So far she has not mentioned this to me either by text , phone or any letter2) There have been no written demands of repairs or anything notifying me that tenants will withhold rent so I do have the option to take her to court for eviction.

The one law she got passed that I think really is crazy, is the one we discussed in another thread, where tenants are encouraged to report their landlords for housing violations, and if they do so, they can withhold rent or avoid eviction or something crazy - I'm forgetting the details.  

I'm going to withhold judgement on the situation.The water bill is owned by you as the property owner, pay it.Maybe don't rent to people on welfare in the future hoping to get "easy" money.

In most jurisdictions a landlord must have receipts and have work performed and bills submitted by licenced contracts in order to justify withholding security deposit.

And, the housing authority can withhold funds if you haven't passed an inspection, etc.Basically - if you don't have to accept Section 8, then don't.  

As I recall you have to send them why you are withholding the deposit with specified damages within 45 days.

However, a large number of holes in the walls or ceiling that require filling with plaster, or that otherwise require patching and repainting, could justify withholding the cost of repainting from the tenant's security deposit.

I once had a former PM withhold part of a tenants deposit when I switched PM's.

There are often only very specific circumstances where you can keep a deposit, and sometimes there are triple damages to pay if you withhold it illegally.

If you withhold some of their money and they sue you, and the judge says you have to pay them, you pay them.Really, when would the issue ever come up in real life?