison of selected forms of governmental agencies that could be established to provide water service to the development proposed within the Salida Specific Plan area and provides the basis for recommendations made. For each type of agency included in the comparison, the following specific issues are addressed: 1. Latent powers; 2. Formation; 3. Fiscal authority; 4. Governing body; and 5. Flexibility of agency to reorganize. While we considered a number of differenttypes of structures, i.e., irrigation district, mutual water company, municipal water district, we found the following to be the most appropriate for a detailed evaluation. Thus, the specific types of governmental agencies included in the analysis are:

5 Page 2 1. County Service Area; 2. Community Services District; 3. California Water District; and 4. County Water District. It should be noted that the formation of anyone of the agencies evaluated would be considered a "project" under the California Environmental Quality Act ("CEQA"). The preparation of an Environmental Impact Report ("EIR") consistent with the requirements of Public Resources Code section 21000, et seq., would be one of the initial steps taken as part of the formation process. It should also be emphasized that while we tried to provide a fairly detailed discussion of the formation process and the statutory authority governing the operation of each entity, the analysis is not an exhaustive list of all requirements that must be met. For instance, we did not include requirements that are generally applicable to each, such as Proposition 218, the Brown Act, and the Fair Political Practices Act. I. County Services Areas ("CSA") (Gov. Code, 25210, et seq.) A. Latent Powers In recognition of the unprecedented growth in the unincorporated areas of California, the State Legislature authorized the establishment of CSA as one method of providing necessary governmental services to those areas. (Gov. Code, ) A CSA is not, however, the exclusive means of furnishing governmental services. (Gov. Code, ) A CSA may be established to provide a broad range of municipal services. The types of services that may be provided through a CSA are enumerated in Government Code

6 RIchard Jantz Page 3 section They include: extended police protection; structural fire protection; Iocal park, recreation or parkway facilities and services; miscellaneous extended services which the county is authorized by law to perform; extended library facilities and services; television translator facilities and services; and low-power television services. Miscellaneous extended services are defined in Government Code section 2521O.4a. They include, but are not limited to: water service (including the acquisition, construction, operation, replacement, maintenance, and repair of water supply and distribution systems, including land, easements, rights-of-way and water rights); sewer service; pest or rodent control; street and highway sweeping; street and highway lighting; refuse collection; garbage collection; ambulance service; planning for a part of the county by a planning agency; soil conservation and drainage control; animal control; transportation services; geologic hazard abatement; and road maintenance. From this list, it is evident that a CSA may provide a full range ofmunicipal services to an unincorporated area ofa county. Before a CSA is established for the purpose of furnishing miscellaneous extended services, the county board of supervisors must make a determination that services should be provided on an extended basis within a CSA or that such services are specified in a request or a petition for the initiation of proceedings for the formation of a CSA. (Gov. Code, ) Moreover, the county must not be performing the services to the same extent proposed on a countywide basis. The board of supervisors must specify the type or types of services to be provided by a CSA at the time the board adopts a resolution of intention to establish a CSA. Upon establishment of a CSA, only the services specified in the resolution may generally be provided. (Gov. Code, ) An exception to this general provision will be discussed below.

7 Page 4 B. Fonnation A county board of supervisors has the discretion, on its own initiative, to establish a CSA. The county board of supervisors must, however, initiate the formation procedure under any of following circumstances: 1. When a written request by two members of the board is filed with the board; 2. A request for the formation of a CSA is made by resolution adopted by a majority vote of the governing body of a city; or 3. A petition signed by not less than 10 percent of the registered voters residing within the territory proposed to be included within the area is filed with the board. Whether the process is begun by petition or by the board on its own initiative, the boundaries of the territory to be included in the CSA must be identified and the type or types of services to be provided must be specified. (Gov. Code, ) Furthermore, approval by LAFCO must be obtained before the board institutes proceedings or before a petition is circulated. LAFCO may make its approval conditional upon a requirement that the services to be provided will be limited to those specified in the resolution of intention adopted by the board. (Gov. Code, ) Within 40 days after receiving a written request or petition, a board of supervisors must adopt either a resolution of intention to establish a CSA or, if authorized by LAFCO, a resolution establishing a CSA without notice and hearing, without an election or both. (Gov. Code, ) LAFCO may only approve the formation of a CSA without notice and hearing and without election if all the owners of the land within the affected territory have given their written consent. (Gov. Code, )

