LAFCO and Water System Consolidation

LAFCoand Water System Consolidation: Bri gi h a et ee I d s e reg I t rs UNIVERSITY OF CALIFORNIA Agriculture and Natural Resources Authors Kristin Dobbin, Assistant Professor of Cooperative Extension at the University of California Berkeley and the Division of Agriculture and Natural Resources Justin McBride, PhD Candidate in Urban Planning at the University of California Los Angeles Acknowledgements This report was made possible by generous funding from the University of California Agriculture and Natural Resources (Award# 23-7000). We thank Emily Scott for the design of this report and Sunny Singhal for his help with editing. We would also like to thank the following participants in the consolidations research advisory committee for helping to inform the design and implementation of the project: Michael Claiborne, Nataly Escobedo Garcia, Blanca Surgeon, Sara Luquin, Carlos Bravo, Janaki Anagha, Katrina Hiott, Sergio Carranza, Reyna Rodriguez, Bryan Potter, Allisa Hastie, Khalid Osman, and Greg Pierce. Many additional external reviewers from around the state provided valuable feedback on our initial draft for which we are extremely grateful. Any errors are ours alone. For more information contact Kristin Dobbin at kbdobbin@berkeley.edu Introduction In 2012, California passed AB 685 enshrining In particular, in California, county Local Agency the human right to water into state law. Achieving Formation Commissions, known as LAFCos, are this vision is not a simple task, instead it requires regional planning and regulatory agencies tasked ongoing commitment and investment by state with "coordinating logical and timely changes in legislators and regulators. Water system local government boundaries, conducting special consolidation, or the merging of two or more water studies that review ways to reorganize, simplify and systems, has increasingly become a focus of these streamline governmental structure and preparing efforts due to a wide array of potential benefits. a sphere of influence for each city and special This is particularly true for the state's very small district within each county."2 In this capacity, they water systems, many of which struggle to achieve have a critical role to play in promoting and imple­ consistent regulatory compliance. In the hopes menting water system consolidations for existing of halting and reversing the proliferation of small and proposed water systems. Because LAFCos water systems, California has implemented policy regulate boundaries between most public agencies, changes including developing financial incentives they often have the final say over water system for larger water systems to consolidate small consolidation projects that involve a local govern­ systems, introducing new powers to mandate ment entity including special districts and cities. consolidation under specific circumstances, and Yet in practice, many water system consolidations working to limit permits for new water systems are conceived of and planned without input from in favor of extending existing systems. With local planners and may only come before LAFCo these efforts as well as unprecedented financial for formal review after significant resources investments in consolidation through the new Safe have already been invested in the project. Much and Affordable Funding for Equity and Resilience the same can be said for local development plans. (SAFER) program, the state has reduced the total To the extent a new development relies on a new number of public water systems by more than 3% public water system, local project proponents may in the last 9 years.1 find themselves at odds with state regulators who Despite these successes, implementing wish to avoid the creation of additional small water consolidations in an efficient and equitable manner systems they perceive as unsustainable. In these continues to be a difficult task. A large array of cases, there is significant potential for frustration challenges from local politics to funding regularly on all sides when plans are delayed or must be delay and sometimes prevent consolidations, both changed due to inadequate coordination, conflicting between existing systems and for systems intended policies and/or competing priorities. to serve new industrial or residential development. These examples highlight what can be a wide This report focuses on one such challenge, the gulf between drinking water regulators and LAFCos need to coordinate and align actions by state and when implementing water system consolidations, local regulators. Under the Federal Safe Drinking whether for existing or new systems. Though Water Act, the state of California is responsible for intertwined in practice, the two often approach ensuring compliance among public water systems. questions of water system fragmentation with This role has put the State Water Resources Control distinct perspectives and priorities. Such differ­ Board (SWRCB) at the forefront of efforts to reduce ences can reverberate beyond individual projects, the number of small water systems. Nonetheless, impacting broader efforts to rationalize drinking changes to drinking water services often impli­ water services, increase equitable access, and cate changes to local government, thus requiring ensure sustainability under a changing climate. consultation with, and sometimes the approval of, Overwhelmingly LAFCos and state drinking water local regulators. regulators share goals for promoting equitable, LAFCo and Water System Consolidation 3 efficient, and sustainable local drinking water aims to: 1) Highlight important intersections service. Yet we are a long way from the policy between LAFCos' local planning and regulatory alignment necessary to stop, let alone reverse, roles and state policies and programs that the proliferation of small water systems. prioritize water system consolidation as a safe Drawing on interviews with state regulators drinking water solution; 2) Identify challenges at and LAFCo representatives, input from state these intersections that limit progress on shared technical assistance providers, and a survey goals; and 3) Provide recommendations to begin of county LAFCo Executive Officers, this report to address these challenges. Section I: Understanding LAFCos and Their Role in Water System Consolidation About LAFCos Many LAFCos also include board members from Local Agency Formation Commissions (LAFCos) special districts within the county. The exact are county-specific independent governmental structure of individual LAFCo commissions agencies charged with conducting studies varies, but a typical commission has at least five, to evaluate, reorganize, and streamline local and up to seven, members who serve four-year government functions and services. LAFCos were terms. Though geographically coterminous with first created by the State of California in 1963 to every county, LAFCos are politically independent manage sprawl. Subsequent legislative updates from the county government where they have gradually increased the scope of LAFCo powers operate. Commission decisions are not subject and authorities over time. The most important of to oversight, review, or approval by the County these updates occurred in 2000 with the passage Board of Supervisors. of the Cortese-Knox-Hertzberg Act (CKH). 