BILL ANALYSIS Ó AB 983 Page 1 Date of Hearing: April 26, 2011 ASSEMBLY COMMITTEE ON ENVIRONMENTAL SAFETY AND TOXIC MATERIALS Bob Wieckowski, Chair AB 983 (Perea) - As Amended: March 31, 2011 SUBJECT : Safe Drinking Water State Revolving Fund. SUMMARY : Authorizes the Department of Public Health (DPH) to take specified actions, when implementing the Safe Drinking Water State Revolving Fund (SDWSRF), to improve access to financial assistance for projects serving small water systems and disadvantaged communities. Specifically, this bill : 1)Updates the definition of "cost-effective project" to mean a project that provides long-term access to safe drinking water at a reasonable cost, which shall be calculated based upon the capital costs and long-term viability of the project as well as the affordability of continuing operation and maintenance charges to ratepayers. 2)Defines a "small water system" as a public water system that serves 3,300 or fewer connections or a population of 10,000 or fewer. 3)Authorizes DPH, when implementing the SDWSRF, to improve access to financial assistance for projects serving small water systems by doing both of the following: a) Establishing a payment process by which the recipient of financial assistance would receive funds within 30 days of the date DPH receives a project payment request, unless DPH, within that 30-day period, determines the project payment would not be in accordance with the terms of the SDWSRF guidelines. b) Utilizing wire transfers or other appropriate payment procedures to expedite project payments. 4)Requires DPH, in establishing the priority list categories for funding projects from the SDWSRF, to, after giving priority to upgrade existing systems to meet drinking water standards, prioritize projects that include consolidation with a small water system that will enable that system to meet drinking AB 983 Page 2 water standards without regard to the project proponent, provided the proponent is an eligible entity, as defined. 5)Makes small water systems serving severely disadvantaged communities eligible to receive up to 100 percent of their project costs in the form of principal forgiveness or grant from the SDWSRF, if needed to ensure affordable water rates. 6)Authorizes DPH, for disadvantaged communities, to extend the term of a loan from the SDWSRF beyond 20 years, but not beyond the life of the project, in order to improve the affordability of the project. EXISTING LAW : 1)Under the California Safe Drinking Water Act (Health and Safety Code (HSC) § 116275 et seq.): a) Requires DPH to regulate drinking water and to enforce the federal Safe Drinking Water Act and other regulations. b) Requires DPH, in administering programs to fund improvements and expansions of small community water systems, to: i) Give priority to funding projects in disadvantaged communities; and, ii) Encourage the consolidation of small community water systems that serve disadvantaged communities in instances where consolidation will help the affected agencies and the state to meet specified goals (HSC § 116326). c) Defines a "small community water system" as a community water system that serves no more than 3,300 service connections or a yearlong population of no more than 10,000 persons. 2)Under the Safe Drinking Water State Revolving Fund Law of 1997 (HSC § 116760 et seq.): a) Authorizes DPH to implement the Safe Drinking Water State Revolving Fund, as defined. b) Requires DPH to establish a priority list of proposed projects to be considered for funding. Requires DPH, in doing so, to determine if improvement or rehabilitation of the public water system is necessary to provide pure, wholesome, and potable water in adequate quantity at sufficient pressure for health, cleanliness, and other domestic purposes. Requires DPH to establish criteria for placing public water systems on the priority list for funding. AB 983 Page 3 c) Requires that not more than 30 percent and not less than 15 percent of the total amount deposited in the SDWSRF may be expended for grants. d) Requires that not less than 15 percent of the total amount deposited in the SDWSRF shall be expended for providing loans and grants to public water systems that regularly serve fewer than 10,000 persons, to the extent those funds can be obligated for eligible projects. e) 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, "The California Drinking Water State Revolving Fund provides loans and grants to public water systems throughout the state for infrastructure and other projects that provide safe drinking water to ratepayers. The fund prioritizes assistance to disadvantaged communities by allowing a small portion of the funding to be distributed as grants, and also requires these projects to explore consolidation with another water system as a way to resolve their water problem and achieve an economy of scale that will keep their water rates affordable. Currently, the state statute allows up to 80% of a project to be funded as a grant, with the exact percentage dependent on the community's ability to repay a loan. Severely disadvantaged communities (those whose median household income is 60% or less of the state median) are often unable to repay even a 20% loan without raising their water rates above the EPA's recommended maximum." The author asserts, "The Department of Public Health (DPH), while requiring that consolidation be studied as an alternative to each project, does not provide sufficient incentive to make consolidation occur, and restricts the capacity of the project funded based on the size of the community most in need. Regionalization projects with multiple consolidations are made even more difficult because DPH requires the communities most in need of assistance to serve as the primary project applicant in order to receive