8 PageS If the board adopts a resolution of intention to establish a CSA, the resolution must fix a time and place for a public hearing on the establishment of a CSA not less than 30 days and no more than 60 days after the adoption of the resolution of intention. The resolution must also specify that where funds are otherwise available from service charges collected, a tax sufficient t~ pay for the extended services will be levied annually upon all taxable property within such area. Notice of the public hearing must be published in a newspaper of general circulation. The notice must include the text of the resolution and provide the necessary information regarding the time and place of the public hearing. (Gov. Code, ) The board may also direct that a study be conducted and a report be filed at the time of hearing regarding the services to be provided and an estimate of the cost of providing such services. (Gov. Code, ) Protests may be filed against the establishment of a CSA or the protests may be against the type of service to be provided. If 50 percent of the registered voters residing within the territory proposedto be included, or the owners of one-half or more of the value of the land and improvements in the territory proposed to be included file written protests against the establishment of the CSA, the board must abandon the proposed establishment of the CSA. If the protests are against the furnishing of a specified type of service, that service must be eliminated from the resolution establishing the CSA. (Gov. Code, 2521O.17a.) The public hearing on the formation of a CSA may be continued but must be completed within 30 days. At the conclusion of the hearing, the board is required to make certain determinations. If the board determines that it must abandon the establishment of a CSA, no county general funds can be used to provide the identified services to the area. If the board determines to establish a CSA, a resolution establishing the CSA and designating the services to be provided must be adopted. The board may declare the CSA established without an election or it may declare the area established subject to confirmation

9 Page 6 by the voters. (Gov. Code, ) Once an election is held in which the question is put to the voters, the board may then adopt a resolution finally establishing the CSA. Ifthe board determines to establish a CSA without an election, a petition protesting against.the adoption may be presented to the board within 60 days after its adoption. The. petition must be signed by at least 10 percent of the registered voters residing within the CSA. The petition suspends the resolution of establishment. Ifthe board does not rescind the resolution of establishment then it must submit the resolution to a vote. The resolution of establishment has no effect unless and until a majority of the voters cast in the election approve of the CSA. C. Financial Authority The Legislature has given the county various types of funding authorityto finance the costs associated with providing services through a CSA. The board of supervisors is responsible for establishing a budget for the CSA on an annual basis. The board of supervisors may fix the rate of CSA taxes that should be levied on all taxable property within the area.' The county may fix and collect charges for a particular service in lieu of or supplemental to revenues obtained by taxes. The charges must correspond to the cost and value of the service provided. (Gov. Code, 2521O.77a.) The county may also impose a water standby charge on all land within the CSA to which water is made available. (Gov. Code, 2521O.77b.) The standby charge may not exceed $30. The county may also impose a 6 percent penalty on any unpaid standby charge. The unpaid charge constitutes a lien on the property. For purposes of this memorandum, it is assumed that the county will comply with all requirements of Proposition 218. Those requirements are not the subject of this memorandum. Furthermore, this memorandum does not set forth the procedures that must be followed before any charges may be imposed for services rendered.

10 August 11,2003 Page 7 The board of supervisors may credit the CSA with all or a portion of any revenues, except general fund property tax, which it deems to be generated from that area. (Gov. Code, 2521O.1O(b).) Pursuant to a resolution adopted by four-fifths of all the members of the board of supervisors, a county may appropriate any of its available money into a revolving fund, not to exceed one million dollars, to be used for the acquisition of real or personal property, environmental studies, fiscal analysis, engineering services, salaries, wages, supplies or construction of improvements need to provide services to a CSA. The revolving fund must be reimbursed through service fees, connection charges, tax revenues or other money that may be available to the CSA. Reimbursement must be made within ten years and interest at the current rate per annum received on similar types of investments by the county shall be included. (Gov. Code, 2521O.9c.) D. Governing Body The county board of supervisors is the governing board of the CSA. E. Organizational Flexibility Unincorporated territory, whether contiguous toan existing CSA or not, may be annexed to an existing CSA. (Gov. Code, ) Further, territory may be detached from a CSA, or a CSA may be dissolved, consolidated, or reorganized. '(Gov. Code, 2521O.3(b).) Proceedings related to such reorganization must be taken under and in accordance with the Cortese-Knox Local Government Reorganization Act of 1985, Government Code, 56000, et seq.

