BILL ANALYSIS Ó AB 54 Page 1 Date of Hearing: April 26, 2011 ASSEMBLY COMMITTEE ON ENVIRONMENTAL SAFETY AND TOXIC MATERIALS Bob Wieckowski, Chair AB 54 (Solorio) - As Amended: April 14, 2011 SUBJECT : Drinking water. SUMMARY : Establishes new requirements for mutual water companies; establishes alternative penalties for violations of the Safe Drinking Water Act; and authorizes payments from the Safe Drinking Water State Revolving Fund for projects under construction. Specifically, this bill : 1)Makes legislative findings about drinking water quality. 2)Establishes new requirements for organizing and operating mutual water companies, including: a) Specifies that any corporation organized for or engaged in the business of selling, distributing, supplying, or delivering water for irrigation purposes or for domestic use shall be known as a mutual water company. b) Requires each mutual water company operating as a public water system to, no later than December 31, 2012, submit to the Secretary of State and the local agency formation commission (LAFCO) a map depicting the boundaries of the property that the corporation serves. c) Requires a mutual water company, if the LAFCO or a county department requests information, the corporation, to, within 45 days of the request, provide all reasonably available information and explain, in writing, why any requested information is not reasonably available. d) Specifies that all Governmental Accounting Standards Board (GASB) standards apply to mutual water companies. e) Requires all construction on public water systems operated by a mutual water company to be designed and constructed to comply with the applicable California Waterworks standards. f) Requires all construction projects related to a public AB 54 Page 2 water system to comply with prevailing wage standards. g) Authorizes the LAFCO to approve or disapprove the annexation of territory served by a mutual water company into the jurisdiction of a city, a public utility, or a special district that operates a public water system. h) Authorizes the LAFCO, in conducting a service review, to include a review of whether the agencies under review, including any public water system, are in compliance with SDWA. i) Authorizes the LAFCO to request information, as part of a service review, from identified public or private entities that provide wholesale or retail supply of drinking water, including mutual water companies and private utilities. j) Requires each board member of a mutual water company operated as a public water system to, within six months of taking office, complete a four-hour course, as specified, offered by a public water agency or a public utility that operates a public water system regarding the duties of board members of public water systems and the duties of public water systems to provide clean drinking water that complies with the federal and state Safe Drinking Water Acts (SDWA). aa) Authorizes fines pursuant to the SDWA to be imposed on directors of a mutual water company if the mutual water company has received notice of a violation of the SDWA more than one year previously and has not taken action to resolve the violation. 3)Establishes new penalty provisions for violations of the California Safe Drinking Water Act (SDWA), specifically: a) Authorizes DPH to, in lieu of assessing all or a portion of the civil penalties, as specified, against a publicly owned water system serving a small community, elect to require the public water system to spend an equivalent dollar amount towards the completion of a compliance project proposed by the public water system, if DPH makes specified findings. AB 54 Page 3 b) Defines "a publicly owned water system serving a small community" as a public water system operated by a city, county, or special district serving a population of 10,000 persons or fewer or a rural county, with a financial hardship as determined by DPH after considering factors including median income of the residents, rate of unemployment, and low population density in the service area of the public water system. 4)Authorizes a public water system to apply for Safe Drinking Water State Revolving Fund (SDWSRF) funding for projects under construction, specifically: a) Authorizes a public water system that is a lead applicant for a project that may be funded by the SDWSRF to apply to the California Department of Public Health (DPH) for a letter of no prejudice for the project or a component of the project. b) Authorizes DPH to approve the letter of no prejudice for one or more projects or project components that DPH has determined to be eligible for federal or state funding pursuant to established funding priorities and has issued an invitation to apply for funding from the SDWRF. Requires the letter of no prejudice to reference the project or component thereof and the maximum amount of bond funding that may be allocated for that project or project component. c) Requires expenditures for the costs, up to the amount set forth in the letter of no prejudice, of a project or project component for which a letter of no prejudice has been issued to be eligible for reimbursement from the SDWRF if specified criteria are met. d) Authorizes DPH and the public water system to enter into an agreement or agreements governing reimbursement of expended costs. e) Defines "letter of no prejudice" as an agreement between a public water system and DPH that makes eligible for future reimbursement, as specified, from the SDWRF the expenditure of funds under the control of the public water system. AB 54 Page 4 EXISTING LAW : 1)Requires a corporation organized for or engaged in the business of selling, distributing, supplying, or delivering water for domestic use (i.e., mutual water company) to specify in its articles or bylaws, its provision of water only to owners of its shares and that these shares must be appurtenant to specified lands. 