high priority for funding, a task generally beyond their ability. Finally, once approved, funding is based on reimbursement. However, that reimbursement is often subject to bureaucratic delays. This creates a hardship for disadvantaged communities that lack the cash flow to pay AB 983 Page 4 invoices before reimbursement is received." Safe Drinking Water State Revolving Fund (SDWSRF) : Congress established the SDWSRF as part of the 1996 Safe Drinking Water Act Amendments to better enable public water systems to comply with national primary drinking water standards and to protect public health. The SDWSRF provides financial assistance in the form of capitalization grants to states to provide low interest loans and other assistance to public water systems. In order to receive these funds, states must provide a state match equal to 20 percent of the federal capitalization grants and must create a drinking water state revolving fund program for public water system infrastructure needs and other drinking water-related activities. In response, California established the SDWSRF through SB 1307 (Chapter 734, Statutes of 1997) to help fund the state's drinking water needs. Expedited payment process for loans to disadvantaged communities : Proponents of the bill argue that because of the significance of water quality projects to the public health, small communities need loans for water quality project improvements for which they are qualified to be disbursed without delay. The legislature passed, and the Governor signed, AB 2356 (Arambula) in 2008, which requires the State Water Resources Control Board (SWRCB) to establish a payment process by which the recipient of financial assistance for water quality projects receives funds within 30 days of the date on which the SWRCB receives a project payment request. AB 983 authorizes DPH, when implementing the SDWSRF, to establish a payment process by which the recipient of financial assistance would receive funds within 30 days of the date DPH receives a project payment request. Loans for severely disadvantaged communitie s: Proponents of the bill argue that severely disadvantaged communities, especially, are often unable to take advantage of existing funds for drinking water projects because they are unable to repay even modest loans. Last year the Legislature passed, and the Governor signed, AB 2515 (V. M. Perez), which authorizes DPH to provide a grant from the SDWSRF for point-of-entry and point-of-use water treatment systems if that system serves a severely disadvantaged community. Similarly, AB 983 makes small water systems serving severely disadvantaged communities eligible to receive up to 100 percent of their project costs in the form of principal forgiveness or grant from the SDWSRF, if AB 983 Page 5 needed to ensure affordable water rates. Consolidation : According to DPH, funding for consolidation projects is both authorized and encouraged by the SDWSRF program. Consistent with the SDWSRF Intended Use Plan, funds may be used for consolidation projects that improve the safety of public water supplies by enabling noncompliant water systems lacking the necessary Technical, Managerial, and Financial (TMF) capacity to achieve compliance with safe drinking water standards by consolidating with another water system that is in compliance. AB 983 requires DPH, in establishing the priority list categories for funding projects from the SDWSRF, to, after giving priority to upgrading existing systems to meet drinking water standards, prioritize projects that include consolidation with a small water system that will enable that system to meet drinking water standards without regard to the project proponent. Similar prior legislation : AB 2515 (V. M. Perez, Chapter 601, Statutes of 2010). Authorizes DPH to provide a grant from the SDWSRF for point-of-entry and point-of-use water treatment systems. AB 2356 (Arambula, Chapter 607, Statutes of 2008). Requires the State Water Resources Control Board (SWRCB) to take specified actions when allocating funds to small, disadvantaged communities for wastewater collection, treatment or disposal projects, including establishing a payment process pursuant to which the recipient of financial assistance receives funds within 30 days of the date on which the SWRCB receives a project payment request. AB 783 (Arambula, Chapter 614, Statutes of 2007). Directs DPH to prioritize funding of water projects in disadvantaged communities; directs DPH to promote, provide funds for studies on, and prioritize funding for projects which consolidate small public water systems in certain situations. Technical amendments: 1)Instead of creating a new definition for "small water system," reference the existing definition for "small community water system" in Health and Safety Code Section 116275(aa). 2)Reference the definition for "disadvantaged community" in Water Code Section 79505.5. AB 983 Page 6 REGISTERED SUPPORT / OPPOSITION : Support Alta Irrigation District Asociacion de Gente Unida por el Aqua (AQUA) California League of Conservation Voters California Rural Legal Assistance Foundation Catholic Charities Diocese of Stockton Clean Water Action Committee for a Better Seville Community Water Center County of Tulare Environmental Justice Coalition for Water Food and Water Watch Natural Resource Defense Council Planning and Conservation League Self Help Enterprises Southern California Watershed Alliance Unitarian Universalist Legislative Ministry Action Network, CA Unitarian Universalist Service Committee United for Change in Tooleville Urban Semillas Vecinos Unidos (United Neighbors) Winnemem Wintu Tribe J. Steven Worthley, Tulare County Board of Supervisors Several individuals Opposition None received. Analysis Prepared by : Shannon McKinney / E.S. & T.M. / (916) 319-3965