11 Page 8 The servicesprovided by a CSAare limited to those specified inthe resolution establishing the CSA. (Gov. Code, ) The board of supervisors may, however propose that other types of services be provided by the CSA. 2 (Gov. Code, ) In order to provide additional services, the board of supervisors must adopt a resolution of intention to provide additional extended services. (Gov. Code, ) The resolution must include: 1) The name ofthe CSA; 2) A general description of the territory included in the CSA; 3) Specify which additional extended services it proposes to provide and state that, except if funds are otherwise available, a tax will be levied sufficient to pay for the additional extended services; and 4) Fix a time and place for a hearing to consider the issue. (Gov. Code, ) If50 percent or more of the registered voters within the CSA, or the owners of onehalf or more of the value of land and improvements in the CSA, file written protest against the furnishing of any specified type of service, that type of service must be eliminated from the resolution. (Gov. Code, 2521O.34a.) Ifthe board ofsupervisors approves the resolution, the specified services may be provided commencing July 1 of next fiscal year in which a tax levy can be made. (Gov. Code, ) 2 A request for additional services may also be made by petition signed by 10 percent or more of the registered voters residing in the CSA. (Gov. Code, )

12 August 11,2003 Page 9 Expansion of the types of services provided by the CSA may require LAFCO approval. IfLAFCO conditioned its original approval of the formation of the CSA to those specific services provided in the original resolution of intent, then LAFCO must approve any attempt by the CSA to extend the services provided. (Gov. Code, 2521O.31(b).) Moreover, if the CSA were to assume the responsibility for providing services already provided by another agency, a change in organization, i.e., merger, consolidation would be required. LAFCO approval is required of any change in organization. (Gov. Code, 56100,56021.) II. CommunityServices District ("CSD") (Gov. Code, 61000, et seq.) A. Latent Powers' CSD are governed by the Community Services District Law, Government Code Section 61000, et seq. CSDs are authorized to provide a wide array of services. The various types of services that may be performed by a community service district are enumerated in Government Code section CSDs may supply inhabitants of the district with water supply for domestic use, sanitation, industrial use, fire protection, and recreation. (Gov. Code, 61600(a).) In carrying out its water supply function, a CSD is authorized to cooperate and contract with the United States Bureau ofreclamation under the Federal Reclamation Act of June 17, 1902, for the purpose of acquiring or constructing water distribution facilities and the purchase, delivery and distribution of water to the district. (Gov. Code, ) In addition to water supply, a Some or all of the powers listed above may be carried out by improvement districts within the community services district. (Gov. Code, 61670, et seq.) Separate statutes govern the formation and operation of improvement districts within a CSD, which are not described in this memo. (See Gov. Code, 61710, et seq., Wat. Code, 23600, et seq.) In addition, "zones" may be established within a district for the purpose of incurring bonded indebtedness, fixing and collecting special rates, or levying special taxes to carry out certain district activities within the specified zone. (See Gov. Code, 61770, et seq.)

