There are arguments to be made on both sides. However, I DON'T like the idea of having an exception to the law for just East Bay residents. Let it be one way all over the state.
If the landlord pays the bills, the water authority will get more money. If the tenant pays the bills, the tenant will have less incentive to conserve water (of course, the landlord can always raise the rent). In my last apartment, I paid the bill, but I was certain that my landlord was using some of my water. In my current apartment, my landlord pays the bill, but I do everything I can to conserve water.
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