THOMPSON LAW OFFICE

In the HistOlic Miller Adobe (circa 1874)

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580 Calle Principal, First Floor Monterey, CA 93940-2812 TEL 831-646-1224 FA:': 831-646-1225 \\u www.lawmonterey.com

Altontrv, [it La\\ ' Ralph W. Thompson III : rwt@lawmonterey.com

: Richard G. Glenn , rglenn@lawmonterey.com

October 11, 2012

Donald G. Freeman PERRY & FREEMAN PO Box 805 Carmel, CA 93921-0805 Re: Dear Don: Congratulations on your appointment as counsel to the Authority. You have an incredibly important job. Ralph Thompson and I commend you for the good will you have earned through your many years of public service. Below are my personal thoughts and recommendations on the major legal issues currently facing the Authority. Introduction Water around here is not a comfortable topic. It is clear that the Authority has within its considerable power the ability to take the lead in resolving the current water crisis. However, this will not be easy. Its members will have to deal with numerous awkward issues as they move forward. At times, they are going to require counsel that they may find quite unsettling. There are a few legal issues I believe require the Authority's immediate attention. They are:
1.

Monterey Peninsula Regional Water Authority (Authority) Issues

Mayor Pendergrass has forfeited his seat on the Monterey Peninsula Water Management District (MPWMD) board by virtue of his appointment as an Authority director. The Authority has miss-stepped in attempting to add the County of Monterey (the County) as a member agency. No member of the County Board of Supervisors may lawfully serve as an Authority director. A more narrow exclusion specifically applies to Supervisor Potter or his successor in office. Under the terms of the Joint Powers Agreement (JPA or Agreement), the chairmanship of the Authority's technical advisory committee (TAC) may only be held by an Authority director. The current chairmanship purportedly held by the general manager of MPWMD must be terminated and an Authority director appointed instead, as soon as possible.

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The Authority has the same substantial identity of purpose as MPWMD within the corporate bounds of its member Cities. Under the express terms of MPWMD's enabling legislation, the Authority has the power to essentially replace MPWMD with respect to the Cities. Under the JPA, it appears to have set out for itselfthe duty to do so. In such case, MPWMD ordinances and regulations might be automatically rescinded within the Cities. Consequently, the extent ofthe Authority's duties in the continuing water crisis must be clearly defined, as soon as possible, consistent with the JP A. Under the JP A, it has a duty to municipal water users to succeed in timely implementation of a water project in a manner accountable to the Cities' water users.

These issues are discussed further below.

1.

Mayor Pendergrass' Forfeiture of his MPWMD Ex Officio Seat

First, the appointment of Mayor Pendergrass to the Authority has resulted in the automatic forfeiture of his ex officio seat on the MPWMD board under Government Code 1099. Please see 93 Ops. Cal. Atty. Gen. 104 [Opinion 10-903, which cites extensive applicable authority]. The opinion addresses closely analogous facts and discusses several issues which are of particular relevance to the Authority. The significance of this forfeiture is great in view of the current litigious climate. The validity of any MPWMD board action taken since Mayor Pendergrass's appointment to the Authority becomes problematic. This need not be considered negatively. Mayor Pendergrass's skills and experience may be far more valuable in pursuing a water solution with his fellow mayors. His MPWMD seat can be quickly filled under the procedures provided in the Monterey Peninsula Water District Law, Water Code Appendix, Chapter 118 (the MPWMD Law, see 118-203). In fact, this legal adjustment will clearly strengthen the Authority.

2.