13 Page 10 CSD can collect, treat or dispose of sewage waste and storm water; collect and dispose of.. garbage; make road improvements; provide and maintain public airports; and provide fire protection, public recreation, street lighting, police protection, mosquito abatement, library service,ambulance service, transportation service, and flood protection'. (Gov. Code, ) A CSD may acquire property from a county pursuant to Government Code section , and borrow or otherwise accept funds from other agencies for the purposes of constructing facilities, and dispose of such property and use the proceeds as provided in Government Code section (Gov. Code, ) Further, a CSD may acquire real or personal property within or without the districtby grant, purchase, gift, devise, lease, or eminent domain. (Gov. Code, ) A CSD may hold, use, lease, or dispose of any of its property. (Gov. Code, ) Where a CSD's powers include fire protection, the CSD may exercise any of the powers, function, and duties of a fire protection district pursuant to the Health and Safety Code section 13801, et seq. (Gov. Code, ) A district having the power to own or operate a water system may contract with any person or private corporation of any kind or with any other city, county, municipal corporation or other public agency of the state, or with the United States, to purchase or acquire from, or sell to, or jointly to acquire, construct, maintain or operate a water supply system or water supply to inhabitants of the district. (Gov. Code, ) Similarly, a CSD can enter into an agreement with any public or private corporation whereby any work or improvement may be operated by the corporation. (Gov. Code, ) 4 A community services district may provide flood protection where the planning, design, construction, operation and maintenance of such works are not within the authority of another public agency, unless that public agency agrees that the district provide flood protection services, and the governing body of the city or county in which the services are to be provided consents to the district providing such services. (Gov. Code, 61600(q).)

14 Page 11 B. Formation The people of any unincorporated territory within one or more counties can form a CSD. (Gov. Code, ) A CSD may be formed by petition of registered voters or by adoption of a resolution of application. (Gov. Code, ) following: A proposal to form a new district by way of petition for formation must include the 1. Indicate that the proposal is made and request the proceedings be taken for the formation of the district pursuant to the CSD Law; 2. Describe the lands to be included in the district; 3. Set forth the methods by which the district will be financed; 4. State the reasons for forming the district; 5. Propose a name for the proposed district; 6. Designate no more than three persons as chief petitioners, providing their names and addresses; 7. State whether the formation is consistent with the sphere of influence of any affected city or district; and ' 8. Specify the number of members, either three or five, of the initial directors and their method of selection. (Gov. Code, ) Prior to circulating the petition, the chiefpetitioners must publish a notice of intention which must include a written statement, not exceeding 500 words, stating the reasons for forming the district. The notice must be published in one or more newspapers of general circulation within the area of the proposed district. The notice must be signed by at least one,

15 Page 12 but not more than three, chief petitioners. Within five days of the date of publication, the chief petitioners must file, with the executive officer of the LAFCO, a copy of the notice with an affidavit from the newspaper certifying the notice has been published. After the above requirements are met, the petition may be circulated. (Gov. Code, ) The petition must be signed by at least 10 percent of the registered voters' residing in the area to be included in the proposed district, as determined by the LAFCO. 6 The petition may consist of a single or multiple instruments. The chief petitioner must file the petition, including any counterparts, with the executive officer of the LAFCO within six months of the filing of the notice of intention and affidavit with the LAFCO. Within 30 days after the date of filing the petition, the executive officer of the LAFCO must examine and certify whether the petition contains the requisite number of signatures. (Gov. Code, ) A proposal to form a CSD may also be made by way of a resolution of application by the legislative body of any county or city which contains territory proposed to be included in the district. (Gov. Code, ) Exceptfor the signature requirements, a resolution of application must include the same information as a petition for formation. (Gov. Code, ) Additionally, prior to adopting a resolution of application, the legislative body must hold a public hearing on the resolution. The hearing must be noticed and people given an opportunity to present their views on the proposed resolution. (Gov. Code, ) Once the petition is certified as sufficient, or the resolution of application is filed, the LAFCO must proceed to consider the request in accordance with the provisions of the Government Code governing LAFCO's proceedings, Government Code section 56825, et seq. (Gov. Code, ) The petition must be signed by registered voters, not landowners, residing within the proposed boundary of the CSD. (Gov. Code, 61103, 61016; Elections Code, 359.) Elections Code sections 100 and 104 govern the signing of the petition. (Gov. Code, )

