BILL ANALYSIS Ó AB 54 Page 1 Date of Hearing: May 27, 2011 ASSEMBLY COMMITTEE ON APPROPRIATIONS Felipe Fuentes, Chair AB 54 (Solorio) - As Amended: May 19, 2011 Policy Committee: Environmental Safety and Toxic Materials Vote: 6-3 Local Government 6-0 Urgency: No State Mandated Local Program: No Reimbursable: No SUMMARY As proposed to be amended, this bill makes requirements of mutual water companies (private companies), their members and their operations; provides certain authority over mutual water companies to local agency formation commissions (LAFCOs); and makes provisions concerning reimbursement from the Safe Drinking Water Revolving Fund and payment of civil penalties by a publicly owned water system serving a small community. Specifically this bill: 1)Relative to Public Water Systems and Mutual Water Companies : a) Requires each board member of a mutual water company operated as a public water system, to complete, within six months of taking office or by 2013, a course on the duties of a public water system to provide clean drinking water. b) Requires mutual water companies to levy an assessement on its shareholders to pay for a Safe Drinking Water fine if the fine exceeds 5% of the mutual water companies operating budget. c) Requires all construction on public water systems operated by a mutual water company to be designed and constructed in compliance with California Waterworks standards. 2)Relative to LAFCO Powers: a) Requires each mutual water company operating as a public AB 54 Page 2 water system to submit to the LAFCO a map showing the boundaries of the property company serves. b) Authorizes a LAFCO to consider whether agencies subject to a service review are in compliance with the Safe Drinking Water Act and to approve or disapprove annexation to a city, public utility or special district of a territory served by a mutual water company. 3)Relative to Funding System Improvements: a) Authorizes a public water system that is a lead applicant for a project to apply to DPH for a letter of no prejudice, the project components of which, if the letter is approved by DPH, shall be eligible for reimbursement from the Safe Drinking Water Revolving Fund, if certain conditions are met. b) Allows DPH to require a publicly owned water system serving a small community, meaning one serving a population of no more than 10,000 people or a rural county, to spend an amount equivalent to civil penalties towards completion of water system projects that would remedy the violation. FISCAL EFFECT 1)The bill will result in costs of an unknown amount, but likely no more than tens of thousands of dollars annually, to DPH to develop and review letters of no prejudice. (Special fund.) COMMENTS 1)Rationale . According to the author, many areas of the state rely on smaller public water systems, including mutual water companies, that lack the funding or technical ability to maintain and improve their systems to ensure water quality. The author describes this bill as facilitating state and local funding for clean water projects through letters of no prejudice, which will allow a local agency to proceed with system improvements, using its own funds, prior to signing a funding agreement with DPH, and through authorizing use of civil penalty monies to improve small community water systems. AB 54 Page 3 The author also contends the bill creates a more level playing field by authorizing LAFCOs to require mutual water companies to provide information on their services and systems, as do public water agencies. Finally, the author contends the bill ensures that board members of mutual water companies are aware of the companies' obligations under federal, state and local laws. 2)Background . a) Regulation of Drinking Water Systems. The DPH administers a safe drinking water regulatory program for all publicly and privately owned water systems of 15 or more service connections. The department administers the Safe Drinking Water Revolving Fund, which provides loans and grants to local agencies for safe drinking water system upgrades. The fund receives federal monies, 20% of which the state has matched in recent years using proceeds from bonds issued pursuant to Proposition 50 (the Water Security, Clean Drinking Water, Coastal and Beach Protection Act of 2002), which requires funded projects to pay prevailing wages. b) Mutual Water Company , a term this bill codifies in specific terms, is a private association organized within a particular area to deliver water to stockholders or members at cost. Many mutual water companies are highly functioning, well-funded operations. Some, however, are small operations with unsophisticated board members unaware of their obligations under the Clean Water Act and other statutes. Historic relics of a less urbanized past, some mutual water companies are defunct or unknown to local land use planners. Many of these less-than-functional mutual water companies have failed to maintain their water treatment and delivery infrastructure, resulting in water contamination. In response, larger public water agencies have stepped in, oftentimes with the help of state funding, to address the water quality issues of mutual water companies. It is common, because of the urgency of problems or seasonal limitations, for water systems seeking state funding to begin improvement work, using the systems own money, before state funding for the work is finally approved. AB 54 Page 4 c) LAFCO Municipal Service Reviews. The Legislature has delegated much of its authority over the drawing of local government boundaries to local agency formation commissions (LAFCOs). The Cortese-Knox-Hertzberg Local Government Reorganization Act of 2000 made numerous changes to LAFCOs' responsibilities, among them addition of the requirement that LAFCOs undertake periodic municipal service reviews (MSRs). An MSR is a comprehensive study designed to better inform LAFCO, local agencies, and the community about the provision of municipal services. These reviews capture and analyze information about the governance structures and efficiencies of service providers and identify opportunities for greater coordination and cooperation between providers. 3)Support . This bill is supported by the Mountain Counties Water Association and the Tuolumne Utilities District, which serve jurisdictions adjacent to many smaller mutual water companies. 4)Opposition. This bill is opposed by the Central Basin Water Association, which contends the bill subjects mutual water companies to standards comparable to those applicable to public agencies without providing the powers and benefits available to public agencies. Analysis Prepared by : Jay Dickenson / APPR. / (916) 319-2081