BILL ANALYSIS                                                                                                                                                                                                    Ó




                   Senate Appropriations Committee Fiscal Summary
                           Senator Christine Kehoe, Chair

                                          AB 54 (Solorio)
          
          Hearing Date: 08/15/2011        Amended: 07/11/2011
          Consultant: Mark McKenzie       Policy Vote: EQ 7-0; G&F 9-0
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          BILL SUMMARY: AB 54 would place new requirements on mutual water 
          companies and authorize the operator of a public water system to 
          enter into a letter of no prejudice (LNOP) agreement with the 
          Department of Public Health (DPH) for reimbursement of eligible 
          project expenditures on safe drinking water projects.  
          Specifically, this bill would:
           Require the board members of mutual water companies to 
            complete a two-hour training course on managerial duties 
            related to providing clean drinking water.
           Authorize mutual water companies to levy assessments on 
            shareholders to pay any fines or penalties related to the Safe 
            Drinking Water Act.
           Require mutual water companies to maintain a financial reserve 
            fund and comply with California Waterworks standards for 
            construction on public water systems.
           Require mutual water companies to provide a map of its service 
            area to the local agency formation commission (LAFCO) by 
            December 31, 2012.
           Provide LAFCO with any information requested for preparation 
            of municipal service reviews or spheres of influence within 45 
            days of a request.
           Authorize LAFCOs to review whether a mutual water company is 
            in compliance with the Safe Drinking Water Act.
           Authorize LAFCOs to approve or disapprove the annexation of 
            territory served by a mutual water company into a city or 
            special district.
           Authorize DPH to approve a letter of no prejudice for projects 
            by public water system applicants that have received an 
            invitation to apply for funding from the Safe Drinking Water 
            Revolving Fund.  The LNOP would make the applicant eligible 
            for reimbursement from the Fund for project expenditures 
            incurred by the local agency, up to a maximum amount specified 
            in the LNOP, if certain conditions are met.
           Specify that the timing and amount of reimbursement would be 
            subject to the terms of the LNOP and availability of funds.  
            The actual amount of reimbursement may be less than the amount 
            stated in the LNOP.








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                            Fiscal Impact (in thousands)

           Major Provisions         2011-12      2012-13       2013-14     Fund
           
          DPH: administration of LNOPs        likely minor costs of up to 
          $50 annually           Special*
          ____________
          * Safe Drinking Water Revolving Fund
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          STAFF COMMENTS:  Drinking water may be delivered by local public 
          agencies, investor-owned public utilities, or mutual water 
          companies.  The latter are water-specific nonprofit mutual 
          benefit corporations authorized under the Corporations Code to 
          deliver water only to their shareholders, who are usually 
          landowners receiving water service.  While mutual water 
          companies have only limited public oversight, if they deliver 
          drinking water to household taps they are considered public 
          water systems that are subject to clean water regulations 
          administered by DPH.  Many mutual water companies are 
          highly-functioning and well-funded operations, but other smaller 
          operations may be unaware of Clean Water Act obligations and 
          have failed to properly maintain water treatment and delivery 
          infrastructure.  In emergency situations, public water agencies 
          have stepped in to make infrastructure improvements to address 
          water quality issues, often with state funding.

          Existing law establishes the Safe Drinking Water State Revolving 
          Fund (SDWSRF) and continuously appropriates funds to DPH to 
          finance design and construction of public water system projects 
          that enable suppliers to meet safe drinking water standards.  
          Federal grants from the U.S. Environmental Protection Agency 
          capitalize the SDWSRF, and the state must provide a 20% match.  
          DPH awards grants and loans for maintenance and improvements to 
          public water systems, but demand far exceeds available funding.  
          The application process for receiving an allocation of SDWSRF 
          funds can sometimes take over a year.  Water systems that are 
          seeking SDWSRF funding sometimes choose to, or are required to, 
          begin improvement projects prior to entering into funding 
          agreements with DPH.  For example, there may be issues of 
          urgency, seasonal limitations, or restrictions on other funds 








          AB 54 (Solorio)
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          that require expenditure within a certain period of time.  

          AB 54 responds to the problem by providing reimbursement 
          authority through the LNOP process, which would allow public 
          water system operators whose application for SDWRF funds is 
          pending to begin projects using their own funds without 
          prejudice to receiving funds upon approval by DPH.  The LNOP 
          agreement would specify the project and the maximum amount of 
          funding that may be allocated for reimbursement of eligible 
          expenditures, subject to availability.  The final amount of 
          reimbursement may be less than the amount stated in the LNOP.

          This bill would require DPH to establish guidelines related to 
          implementation of an LNOP process.  DPH would incur costs to 
          draft agreements with public water system applicants specifying 
          the terms and conditions for future reimbursement from the 
          SDWSRF, and to review completed projects to determine 
          expenditures incurred by a local agency are eligible for 
          reimbursement.  DPH indicates that one-time costs to adopt 
          guidelines would be minor.  Staff estimates that ongoing 
          administrative costs could be up to $50,000 annually.  Staff 
          notes that the LNOP process may provide an advantage to more 
          sophisticated public water systems that have the means to 
          advance their own funds over smaller, poorly-funded entities 
          that are dependent upon SDWSRF awards.

          Staff notes that there are no state costs associated with 
          provisions of the bill that place new requirements on mutual 
          water companies and provide new authority to LAFCOs with respect 
          to mutual water company service areas.  Staff suggests the 
          following technical amendments:
           Page 4, line 15, strike "The" and insert:  "Based on the"
           Page 7, line 10, strike "or disapprove"
           Page 7, line 11, after "conditionally," insert "or disapprove"
           Page 13, line 22, strike "bond"
           Page 14, line 25, strike "bond"