2)Requires a mutual water company formed after January 1, 1998, in connection with the sale or lease of lots within a subdivision to meet specified standards including supply and distribution system design standards and water service standards. A mutual water company formed prior to January 1, 1998, may elect to meet all of these requirements. 3)Requires LAFCOs to conduct a service review of the municipal services provided in the county or other appropriate area designated by LAFCO. 4)Under the California Safe Drinking Water Act (SDWA): a) Authorizes DPH to implement the California SWDA in accordance with the requirements of the federal SDWA. b) Establishes civil penalties for violations of the SDWA, as specified. c) Provides that each civil penalty imposed for any violation under the SDWA is separate, and in addition to any other civil penalty imposed pursuant to the SDWA or any other provision of law. 5)Under the Safe Drinking Water State Revolving Fund Law of 1997 (SDWSRF): a) Authorizes DPH to implement the SDWSRF, as specified. b) Requires DPH to establish criteria for projects to be eligible for consideration for funding, as specified. c) Authorizes DPH to enter into contracts with applicants for grants or loans in accordance with the SDWSRF. FISCAL EFFECT : Unknown. COMMENTS : Need for the bill : According to the author, "As California has grown and communities have merged into metropolitan areas, some drinking water systems have not been able to keep pace. AB 54 Page 5 Infrastructure, built long ago, has deteriorated. Many water sources have become contaminated. The economic base of some communities has declined or stagnated, leading to less investment in water infrastructure for basic maintenance and modernization. The state provides funding to public water systems to improve drinking water quality through the Safe Drinking Water Revolving Fund, but demand far exceeds the available funding. According to the United States Environmental Protection Agency's Drinking Water Infrastructure Needs Survey and Assessment, which was performed in 2007, the California Department of Public Health estimates that the 20-year drinking water infrastructure need for California is $39 billion. Funding for such projects, however, for 1997-2008, totaled only $1.2 billion. Smaller public water systems, particularly those operated by "mutual water companies," often lack the funding to improve their systems and eliminate contamination. They rely on state funding and cooperation by larger, neighboring water systems to improve their systems, but sometimes suffer years of contaminated water. AB 54 would facilitate state and local funding for clean water projects and level the playing field between public water agencies and mutual water companies. It authorizes "letters of no prejudice" which would allow local agencies, with their own resources to get started on resolving water quality problems before the State finalizes a loan or grant from the Safe Drinking Water State Revolving Fund. AB 54 also allows mutual water companies to be considered by "local agency formation commissions" and requires mutual water companies operating public water systems to follow some of the same rules as public agencies. ' California Safe Drinking Water Act (SDWA) violation penalties : AB 54 authorizes DPH to, in lieu of assessing all or a portion of the civil penalties for SDWA violations against a publicly owned water system serving a small community, elect to require the public water system to spend an equivalent dollar amount towards the completion of a compliance project. Similar provisions exist in Water Code Section 13385(k)(1), which authorizes the State or Regional Water Resources Control Board to, in lieu of assessing all or a portion of mandatory minimum penalties for Clean Water Act violations against a publicly AB 54 Page 6 owned treatment works serving a small community, to elect to require the publicly owned treatment works to spend an equivalent amount towards the completion of a compliance project. Safe Drinking Water State Revolving Fund (SDWSRF) funding : Water systems that are seeking SDWSRF funding sometimes choose to, or are required to, begin their improvement projects prior to entering into funding agreements with CDPH for the SDWSRF funds. There are a variety of reasons that a water system may begin a project prior to receiving a funding agreement, including an urgency to solve the problem as soon as possible; limitations in the construction season (e.g., some projects can only be constructed during drier months of the year); and the need to expend other available funding within a specific time period. According to DPH, the SDWSRF includes provisions that allow an applicant to receive a reimbursement for funds expended prior to the issuance of the funding agreement. Reimbursement for such expenditures is subject to specific requirements that are explained to the public water system in advance of, an expenditure. DPH makes an official determination on the eligibility of each project expense in accordance with established criteria pursuant to State and Federal requirements. As part of the SDWSRF funding process, CDPH staff review projects and applications for completeness. CDPH does not reimburse for eligible project costs until a funding agreement is in place. The author responds that DPH has never indicated that this is a relatively common practice and, in fact, has not offered to allow the City of Santa Ana to proceed on a clean-up project with its own funding before a funding agreement is signed. Double referral : This bill was heard by the Assembly Local Government Committee on April 13, 2011. It passed that Committee on a 6 - 0 vote. REGISTERED SUPPORT / OPPOSITION : Support CALAFCO Mountain Counties Water Resources Association AB 54 Page 7 Tuolumne Utilities District Opposition American Society of Civil Engineers (ASCE,) Region 9 Central Basin Water Association Analysis Prepared by : Shannon McKinney / E.S. & T.M. / (916) 319-3965