3 Though LAFCo commission meetings are public amended periodically, the CKH Act remains the most meetings, and as such must be regularly held, open important reference for understanding LAFCo to the public, and are subject to the Ralph M. Brown powers and processes. Act.4 The work of the commission is carried out Each LAFCo is governed by a commission by staff, led by an Executive Officer. Staffing levels comprised of elected and appointed individuals. vary substantially between counties. Some have Every LAFCo includes representatives of the full-time Executive Officers and up to eight additional county's Board of Supervisors and city councils full-time staff members, and others have only part­ from cities within the county boundaries along time Executive Officers and minimal, or even no, with one appointed member of the general public. additional staff /See Append x). e e 1 .. e g 2 The Cortese-Knox-Hertzberg Act of 2000 was the most recent major overhaul of LAFCo powers. It establishes procedures for local government changes of organization, including city incorporations, annexations to a city or special district, and city and special district consolidations. In carrying out these functions, the Act specifically directs LAFCos to: • Limit urban sprawl; • Ensure orderly boundaries between governmental agencies; • Preserve open space and agricultural lands. Though LAFCos may have other priorities related to local political preferences, these three mandates are shared to some extent by all LAFCos in accordance with state law. LAFCo and Water System Consolidation 4 LAFCos are funded from two primary sources. local policies or encourage unwanted urban First, all LAFCos receive annual funding from the sprawl, and does not create wasteful duplication local governments represented on the commission of services. In other words, in many cases LAFCos (county, cities, and sometimes special districts). will be concerned with the question: How will this The size of these contributions varies by county, as consolidation fit into our broader planning priorities each LAFCo sets its own budget. Second, LAFCos for the county? may charge fees for some types of applications The answer to this question will largely depend or services. These fees are typically borne by the on the structure of the proposed consolidation. relevant agencies or other applicants (such as Water system consolidation can be accomplished landowners) applying for the action in question, for in many ways including not only district or city example, an adjustment to a district's jurisdictional consolidation but also through extensions of boundary. service, annexations, etc. (See 'Br,dg,ng differences in terminology' box). Any one of these procedures LAFCos and water system consolidations may also trigger reorganizations or dissolutions, To avoid the duplication of services and ensure all of which may have distinct procedures and that growth occurs in an orderly fashion, one of requirements for implementation. In some cases, LAFCos' primary roles is to regulate and approve LAFCos have a preferred pathway for how to changes to the jurisdictional boundaries and accomplish consolidations that will need to be planning boundaries of all cities and most special adhered to in order to receive the necessary districts (the most notable exception is school approvals. However, in other cases, LAFCos may districts). As a result, LAFCo will be involved in any prefer to make recommendations or determinations consolidation project if one or more of the systems based on the specifics of an individual project. - either consolidating or receiving -is a public We recently surveyed LAFCos across the state agency, specifically a city or a special district.5 and received responses from 23 of the state's 58 If a consolidation project involves no such water LAFCos. Nearly 40% of respondents indicated they systems, there is no formal role for LAFCo, although pref erred outright annexation to extraterritorial if the consolidation involves one or more Investor­ service agreements whereas 52% reported having Owned Utilities, the California Public Utilities no pre-set preference. Commission (CPUC) will play a similar oversight role. Even when a LAFCo has a preference, however, If a project involves both public and private water they may still approve exceptions based on specific systems, LAFCo may only be involved in certain circumstances. For example, under California law, components. For example, if an Investor-Owned LAFCos may (but are not required to) approve a Utility takes over water provision in a community request for a service extension outside of a service previously served by a local agency (as in the case providers' jurisdictional boundary and sphere of of the Sativa Water District in Los Angeles County), influence to respond to an "existing or impending LAFCo would be involved in the dissolution of the threat to the health and safety of the public or the public district but not in the "annexation" by the residents of the affected territory". 6 More than two Investor-Owned Utility of the new service area thirds of survey respondents indicated they had which would instead be approved by the CPUC. approved such a request in their county. Notably the It is important to keep in mind that while a requirements for doing so vary between counties. LAFCo's purview includes districts that provide Some counties require only a letter from an affected drinking water, LAFCos do not primarily regulate local government body, while others require expert drinking water providers or their day-to-day documentation of the threat. operations. Rather, their role is to ensure that Beyond the need to coordinate with LAFCo on drinking water provision happens in an orderly the structure of a proposed consolidation, LAFCo manner that does not create additional burdens involvement has another important implication: on residents, does not conflict with established Fees. Given that LAFCos are authorized to collect LAFCo and Water System Consolldat,on 5 Bridging Differences In Terminology This report uses the term "consolidation• in a broad sense to mean the formal merging of some or all functions of drinking water provision between two or more water providers or communities. Consolidation, in this drinking-water focused sense, can happen through a variety of different pathways that vary in not only their implementation but also outcomes (for more information see the 2022 guide Designing Water System Consolidations). Under this definition, consolidation can include the physical interconnection of existing water system infrastructure (physical consolidation) but it does not have to. Consolidation may instead entail merging only the governance and management functions of two pre-existing systems (managerial consolidation) or extending a water system to serve a domestic well community or new development. This inclusive definition is informed by, and aligned with, the definition state drinking water regulators and community water advocates employ. However, for a LAFCo, the term consolidation refers to a narrowly defined legal process, closely constrained by state law. The CKH Act defines consolidation as "the uniting or joining of two or more cities located in the same county into a single new successor city or two or more districts into a single new successor district.