The County is Ineligible for Membership in the Authority

N ext, even under the best of intentions, the County is not eligible to join the Authority under the JP A. Supervisor Potter, himself, is specifically ineligible to serve on the Authority board as a representative ofthe County on independent grounds. These findings are based upon Government Code 1099, related conflict of interest considerations and the MPWMD Law. The JP A envisions a future water regime that would include the Authority working with agencies such as MPWMD, the Monterey County Water Resources Agency (MCWRA), the County and others, under a comprehensive water management plan. Ultimately such an integrated county-

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wide water management system represents the only conceivable solution to the water crisis. But the Authority must establish itself first tmder the terms of its own Agreement. Its members must make several fundamental decisions specifically requiring only their own consensus. It is not until then that the Authority can effectively engage with outside agencies and private interests. Consequently, no member of the Board of Supervisors may serve on the Authority. Again, Government Code 1099 applies. However, more specifically, the County is conflicted out of Authority membership based upon the Board of Supervisor's role as a supernumerary to MCWRA under the Monterey County Water Resources Agency Act, Water Code Appendix, Chapter 52 (the Agency Act). In particular, Agency Act 52-71, provides:

Sec. 71. Duties of Supervisors concerning litigation. (a) The Board of Supervisors are [sic] responsible for the initiation and the conduct of any litigation by the Agency and for the settlement of any litigation.
Consequently, the Board of Supervisors would be directly involved in litigation and settlement activities if any action were to arise between the Authority and MCWRA' In anyone's reasonable estimation, such an action must be considered fairly likely. This, under an Attorney General Opinion 10-903 analysis and general conflict of interest principles, clearly precludes the County's direct participation in Authority activities. The JP A foresees the County as ultimately an essential ally. By its terms it provides a very effective alternative to direct County membership. Paragraph 4.20 of Article 4 states that the Authority has the power:

To organize and/or participate with local agencies to form a water management group to develop and implement an Integrated Water Management Plan pursuant to Water Code sections 10530 et seq.
This is the basis for future county-wide cooperation, which is not only desirable, but ultimately essential, to resolution of the water crisis. The JP A provides a strong basis for the success of such a program, with the mayors taking the initiative on behalf of municipal water users.

Specific Disqualification of Supervisor Potter

On narrower grounds, Supervisor Potter is prima facie ineligible to serve on the Authority board. This is because, unlike Mayor Pendergrass, Mr. Potter may not forfeit his MPWMD seat. His unique role under the MPWMD Law is that he, or his successor, is the only supervisor eligible

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to serve on the MPWMD board. [MPWMD Act, 118-203] It is impossible for him to leave the MPWMD board without removal from office as a member of the Board of Supervisors.

3.

Invalid Chairmanship of T AC

Additionally, the current chairmanship ofthe Authority's T AC violates an express provision of the JP A. Article 11 of the Agreement provides that the Board of Directors may from time to time appoint one or more advisory committees or establish standing or ad hoc committees to assist in carrying out the purposes and objectives of the Authority. It further provides, however, the each committee shall include a director as the chair thereof. Currently, David Stoldt, general manager ofMPWMD, has been designated as chairman of the TAC. Once again, there is an obvious conflict of interest issue. Beyond that, however, he must simply be removed from the position on the narrow reference to the Article 11 requirement. The requirement that an Authority director serve as the chairman of any committee, especially the TAC is of major significance. It reflects the Authority's full focus and commitment to the serious purposes set forth in Article 4 of the JP A agreement. While it might be desirable to have aTAC consisting of several engineers, it is essential that it be chaired by an Authority director.

4.

Substantial Identity of Purpose

The Authority has only come into existence because MPWMD has failed to provide sufficient water to the Monterey Peninsula, as it has been charged and empowered to do. The MPWMD Law states:

118-325 General powers of district Sec. 325. The district shall have the power as limited in this law to do any and every lawful act necessary in order that sufficient water may be available for any present or future beneficial use or uses of the lands or inhabitants within the district, including, but not limited to, irrigation, domestic, fire protection, municipal, commercial, industrial, recreational, and all other beneficial uses and purposes.
With respect to the Authority, the Joint Exercise ofPowers Act [Government Code 6500, et seq.] states "[f1or the purposes ofthis article, the [Authority] is a public entity separate from the parties to the agreement. [6507]

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The JP A establishes the Authority as unique and autonomous. It is through this uniqueness that it holds the greatest chance for success in fulfilling its essential purposes. These purposes are set forth clearly in paragraph 2.2, Article 2 ofthe JP A:

