Moody's says California law altering storm water funding is credit positive

Register now

LOS ANGELES — Moody’s Ratings Service deemed passage of a bill that will help California municipalities fund storm water programs to be a credit positive.

California Gov. Jerry Brown signed Senate Bill 231 Oct. 6, which Moody’s analysts said provides “an unusual measure of financial flexibility to fund storm water programs.”

The new law also allows municipalities to fund storm water programs through a rate-setting process like other municipal utilities, rather than seeking voter approval.

Proposition 218, approved by voters in 1996, constrains the revenue-raising ability of local governments by requiring municipalities to get voter approval to increase taxes, assessments, and fees, often by a two-thirds majority. Proposition 218 exempted water, sewer, and refuse collection from this requirement, and now SB 231 expands the definition of “sewer” to include storm water conveyance systems.

The impact of the new law is heightened by municipalities' rising costs from increasingly stringent clean water requirements in federal and state storm water management permits, Moody’s analysts wrote.

The estimated cost of compliance for Los Angeles County and its 88 municipalities is more than $20 billion over 20 years. The new law gives municipalities, the flexibility to raise funds for all storm water functions.

“In 2016, the California Supreme Court ruled that the costs were potentially unfunded mandates and the state might be required to reimburse the county and municipalities for the costs,” according to Moody’s. “This potential state funding would help municipalities, but not as much as SB 231’s revenue-raising flexibility, which provides the opportunity to raise funds for all storm water functions.”

Storm water functions are typically administered by municipal public works departments,which manage drainage problems through street design and maintenance. The costs are increasing and crowding out funding for other municipal needs, analysts wrote.

Municipalities have had limited success in gaining voter approval for storm water funding, analysts said.

“SB 231 opens another potential revenue source,” analysts said. “Most municipalities fund the programs using general funds and grants. Some use pre-Proposition 218 storm water charges that require voter approval to raise the rates.”

For instance, Contra Costa County sought approval from property owners in 2012 to increase assessments for storm water funding to generate an additional $8.7 million annually for 20 participating municipalities. Assessments had not been increased in two decades.

The ballot measure failed to get majority approval creating an annual funding gap for the municipalities.

For reprint and licensing requests for this article, click here.
Ratings Utilities California