• Consolidation in a LAFCo sense always entails the creation of an entirely new district. While largely semantic, this difference can cause confusion. Projects such as the extension of a community water system to serve residents previously reliant on a state small water system or where a special district like a County Service Area is absorbed into a neighboring city would both be commonly referred to as consolidations among drinking water stakeholders. To a LAFCo representative, however, many such "consolidations• are instead understood as extensions of service, annexations, reorganizations, and/or dissolutions. fees for services and studies and that some rely on perform a special study called a Municipal Service these fees to cover the associated costs of those Review (MSR). MSRs are comprehensive studies additional reviews, those seeking to consolidate designed to better inform LAFCo, local agencies, drinking water services may have to bear the cost and the community about the provision of municipal of any related study required by state law. LAFCos services. MSRs can be conducted individually for have some degree of autonomy in setting fees to specific cities or districts, covering all services, compensate for staff time. As such, relevant fees or on a county-wide or regional basis focused on vary significantly between counties. Of the 23 specific services. LAFCos that responded to our survey, estimated Based on these requirements, some LAFCos total fees associated with a consolidation project conduct regular MSRs while others do so only when ranged from $0 to $50,000, depending on the LAFCo necessary, such as when a sphere of influence and the complexity of the project. Seventy percent issues arise. Budget and capacity constraints are a of survey respondents said that they waive fees major factor influencing how frequently MSRs are under specific circumstances, the remainder conducted. Some LAFCos reported in interviews indicated that fee waivers were not available. that they did not conduct MSRs as frequently as they would like due to high costs. Municipal Service Reviews The requirements related to MSR contents are Beyond regulating local government boundaries, also loosely bounded, meaning that in practice, LAFCos also play an important role in evaluating the content and level of detail varies by county. municipal services within their county and making Ideally an MSR will have insights into the kinds of recommendations for improvements. The CKH things those pursuing consolidation would likely Act mandates that every five years, as necessary, be interested in - water quality, water source LAFCos review and update the designated sphere reliability, fiscal stability, managerial capacity, and of influence for each city and special district technical expertise. Take for example the recent under their jurisdiction.7 Prior to establishing Countywide Water Service and Sphere Review by or updating a sphere of influence, LAFCos must Santa Cruz County which provides significant detail LAFCo and Water System Consolidat,on 6 on system finances, water rates, transparency and 38% of LAFCos report that local accountability among other items. 8 In other they evaluate the feasibility cases, MS Rs may have few of these details and thus provide little in the way of local insights either of consolidation as part of supporting or challenging consolidation efforts their MSR process and 61% (capacity can also be a factor here). By statute, LAFCos are authorized to request information from report that they recommend privately owned water systems as part of their reviews including from mutual water companies. 9 consolidation in MSR findings Notably, very few LAFCos currently do so and some where warranted. LAFCos report mutual water companies have failed to respond to requests for information when they have attempted to include them in MSRs. resilience of the proposed system long-term. As part of the assessment of consolidation feasibility, Approval of new public water systems an applicant needs to document contact with LAFCo Recognizing the importance of stopping the regarding the identified existing water systems. further proliferation of potentially unsustainable Approval of non-water system related development small water systems throughout the state, (e.g., a warehouse facility to be served by the recent regulatory changes now require that proposed water system), however, remains a local all applications for new public water systems10 decision and LAFCos retain final authority on areas must be approved by the SWRCB. Applicants where services can be provided by the existing wishing to construct a new system must apply at water systems of cities and special districts. Thus, least six months before initiating water-related there is potential for inconsistent determinations development with an accompanying Mpreliminary between state and local authorities, which could technical report." The preliminary technical report cause delays and/or lead to potential litigation. must analyze the feasibility of connecting to any These changes increase the need for coordination public water systems within three miles, assess between state drinking water regulators and local the twenty-year costs of operating the proposed authorities regarding when and where the creation system, and evaluate the sustainability and of new water systems is appropriate. Section II: Challenges Based on our interviews and survey results, in communication between these agencies is limited. this section we describe seven key challenges that While, in many cases, LAFCos rely on publicly limit effective coordination between state and local available SWRCB data in developing their MSRs for regulators with respect to water system consolida­ water services, the MSR process also often gener­ tion, both among existing and new systems. ates new information about the status of local water providers, especially regarding the state of system Lack of communication and information governance and finances. This information can be sharing between LAFCos and drinking water highly relevant to understanding the potential of regulators a system to encounter future challenges. Yet only Although LAFCos, the State Water Resources 30% of surveyed LAFCos report sharing their MSR Control Board (SWRCB), and the California Public findings with drinking water regulators. And while Utilities