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 








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               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.









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             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
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           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.  








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          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
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          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
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          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