16 Page 13 Ifthe LAFCO approves the formation of the district, with or without amendment, the executive officer of the LAFCO must mail a copy ofthe LAFCO's determinations to the board of supervisors. Within 35 days after adoption of the LAFCO's resolution, the board of supervisors must call and give notice of a formation election in the district. The election must be held on the next regular or special election date, not less than 113 nor more than 150 days after the date the board of supervisors calls and gives notice of the election. (Gov. Code, ) Notice of the election must be published in a newspaper of general circulation within the county. The notice must include the following: 1. The date of the election; 2. The name of the proposed district; 3. The purposes for which the district is to be formed; 4. A statement that the firstdirectors will be elected at the election or will be appointed; and 5. A description of the proposed boundaries of the proposed district. (Gov. Code, ) If, however, the board of supervisors finds that the formation petition has been signed by at least 80 percent of the registered voters 7 in the proposed district, it can dispense with the election, adopt a resolution declaring the district formed, and cause a certified copy of the resolution to be forwarded to the LAFCO. (Gov. Code, ) Within five days after the election has been called, the board of supervisors must notify the LAFCO, including the name and description of the proposed district. (Gov. Code, 7 A voter is a person residing within the district who is entitled and registered to vote. (Gov. Code, 61111, 61016, Election Code, 359.)

17 Page ) The executive officer of the LAFCO must submit an impartial analysis ofthe proposed district to the officials in charge of conducting the formation election. The chief petitioners, the agency filing the resolution, the board of supervisors or any member authorized by the board, or any individual voter or bona fide association of citizens entitled to vote in the election, may file a written argument in support of or in opposition to the proposed formation. Arguments must not exceed 300 words and must be filed with the county elections official by a reasonable date prior to the election, as determined by the county elections official. (Gov. Code, 61113(a).) In the event that more than one written argument is filed for or against formation, the elections official is required to select one of the arguments to be distributed to the voters, with preference going to the chief petitioners or the agency filing the resolution, then the board of supervisors, or any authorized member of the board. (Gov. Code, 61113(b).) The authors of the arguments in favor and opposed to formation may submit rebuttal arguments, not exceeding 250 words. Ballot pamphlets containing the above information get mailed, at least 10 days prior to the date of election, to each voter" entitled to vote. The order of information on the ballot is as follows: 1. The complete text of the proposition; 2. The im.partial analysis prepared by the LAFCO; 3. The argument in support of formation; 4. The rebuttal argument in support of formation; 5. The argument in opposition to formation; and 6. The rebuttal argument in opposition to formation. (Gov. Code, ) A voter must reside within the district. (Gov. Code, )

18 Page 15 The formation election is conducted in accordance with the Uniform District Election Law, Elections Code section 10500, et seq. If a majority of votes are cast in favor of formation, the board ofsupervisors must pass a resolution declaring the district formed, and describing its boundaries. (Gov. Code, ) The resolution is immediately forwarded to the LAFCO, along with the required fees and the LAFCO completes the proceedings pursuant to Government Code section 57200, et seq. (providing for certification and filing of the resolution with Secretary of State). C. Financial Authority CSDs have several methods of raising revenue for the construction and operation of facilities. A CSD can borrow money and incur or assume indebtedness and issue bonds or other evidence of indebtedness. (Gov. Code, ) A CSD may also authorize, issue and sell revenue bonds, and may levy and collect taxes for the purpose of carrying on the operations and paying the obligations of the district. (Gov. Code, ) The procedure for incurring bonded indebtedness is set forth in Government Code section et seq. A CSD can prescribe and collect rates or other charges for services rendered and make available, as security, any and all revenues received or receivable for services furnished. (Gov. Code, ) Any unpaid charges for water or other services constitutes a lien on all real property within the county owned, or later acquired, by the person liable for the debt. (Gov. Code, ) A CSD may borrow money and incur indebtedness for any authorized purpose. (Gov. Code, 61742,61743.) Such indebtedness is by way of notes issued for not more than five years, at an interest rate not to exceed six percent. (Gov. Code, ) Such notes are considered general obligations of the district for which payment must be made by all property within the district subject to taxation. (Gov. Code, ) The district may not, in anyone CONFIDENTIAL ATTORNEY CLIENT PRIVILEGE