Commission (CPUC) all play key roles relevant some SWRCB staff do independently seek out and to drinking water system consolidations, each has use MS Rs when working with a system, not all MSRs a unique niche in the enforcement patchwork, and are publicly available online. LAFCo and Water System Consolidation 7 This lack of information sharing mirrors a "consolidation" refers to a specific legal process, general lack of communication between local plan­ not a broad suite of options. Conversations that ners and state drinking water regulators. Nearly all casually use the term consolidation can thus create LAFCo Executive Officers we interviewed reported confusion, since many water system consolidation only infrequent contact with state drinking water projects fall under LAFCo descriptions for annexa­ regulators. The lack of communication creates tions, dissolutions, extraterritorial service agree­ issues in both directions. On the one hand, the ments, or other arrangements. SWRCB may have information about the challenges But this challenge is not only semantic. While all of local agencies unavailable to LAFCos who often parties share a commitment to ensuring efficient, only have infrequent communications with the small equitable local services, the goals that motivate water providers under their jurisdiction. Similarly, system consolidation and the metrics by which a LAFCo might be aware of issues which could merit "success" is assessed in these projects can also consolidation in the future. These systems might vary. State regulators tend to prioritize projects on be good candidates for SWRCB intervention, but the basis of Safe Drinking Water Act compliance, intervention is unlikely if information does not flow cost, and improving system sustainability (i.e., between agencies. On the other hand, the SWRCB targeting "at-risk" systems). Overall LAFCos take may pursue solutions such as consolidation without a broader perspective, including considering a clear understanding of locally specific challenges impacts to different community services as well as such as conflicting policies, or potential political county-wide impacts and consistency in long-term barriers. planning. This is well demonstrated by the fact that California's other key water agency, the CPUC, surveyed LAFCos reported considering, on average, regulates Investor-Owned Utilities. The CPUC more than five different factors when reviewing communicates even less frequently with LAFCos consolidation-related applications (Figure 1). Among than the SWRCB. This is not surprising, given that these considerations, 30% of LAFCos reported that LAFCos do not regulate private utilities. But in ensuring adequate Technical, Managerial, and some cases, LAFCos might be ignorant of poten­ Financial (TMF) capacity was the most important, tial privately-owned consolidation partners for followed by ensuring logical service boundaries and troubled local government systems or vice-versa, increasing access to safe and affordable drinking of struggling private systems where governmental water, each of which was voted most important systems could expand their service area. Addition­ 26% of respondents. Notably, whereas preventing ally, consolidations involving Investor-Owned Utili­ and reversing water system fragmentation is a top ties (refe rred to by the CPUC as acquisitions) can priority of the SWRCB, this consideration did not significantly impact local development. Currently rise to the top among LAFCOs, only 70% of which there are no specific mechanisms for LAFCos to said they consider system fragmentation when provide feedback to the CPUC on these matters reviewing consolidation-related applications. except to file a motion for party status in an acquisi­ tion proceeding which is subject to approval and Diversity in local implementation conditions by a judge. All LAFCos are governed by the CKH Act, but policy occurs just as much in implementation as Lack of shared language and vision in statute. Because the CKH leaves substantial Sometimes, when drinking water stake­ autonomy for local LAFCos to tailor their opera­ holders interested in water system consolidations tions to local conditions, implementation varies encounter LAFCos, they find the experience to substantially from LAFCo to LAFCo. The state's be frustrating. Often, part of the problem is that rules have few hard guidelines except when it LAFCos do not share a common vision or even use comes to specific procedural actions. the same language to talk about consolidations. For example, according to statute, LAFCos As previously mentioned, for LAFCo staff the term are supposed to interpret any requests to LAFCo and Water System Consolidation 8 Figure 1. LAFCo considerations in reviewing consolidation related applications by frequency. Ensuring logical service boundaries Addressing service needs in disadvantaged unincorporated areas Ensuring adequate TMF capacity Increasing access to safe and affordable drinking water Reducing fragmentation among water service providers Ensuring adequate representation . 61' Preventing sprawl Other 0% 20% 40% 60% 80% 100% ■ Percent of survey respondents that reported considering this factor in reviewing consolidation-related applications accommodate a system consolidation based on the an area slated for non-development purposes, the potential costs and savings, as well as other impacts LAFCo may oppose the project for fear of losing to local residents. This open-ended set of criteria open space. In many cases there are workable leaves room for interpretation leading LAFCos to compromises that can be found if these goals and review a wide range of factors as mentioned above. constraints are clearly communicated, for example This statute language also allows for LAFCos to pursuing an Extraterritorial Service Agreement have different local policies leading some LAFCos to (also called Out-of-Agency, Out-of-Boundary or prioritize specific planning goals, like the prevention Outside Service Agreements depending on the of urban sprawl or addressing service needs in county).11 unincorporated areas. LAFCos vary substantially in their preferences Unclear roles and responsibilities regarding consolidation pathways. Technical While the SWRCB is committed to stopping and assistance providers may select a consolidation reversing the proliferation of small water systems pathway which they think will best suit the needs as part of advancing the Human Right to Water (AB of the community they work with. LAFCos will 685), precisely because of the planning and local tend to take a more holistic view and measure the government implications, there are practical and proposed benefits of any consolidation project political limits to their ability to do this work on their against the potential impact on development and own. Yet there is ambiguity, and even disagree­ services county-wide. For example, if a consolida­ ment, regarding what the role and responsibilities tion of private wells into a nearby municipal system of local