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 _________________________________________________________________ ____ 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. AB 54 (Solorio) Page 1 _________________________________________________________________ ____ 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 _________________________________________________________________ ____ 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) Page 2 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"