[T]o establish a public entity separate from its Members to jointly exercise some or all of the foregoing common [municipal] powers, as deemed necessary by the Authority, to: (1) ensure the timely development, financing, construction, operation, repair, and maintenance of one or more Water Projects; and (2) ensure that the governance of such Water Projects includes representation that is directly accountable to the Cities' water users.
With respect to the Authority, and its members as public entities pre-existing the Authority, the MPWMD Law provides:

118-132. Inclusion of area of public entity within district; effect Sec. 132. The inclusion within the district of the corporate area, in whole or in part, of any public entity, shall not destroy the identity or legal existence nor impair the powers of such public entity, notwithstanding the identity of purpose, or substantial identity of purpose, of the district.
Under Article 4 of the JP A, the Authority is a combined public entity with the substantial identity of purpose as MPWMD. In the effort to succeed in its JP A Article 2 purposes, the Authority must clearly define its role. It then must act strictly in accordance with its purposes and the law. If it does not, odds are that it will fail, as has MPWMD, in meeting its duties to the public. The JP A was drafted following the coming-together of Peninsula mayors on behalf of municipal water users seeking a timely solution to the water crisis. This initially engendered its own controversy. The resulting JP A is well and clearly drafted to join the Cities in a serious effort to secure adequate water supplies for municipal purposes. For the first time, local elected officials have voluntarily consolidated all oftheir joint powers for the singular focused purpose of successfully developing a water proj ect accountable to municipal water users. Consequently, MPWMD no longer exclusively occupies the water supply field on the Peninsula.

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Don, there is substantial likelihood that the municipal solution can be made to work, but only without initial entanglement. However, it must be implemented carefully with scrupulous attention to the legal details. In an extremely significant sense, the Authority's formation reflects the results of the Peninsula's 2002 advisory Measure B ballot measure where two-thirds of MPWMD voters urged its dissolution. With respect to the incorporated areas, such dissolution for all intents and purposes has been accomplished under the JP A. If effectuated, this would be the most significant step that has yet been taken in search ofthe ultimate water supply solution. All other actions to this point have been controlled by others with interests adverse to those of municipal water users. This matter should be brought to the attention of the mayors immediately, even though it may come as a surprise. They should be given the information they need to calibrate their stated intentions to the actual legal context, as soon as possible. For the above reasons, I hope that you would act as follows: 1. Advise the Authority board and Mayor Pendergrass that he has forfeited his seat on the MPWMD board. He may now begin effectively working with his fellow mayors, without any conflict concern, in a focused effort aimed at resolving the Peninsula's water crisis. Advise the Authority that it is not legally possible to admit the County as a member ofthe Authority. This means that neither Supervisor Potter, nor his successor, may serve as a director on the Authority board. The Authority/County relationship under an Integrated Water Management Plan pursuant to Water Code 10530 et seq., is specifically intended to be determined in due course under the JP A. Advise the Authority board and David Stoldt that he may no longer serve as chairman of the T AC. Request that the board select an Authority director as chairman of the T AC, as soon as possible. Advise the Authority board that it has assumed the responsibility on behalf of its municipalities for securing adequate future water supplies in a manner accountable only to its Cities' users. It may thus fully replace MPWMD in that role within the Cities. In this regard, MPWMD may not impair the Authority or its member Cities in securing adequate water supplies. Consequently, all discussions with MPWMD and other regional water entities and interests must be maintained at "arms length."

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These recommendations are offered to assist you and the Authority in initially avoiding a

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Government Code 1099 quo warranto action under the auspices ofthe California Attorney General. They are also intended to eliminate related complications in any future litigation involving the Authority and MPWMD, MCWRA or others.

Of course, there are many additional related issues, from municipal/MPWMD revenue implications to the intricacies ofregional water rights from the municipal perspective. The Authority will need to consider them carefully soon. Our office is available to assist you. I'd be pleased to discuss these matters with you further. Very truly yours,

THE THOMPSON LAW OFFICE

Richard G. Glenn

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