planners such as LAFCos is, or should be, would extend that city's sphere of influence into with respect to advancing the same mission. LAFCo and Water System Consolidation 9 Generally, LAFCos rely on the SWRCB to flag Nearly 40% of LAFCos report struggling systems and initiate consolidation facilitating or supporting local processes rather than do so themselves (although in certain counties, LAFCos do sometimes play consolidation projects whereas a more central role in promoting projects). However, LAFCos do not necessarily view this as less than 9% report initiating a positive from a local policy standpoint. Several consolidation projects. LAFCos indicated that state-level policymakers and agencies generally lacked an understanding of the intricacies of local implementation of on new customers, even if the receiving system is consolidations. Some also regarded state-initiated best suited to serve those communities. LAFCos projects without adequate state financial support generally operate under tight budgets and with as unfunded burdens for the affected communities limited staff, and thus generally require a project and for LAFCos themselves. proponent to fund any necessary studies to But locally initiating projects has its own proceed with a dissolution rather than take on the challenges. California state law is clear that, in cost from their own budget. Additionally, LAFCos some circumstances, LAFCos have the power are prohibited from initiating certain consolidation to initiate water system consolidations through pathways, such as annexations. Thus, even if a district dissolution, even without the consent of LAFCo knows consolidation is the best choice, they targeted district. 12 These types of consolidations rarely act as proponents. An exception to this trend are rare, however, for several reasons. Perhaps is when a local scandal erupts, either around system unsurprisingly, LAFCo commissioners are often governance or water quality. reluctant to go against locally elected political This does not mean, however, that LAFCos leaders-some of whom may even sit on the LAFCo do not view themselves as having any role in commission themselves. Second, such actions consolidations. For some LAFCos, considering are subject to public hearings and can be blocked consolidation options is already a part of their by formal protests from residents, an outcome standard operations. Thirty-two percent of which is more likely because the threshold for surveyed LAFCos reported assessing the feasibility popular motions to block the action is lower in of consolidations as part of MSRs for drinking LAFCo-initiated proceedings. Third, LAFCos are water service providers. Sixty percent reported generally reluctant to force other systems to take recommending system consolidation as part of o nty ate ·st ict Post• Scand"llf When some Compton residents began to notice discolored water in their taps in the spring of 2018, popular protests erupted. One entity was not surprised. Los Angeles (LA) LAFCo had flagged the water provider, the Sativa County Water District, as struggling in multiple categories as early as 2005, and staff had recommended outright dissolution of the agency to the commission in 2012. However, despite these red flags, the agency continued to operate, and no consolidation efforts were formally initiated, either locally or by the SWRCB. When the protests began, however, LA LAFCo was prepared to spring into action. With the changed political winds following the fallout from the scandal, the commission was able to initiate a dissolution process for Sativa just two months after complaints first arose and soon thereafter work with the state to allow the county to temporarily takeover operations while all parties looked for a new permanent provider. The case of Sativa highlights just how effective a well-resourced LAFCo can be in dealing with a local crisis. But the case also provides an example of how a lack of coordination around system dissolution priorities and political inertia can led to a crisis in the first place. A more aggressive approach locally, or better coordination from the SWRCB, might have dealt with the issues at Saliva before brown water flowed out of residents' taps. Nonetheless, LA LAFCo's quick response and effective collaboration between local and state regulators headed off the problem before things got worse. LAFCo and Water System Consohdation 10 MSRs based on assessments of water supply, governance, proximity to other systems, or other Resident Support Is Of en on-Nego • iable factors. In these cases, our interviews reveal that Most LAFCo actions, such as district dissolutions most LAFCos view the initiative to then fall on the and annexations, are subject to protest by individual system boards to explore possible options registered voters and landowners in the affected territory. Generally, if more than 25% of the for consolidations or alternatively, for the SWRCB voters or landowners representing 25% of the to intervene if a system is underperforming to such assessed value of land in the area submit written a degree to require consolidation. protests, the change must then be approved by As a result, most consolidation projects in voters in an election which is a costly and California are initiated by, or in partnership with, the time-consuming undertaking. In some instances, namely if LAFCo initiates the boundary change SWRCB. Due to the SWRCB's responsibilities under itself, this threshold is lowered to 10%. Moreover, the Safe Drinking Water Act, these consolidations some LAFCo actions that can be needed for a tend to target existing or imminent health and safety consolidation project, like the creation of new concerns. A more proactive approach to other special district, always require a local election. types of potentially challenged systems -such This means that regardless of whether a consolidation project is initiated by the state or a as small systems with governance issues, those local proponent, resident support is usually unable to raise capital or with retiring staff or those critical to successful implementation. particularly vulnerable to climate disasters-has so far not been on the agenda for lack of a clear responsible party or champion. the future. While LAFCos might seem to be natural agencies to promote consolidation for these types Gaps in relevant authorities of systems, they ultimately do not have either the In addition to ambiguity about the role of statutory mandate, funding, or powers to do so. LAFCos in reversing water system fragmentation, the fact that not all water systems are subject t9 the Competing local priorities jurisdiction of LAFCos limits even the potential for LAFCos are political organizations primarily LAFCos to support consolidation projects. Water composed of elected officials. As such, local politics systems are regulated by a patchwork of state and matter a lot. If a local agency's board does not local agencies, depending on the structure of the favor consolidation, even for a