19 Page 16 fiscal year, issue notes in excess of an amount equal to one percent of the assessed valuation of the taxableproperty within the district. (Gov. Code, ) If, for any reason, the revenues of the district are inadequate to pay the principal or interest an any bonded debt, the board must levy taxes to raise adequate funds. (Gov. Code, ) Ifrevenues are inadequate to carry out the purposes of the district, the board may levy taxes for such purposes. (Gov. Code, ) The tax rate cannot, without majority vote of the electors, exceed one percentof the assessed value of land in the district. (Gov. Code, ) In addition to the above revenue sources, a CSD may levy water standby or availability charges of $10 per acre per year, or ifless than one acre, $10 per year, for each parcel of land within the district to which water is made available for any purpose, whether used or not. (Gov. Code, 61754, ) D. Governing Body A CSD is governed by a board of either three or five directors, who must be registered voters of the district." (Gov. Code, ) The initial board of directors for a CSD in an unincorporated area in a single county may be elected or appointed by the board of supervisors, which may appoint itself as the district board. (Gov. Code, ) Upon petition of a least 10 percent of the registered voters in a district or by resolution of the board, and a majority vote at an election, the board can be changed from an appointed board to an elected board. (Gov. Code, ) This requirement does not apply if the board of directors is the board of supervisors.

20 Page 17 E. Organizational Flexibility Any contiguous, or noncontiguous land which consists of any unincorporated territory may be annexed to a CSD. (Gov. Code, ) Land proposed to be annexed must be susceptible of service and be benefited by the district. (Gov. Code, ) Proceedings related to such reorganization must be taken under and in accordance with the Cortese-Knox Local Government Reorganization Act of 1985, Government Code section 56000, et seq. Initially, a CSD may only exercise those powers designated in the petition for formation. (Gov. Code, ) However, if the board determines, by resolution, that it is feasible, economically sound, and in the public interest to exercise any power authorized by the Community Services District Law not already designatedin the petition for formation, it may submit the question ofwhether the CSD should exercise those powers to the voters. (Gov. Code, ) The CSD may exercise those powers upon a majority vote. The district, using this same procedure, may divest itself of any of its authorized powers or purposes. (Gov. Code, ) A decision by the CSD to exercise powers not included in the petition for formation requires LAFCO approval only if the exercise of those additional powers results in a change in organization. (Gov. Code, ) A change in organization is defined as a district dissolution, consolidation, or a merger. (Gov. Code, ) Therefore, if the CSD is proposing to take on services already provided by some other district or agency, some type of reorganization would occur and LAFCO approval would be required.

21 Page 18 III. California Water District (Wat. Code, 34000, et seq.) A. Latent Powers" California water districts are governed by the California Water District Law, Water Code section 34000, et seq. California water districts generally have the power to "perform all acts necessary or proper" to fully carry out the California Water District Law. (Wat. Code, ) More specifically, California water districts have the power and authority to acquire, plan, construct, and maintain the necessary works for the production, storage, transmission, and distribution of water for irrigation, domestic, industrial, and municipal purposes, and any associated drainage or reclamation works. (Wat. Code, ) In carrying out its water supply function, a water district is authorized to cooperate and contract with the United States Bureau of Reclamation under the Federal Reclamation Act of June 17, 1902, for the purpose of acquiring or constructing water distribution facilities and the purchase, delivery and distribution of water to the district. (Wat. Code, 35875, et seq.) In addition to its water supply role, a California water district has the power to acquire, construct, operate, and furnish facilities and services for the collection, treatment, and disposal of sewage, waste and storm water. (Wat. Code, YI In carrying out its various powers, a California water district may contract with one or more public agencies, private corporations, or other persons to carry out its duties. (Wat. Code, 35850, ) A district also has the power to join with one or more public agencies, private corporations, or The powers ofa district may be exercised within distribution districts with a district. (Wat. Code, ) Prior to providing sewage services, the board must first get the approval of a majority of votes, through an election, authorizing the exercise of these powers. (Wat, Code, ) Alternatively the district may exercise this power after a noticed hearing, unless a majority writer protest is filed. (Wat. Code, )