consolidation that is system and other key factors. Because of this, some logical and feasible, LAFCo commissioners may be of the systems most suitable for consolidation fall reluctant to force the issue to avoid controversy or between the cracks. protect local relationships. The same can be true LAFCos only regulate and review cities and for supporting new development. To the extent that special districts, not private firms. Yet many a new water system is tied to a politically favored struggling water systems are private systems, development project or powerful local interests, like mobile home parks or mutual water companies, LAFCos may be subject to significant political which unlike Investor-Owned Utilities, are not pressure to support the preliminary technical regulated by the CPUC. State policymakers have report required by the SWRCB. noticed this oversight and granted LAFCos the County specific priorities and policies can also ability to include information for private water impede consolidation efforts. One such example systems operating in their county in MSRs. is the issue of limiting urban sprawl. If a consoli­ However, doing so is optional, and often inhibited dation project is seen to have the potential for by resource and information constraints. Because increasing development in an area the county has most LAFCos have their hands full performing MSRs earmarked for light or no development, a LAFCo for the public agencies under their jurisdiction, might be unlikely to approve the consolidation. very few have included mutual water companies, Notably, such concerns are county specific. Only mobile home parks, or other small systems in their 48% of survey respondents listed preventing sprawl MSR cycles, and most do not anticipate doing so in as a factor for approving consolidation-related LAFCo and Water System Consolldat,on 11 applications. However, it is increasingly common special districts, or both, typically have small LAFCo for municipalities or special districts to implement budgets. In some of these counties, LAFCo work may their own moratoriums on new connections. Such be handled on a contract basis by the county planning moratoriums serve to arrest new development, but department or be contracted out to a private firm. By they can also prevent the consolidation of water contrast, counties with large amounts of regulated services for existing peripheral residents. agencies, like San Diego or Los Angeles, often have Importantly, local priorities and interests can relatively large LAFCo budgets. also have positive effects on efforts to increase In many cases, funding levels can directly water system consolidation. When locals identify correspond to staffing levels. LAFCos in counties system fragmentation as a major concern, LAFCo with low staffing levels may be harder to contact and staff can work effectively to foster consolidation necessary procedures may take longer, especially in unique ways. Tulare County, for example, has if there is no full-time staff. MSRs in such counties completed more than 16 consolidations since 2015, may also be updated less frequently than would in part due to the active involvement and support be preferred if local capacity was higher. Limited from the Board of Supervisors. resources can also lead to over-reliance on fees associated with studies and applications, which can Limited and uneven LAFCo resources in turn increase costs and impede a county's ability LAFCos have uneven funding levels across the to off er fee waivers. As previously mentioned, only state. Because represented agencies are a primary about two-thirds of the 23 LAFCos who responded to source of funds, counties with small numbers of cities, our survey offered fee waivers for studies. Section III: Recommendations Based on the challenges outlined in the previous should also be included. At the state-level, bian­ section, the following recommendations highlight nual LAFCo conferences and SWRCB's internal potential pathways for addressing the existing gaps staff training programs present opportunities and improving alignment between local and state for cross-learning on relevant topics with the regulators organized around three key themes: potential to increase collaboration. Regular Improving information sharing and communication communication would go a long way to increasing between regulators; Identifying consolidation mutual understanding of relevant priorities and opportunities; and Advancing locally-driven limitations as well as overcoming terminology consolidation projects. and other barriers. • Transmit and connect information from MSRs Improving information sharing and and the annual state drinking water needs communication between regulators assessment: Currently, both MSRs and the annual • Ensure regular, sustained communication SWRCB drinking water needs assessments between LAFCos and state drinking water regu­ contain information helpful for assessing the lators: Locally, LAFCo, the SWRCB, and the CPUC functioning and sustainability of community (as applicable) should routinely meet to discuss water systems operated by cities and special failing and at-risk systems within each county. districts. Systematically sharing these findings Such meetings would present the opportunity would help connect relevant knowledge from the for each party to share the information on local and state agencies and align with the Open specific systems as well as identify promising and Transparent Water Data Act. At a minimum, partnerships across a range of system types MSRs should be readily accessible online and that are consistent with local plans and policies. county-level meetings can support their use by When distinct from LAFCo staff, county planners the SWRCB. Most LAFCos that responded to the LAFCo and Water System Consohdatlon 12 survey support this type of information sharing water service providers: Municipal Service (See Figure 2). In the future, the SWRCB could Reviews (MSRs) are a valuable opportunity to create formal pathways for integrating MSR both assess the functioning of local service data and/or the state legislature could consider providers and make recommendations for changes to require information sharing and improvements. Ensuring that thorough MSRs are coordination. conducted regularly throughout the state could • Clarify and message relevant state goals: Many go a long way towards identifying and advancing LAFCos are eager to support state efforts for consolidations. Importantly, identifying funding advancing safe, accessible, and affordable sources to support this work is likely key to drinking water and climate resilience but do not achieving this goal. have a clear understanding of state priorities on • Standardize assessment of consolidation these topics nor the type of performance metrics feasibility as a part of the MSR process and they could use to assess and advance these goals recommend consolidation, as appropriate, locally. The state should develop clear resources in the findings: California state law requires that can guide LAFCos in the development of that LAFCos explore "opportunities for shared MSRs and inform local decision-making about facilities• for public water systems as a part of service boundaries. their MSR process. Some LAFCos go beyond • Ensure early coordination on system consolidation this requirement to assess consolidation projects: For project proponents, ensuring opportunities for some or all systems under early coordination between communities, the their jurisdiction. All LAFCos should do so with SWRCB, technical assistance providers and an eye not only for physical consolidations LAFCo staff is essential. Consolidation can be but also managerial consolidations and water accomplished through many potential pathways system partnerships (e.g., shared staff). Where that must be matched with local conditions. It is appropriate based on these findings, LAFCos therefore important to learn what pathways are should make formal recommendations for preferred or even possible locally and why. If a consolidation as part of their MSR findings. LAFCo has formal or informal policies related While not all counties responded to our survey, to consolidation, they should be shared as the results demonstrate unanimously support soon as possible. Having this information as a for both actions among those who did. project is developed will help ensure alignment • Fill data and oversight gaps for under-regulated with local planning and promote success. Early water systems: LAFCos collect and maintain communication can also help avoid unnecessary important information about the water systems delays in planning or implementation by operated by municipalities and special districts anticipating fees, processing times, etc. in their jurisdictions. The CPUC maintains similar • Ensure early coordination on proposals that information for the state's Investor-Owned implicate new public water systems: State Utilities. For other private water systems like regulators, LAFCos, and counties should mutual water companies and mobile home parks communicate as early as possible about data collection is limited to the drinking water development proposals that explicitly or implicitly needs assessment which necessarily provides could lead to the creation of a new public very limited insights on system governance and water system. Early coordination on priorities management. Figuring out how to fill this gap and limitations at both levels will help prevent should be a state priority. For example, these inconsistencies that could lead to conflict and systems could be subject to reporting and delay. oversight by the CPUC or included in MSRs. • Proactively identify priority consolidations and Identifying consolidation opportunities tie these into other opportunities for boundary • Ensure robust and regular MSRs for drinking expansion: Some systems are reluctant to receive LAFCo and Water System Consolidation 13 Figure 2. Existing practices and policy preferences among surveyed LAFCos for addressing local water challenges. Recommend consolidation as needed L as part of municipal service reviews Facilitate/support the implementation of local consolidation projects Evaluate the feasibility of water system L ���,.....,__ _...., consolidation within the county Communicate findings from municipal service reviews to drinking water regulators Precondition/incentivize system consolidations where opportunities arise Initiate system consolidations where opportunities arise 0% 20% 40% 6% 80% 100% ■ Currently doing Not currently doing but would support customers from struggling systems but are privately-owned non-Investor-Owned Utilities happy to expand with greenfield development. and low-hanging fruit consolidations (e.g., based Working with both state drinking water regu­ on proximity or where system managers wish lators and local water managers (e.g. Ground­ to retire). water Sustainability Agencies), LAFCos should develop and maintain a list of priority consoli­ Advancing locally-driven consolidation dation projects in their county. LAFCos should projects then use their existing authorities to tie these • Reduce financial impediments to locally-driven projects to locally promoted boundary changes, consolidations: Proposed consolidations entail for example, annexations or sphere of influence LAFCo related costs to be borne by a project updates, when feasible. More than 80% of LAFCos proponent and/or the LAFCo itself. As such, that responded to the survey support this type promising projects can languish if they are not of approach. financially supported by the SWRCB and/or • Clarify roles for identifying and promoting potential a local government proponent. Establishing a consolidations: Currently the SWRCB is the funding source to support LAFCos or other local primary entity identifying potential consolidation proponents to advance consolidation projects projects and initiating conversations with could help increase the number of locally initiated a particular focus on "failing systems" with projects. Similarly, state and federal funding and pressing health and safety concerns and those technical assistance is often essential to make at-risk of failing. There is a need to clarify who consolidation feasible. Creating clear pathways else, if anyone, should take responsibility for for accessing these resources for locally-initiated identifying and initiating potential consolidations projects could similarly increase local leadership among different subsets of systems such as on the issue. LAFCo and Water System Consolidation 14 • Reduce administrative and procedural hurdles • Allow LAFCos to initiate annexations: Currently to implementing consolidations: Consolidation is LAFCos can initiate dissolutions but not annexa­ a complicated and difficult process constrained tions. Given that annexation is a common and by convoluted statutes with significant limitations often preferred mechanism for consolidating and even contradictions. Often a single consoli­ water systems, granting LAFCos the ability to dation project may trigger several concurrent initiate annexations could increase the number actions which only further increases the admin­ of projects advanced locally. istrative burden and associated costs. To every • Ensure technical assistance providers working extent possible, the associated statutory require­ on consolidations have a clear understanding of ments should be clarified and streamlined. work plan elements and project requirements • Create local pathways for consolidation of mutual related to LAFCo: The SWRCB should provide water companies, mobile home park systems, technical assistance providers clear guidance and other small private systems: LAFCos do not for addressing the local planning dimensions of have authority over private water systems and consolidations including working with LAFCo. therefore cannot initiate consolidation among Ensuring that LAFCo tasks and expenses are them. Thus, the state must explore possibilities accounted for in work plans and budgets will to promote the consolidation of small private streamline implementation. systems that are not Investor-Owned Utilities. LAFCo and Water System Consolidation 15 Resources an Further Reading Assembly Committee on Local Government. (2023). Guide to the Cortese-Knox-Hertzberg Local Government Reorganization Act of 2000. https://alcl.assembly.ca.gov/system/files/2024-01/ ckh-local-goverment-reorganization-act-of-2000-2023.pdf Bui, T. & Ihrke, B. (2003). It's time to draw the line: A citizen's guide to LAFCos. https://humboldtLAFCo.org/wp-content/uploads/TimetoDrawline LAFCos.pdf Dobbin, K., McBride, J. & Pierce, G. (2022). Designing Water Systems Consolidation Projects. https://innovation.luskin.ucla.edu/wp-content/uploads/2022/10/Designing-Water-System­ Consolidation-Projects.pdf Senate Governance and Finance Committee. (2013). 