22 Page 19 other persons for the purpose of carrying out any of the district's powers. (Wat. Code, ) A district may, within or without the district, but within the state, acquire property by purchase, condemnation, or other legal means property or rights in property necessary for district purposes. (Wat. Code, ) A district also has the authority to construct works on any property owned by the state. (Wat. Code, ) A district may also dispose of its property, for valuable consideration, if the board determinessuch disposition is in the best interest ofthe district. (Wat. Code, ) B. Formation A request to form a California water district is done by way of petition by those desiring formation of the district. The petition may be brought by the holders of a title" to a majority in area of land which is capable of using water beneficially for irrigation, domestic, industrial, or municipal purposes which can be serviced from common sources of supply and by the same system of works. Where the land sought to be included in a district is noncontiguous," the petition must be signed by the holders of title of a majority of the assessed value ofland within each noncontiguous area. (Wat. Code, ) The content of the petitionis relatively straightforward. The petition must contain: 12 A California Water District is a landowner voting district. As such, any holder of title to land in the district is entitled to vote. (See Wat. Code, 34026, 34027,35003.) 13 The area of the proposed district need not be contiguous if the portions of the proposed district are separated by land under the control of a state hospital, or the boundary of each of the portions is within two miles of another portion of the district. (Wat. Code, )

23 August 11,2003 Page The name of the proposed district, which must include the words "Water District"; 2. A description of the proposed boundaries of the proposed district; 3. The name ofeach affected county"; 4. The number of acres in the proposed district; 5.. The proposed principal place of business of the proposed district; 6. The sources, which may be in the alternative, from which water for the uses of the district will be secured; and 7. The signatures of the petitioners. (Wat. Code, ) The petition for formation of the district must be presented to the board of supervisors of the county in which the proposed district is located, at a regular meeting of the board. (Wat. Code, 34154, ) The petition must be accompanied by an undertaking, to be approved by the board of supervisors, in an amount not less that $1000, depending on the costs associated with the formation of the district." (Wat. Code, ) After the board's acceptance of the undertaking, it must set a hearing not less than 22 days, nor more than 40 days after the acceptance. (Wat. Code, ) The hearing must be noticed at least once a week for three successive weeks in a newspaper of general circulation published in the county. (Wat. Code, ) The notice must state that the petition has been presented to the board, indicate the time and place for the hearing, the text of the petition, and the names signed to the 14 An "affected county" is any county in which land in the proposed district is situated. (Wat. Code, 34014, 34015, ) 15 The board of supervisors may request an undertaking if, in its judgment, the cost associated with the formation of the district will exceed one-half of the amount submitted. (Wat. Code, )

24 Page 21 petition. (Wat. Code, 34180(a)-(d).) The first publication must be a least 21 days prior to the hearing. At or prior to the hearing, any owner of land within the proposeddistrict may request the exclusion of his or her land from the proposed district. (Wat. Code, 34300(a).) Any owner of contiguous land not included in the proposed district, and susceptible to irrigation from any source named in the petition, may request, in writing, inclusion in the district. (Wat. Code, 34300(b).) At the hearing, the board must hear all relevant evidence for and against the petition, or for and against the inclusion in or exclusion from the proposed district. The board may continue the hearing, but not after 30 days from the time originally fixed for the hearing, except from day to day, if any of the petitioners object to such continuance. If the board of supervisors finds that there is good cause for not forming the district, it may terminate the hearing. (Wat. Code, ;) Ifthe hearing is not terminated, the board of supervisors is statutorily required to make an order fixing the boundaries of the district, excluding lands which will not be benefited by the water services of the proposed district, including land, upon application, which would be benefited from such service, and make an order establishing, describing, and naming the district. (Wat. Code, ) After making the above order, the board of supervisors must call and give notice of an election to determine whether the district shall be formed and for electing persons to fill the offices of the proposed district, if formed. (Wat. Code, ) The board of supervisors must also prescribe the method for nominating candidates for the offices to be filled at the election. (Wat. Code, ) Notice of the election must be published once a week for at least three weeks previous to the election in a newspaper of general circulation published in each affected county. The notice must provide the date and hours of election, identify the polling places, describe the boundaries of the proposed district, identify the offices for which