50 Years of LAFCos: A guide to LAFCos. https://caLAFCo.org/sites/default/files/resources/50%20Years%20of%20LAFCos%20 %282013%29%20-%20A%20guide%20to%20LAFCos 0.pdf State Water Resources Control Board (SWRCB). (2021). Permits for Water Systems. https://www.waterboards.ca.gov/drinking water/certlic/drinkingwater/Permits.html State Water Resources Control Board (SWRCB). (2023). Drinking water system partnerships and consolidations. https://www.waterboards.ca.gov/drinking water/certlic/drinkingwater/ waterpartnership.html US Water Alliance. (2022). Catalyzing Community-Driven Utility Consolidations and Partnerships. https://uswateralliance.org/wp-content/uploads/2023/09/Catalyzing-Community-Driven-Utility­ Consolidations-and-Partnerships-PAGES 0.pdf LAFCo and Water System Consolidation 16 Appendix LAFCo information and select survey results by county Approx. Range for County # of Staff Offers Fee Wavers? Consoltdat,on-Rclated Fees Alameda 2 N $6,500 • $13,000 Alpine 1 Did not respond to survey Did not respond to survey Amador 4 Did not respond to survey Did not respond to survey Butte 4 y $1,000-$25,000 Calaveras 2 Did not respond to survey Did not respond to survey Colusa 2 Did not respond to survey Did not respond to survey Contra Costa 2 y $4,000 • $8,500 Del Norte 2 Did not respond to survey Did not respond to survey EIDorado 2 y $1,000-$50,000 Fresno 5 Did not respond to survey Did not respond to survey Glenn 1 Did not respond to survey Did not respond to survey ·- -· Humboldt 3 Did not respond to survey Did not respond to survey Imperial 4 Did not respond to survey Did not respond to survey Inyo 2 Did not respond to survey Did not respond to survey -· Kern 3 Did not respond to survey Did not respond to survey Kings 2 Did not respond to survey Did not respond to survey .. Lake 2 Did not respond to survey Did not respond to survey Lassen 3 Did not respond to survey Did not respond to survey Los Angeles 7 y $6,000 -$30,000 Madera 2 N $3,000 -$6,000 Marin 2 Did not respond to survey Did not respond to survey Mariposa 1 Did not respond to survey Did not respond to survey Mendocino 2 Did not respond to survey Did not respond to survey Merced 2 N $2,000 • $5,000 Modoc 2 Did not respond to survey Did not respond to survey Mono 1 Did not respond to survey Did not respond to survey Monterey 4 Did not respond to survey Did not respond to survey -- Napa 2 y $8,500 -$34,000 LAFCo and Water System Consolidation 17 Approx. Range for County # of Staff Offe1•s Fee Wavers? Consolidat,on-Rclatcd Fees ' Nevada 2 Did not respond to survey Did not respond to survey Orange 5 N $10,000 • $30,000 Placer 2 y $20,000 • $40,000 Plumas 2 Did not respond to survey Did not respond to survey Riverside 5 Did not respond to survey Did not respond to survey Sacramento 2 y $3,000 • $10,000 San Benito 2 Did not respond to survey Did not respond to survey San Bernardino 4 Did not respond to survey Did not respond to survey San Diego 10 y $6,500 • $25,000 San Francisco 1 Did not respond to survey Did not respond to survey San Joaquin 3 N $2,000 • $2,500 San Luis Obispo 3 y $3,000 • $7,500 San Mateo 3 y $2,000 • $10,000 Santa Barbara 2 y $2,000 • $6,000 Santa Clara 2 y $4,000 • $8,500 Santa Cruz 2 y $1,000 • $2,000 Shasta 2 Did not respond to survey Did not respond to survey Sierra 1 Did not respond to survey Did not respond to survey Siskiyou 2 Did not respond to survey Did not respond to survey ·- Solano 3 N $7,500 • $35,000 Sonoma 3 y $4,000 • $6,000 Stanislaus 3 y $500 • $3,500 Sutter 3 Did not respond to survey Did not respond to survey Tehama 1 Did not respond to survey Did not respond to survey Trinity 2 Did not respond to survey Did not respond to survey Tulare 3 y $3,500 • $4,000 Tuolumne 2 Did not respond to survey Did not respond to survey Ventura 3 Did not respond to survey Did not respond to survey Yolo 2 y $1,500 • $6,500 ·-- Yuba 2 Did not respond to survey Did not respond to survey ·- LAFCo and Water System Consolidation 18 References and Notes 1 Dobbin, K. B., McBride, J., & Pierce, G. (2023). Panacea or placebo? The diverse pathways and implications of drinking water system consolidation. Water Resources Research, 59(12), https.//do1.orq/l0.l029/2023WR035179. 2 CALAFCo website, What Are LAFCos responsibilities? Accessed 11/6/23. https://caLAFCo.orq/LAFCo-law/faq/what-are-LAFCos- responsibilit,es 3 CA Government Code §56000 et seq. 4 CA Government Code §54950 et seq. 5 A consolidating water system is a system that will stop providing drinking water service after a consolidation is completed. In contrast, a receiving water system is a system that continues to provide drinking water service including to new customers/territory added through the consolidation. 6 CA Government Code §56133(c) 7 CA Government Code §56425(g); A sphere of influence or SOI is a planning boundary outside of an agency's jurisdictional boundary (such as the city limit line or water service area) that designates the agency's probable future boundary and service area. 8 Countywide Water Service and Sphere Review. Local Agency Formation Commission of Santa Cruz County. Accessed 01/22/24. https://santacruzla(co.org/wp-content/uploads/2022/09/Countyw,de-Water-MSR-Adopted-Vers,on.pdf 9 CA Government Code §56430(7)(d) 10 A public water system is a water system serving at least 15 connections or 25 people for a minimum of 60 days per year. This is the body of water systems that is regulated by the SWRCB under the Federal Safe Drinking Water Act. 11 Extraterritorial, Out-of-Agency, Out-of-Boundary or Outside service agreements all refer to situations where a city or special district extend services outside of their jurisdictional boundaries. For drinking water service this means outside of their approved service area. Prior to 1994 service extensions only required LAFCo approval if they involved annexation. Since 1994 service extensions always require approval by LAFCo (with some exceptions such as the transfer of non-treated water). 12 CA Government Code §56035; For a LAFCo, a dissolution entails the "disincorporation, extinguishment, or termination of the existence of a district and the cessation of all its corporate powers.• LAFCo and Water System Consolidation 19