25 Page 22 candidates will be elected, and contain a statement that all voters and legal representatives of voters can vote in person or by proxy. (Wat. Code, ) Within fivedays of calling the election, the board must notify the executive officer of the LAFCq in writing, by registered mail, that such an election was called. This notice must include the name and description of the proposed district and may be in the form of a registered copy of the resolution adopted by the board. The executive officer, within 5 days of being notified of the call of the election, must submit to the LAFCO, for approval or modification, an impartial analysis of the proposed district. This impartial analysis may not exceed 500 words and must include a specific description of the boundaries of the proposed district. Within five days of the receipt of the impartial analysis, the LAFCO must approve or modify the analysis and submit it to the official in charge of the election. (Wat. Code, ) The board of supervisors or any member authorized by the board, or any individual voter or bona fide association of citizens entitled to vote in the election, may file a written argument in support of or in opposition to the proposed formation. Arguments must not exceed 300 words and must be filed with the person in charge of the election not less than 54 days priorto the date of the election. (Wat. Code, ) In the event that more than one written argument is filed for or against formation, the elections official is required to select one of the arguments to be distributed to the voters, with preference going to the board of supervisors or any authorized member of the board. (Wat. Code, ) Ballot pamphlets containing the above information get mailed, at least 10 days prior to the date of election, to each voter entitled to vote." The order of information on the ballot is as follows: 16 A voter, or person entitled to vote, is a person who holds title to land in the district. (Wat. Code, 34026, 35003, et seq.)

26 Page The complete text of the proposition; 2. The im.partial analysis prepared by the LAFCO; 3. The argument in support of formation; and 4. The argument in opposition to formation. If a majority of all votes are cast in favor of formation, the board of supervisors must, by order on its minutes, declare the district formed and issue certificates of election to the persons elected to district offices. (Wat. Code, ) The board must then immediately file, in the office of the county recorder, a certified copy of the order, along with a certificate listing the name ofthe district, the date of formation, the county in which the district is located, and a description of the boundaries of the district, or reference to a map showing the boundaries, which must be attached to the certificate. (Wat. Code, ) When the order is filed, the formation of the district is complete. (Wat. Code, ) Within 60 days of qualifying for office, the district board must prepare by-laws for the written approval of the board of supervisors. (Wat. Code, 35300, ) A district board must also, as soon as practicable after the formation of the district, prepare and adopt a plan of works and estimate the amount of money necessary to raise for the purposes for which bonds may be issued. (Wat. Code, ) C. Financial Authority A water district can raise money through assessments and charges, through the issuance of warrants and other negotiable notes, and, in the long-term, from the sale of revenue and general obligation bonds.

27 Page 24 A water district can make water available to landowners and fix and collect charges for the service. (Wat. Code, 35470,35475.) The charges may include standby charges, whether water is used or not. The board is also empowered to fix and collect charges for the sale of water to provide funds to pay revenue bonds and interest. (Wat. Code, 35472, ) Such charges must be fixed on a flat rate per acre or connection or on a metered basis, or a combinationof the two. (Wat. Code, ) A district can also levy and collect assessments, which are considered a lien on the land. (Wat. Code, 36550, et seq.) A water district may issue bonds for the purposes of acquiring or constructing works for water supply, acquiring the necessary property for such works, acquiring funds to carry out contractual commitments to carry out the powers and purposes of the district, acquiring all or part ofthe operating funds for the district, or redeeming any outstanding warrants ofthe district. (Wat. Code, ) Water districtscan issue both revenue bonds and general obligation bonds. (Wat. Code, 35950, et seq., 36150, et seq., 36250, et seq., 36300, et seq.) D. Governing Body A California Water District is governed by a board of directors, each of whom must either hold title to land in the district or be a representative of a holder of title to the land in the district. (Wat. Code, 34700,34807.) The initial board is elected at the formation election. (Wat. Code, 34403,34423.) E. Organizational Flexibility Any portion of an existing district may be excluded from the district, and land not part of the district, whether contiguous or not, may be included in the district under proceedings taken pursuant to the Cortese-Knox Local Government Reorganization Act, Government