BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair AB 983 (Perea) Hearing Date: 08/25/2011 Amended: 07/01/2011 Consultant: Brendan McCarthy Policy Vote: EQ 6-0 _________________________________________________________________ ____ BILL SUMMARY: AB 983 makes several changes to the laws governing the state's program for providing grants and loans for safe drinking water projects, including allowing certain disadvantaged communities to receive grants for up to 100 percent of project costs. _________________________________________________________________ ____ Fiscal Impact (in thousands) Major Provisions 2011-12 2012-13 2013-14 Fund Grant implementation and Absorbable within existing resources Special * payment processing Cost pressure due to Unknown, likely in the hundreds of Special * increased grant amounts thousands per year * Safe Drinking Water State Revolving Fund. _________________________________________________________________ ____ STAFF COMMENTS: SUSPENSE FILE. Under current law, the Department of Public Health provides grants and loans to fund safe drinking water projects from the Safe Drinking Water State Revolving Fund (Revolving Fund). The Revolving Fund is supported with federal funds, repayment of prior loans, state funds and other fund sources. Current law requires the Department to give priority for funding to projects that serve disadvantaged communities, authorizes grants for up to 80 percent of total project costs, and requires that between 15 percent and 30 percent of program funds be used for grants. The Department provides about $200 to $300 million per year in grants and loans under the program. AB 983 (Perea) Page 1 AB 983 makes several changes to the operation of the Revolving Fund program. The bill requires the Department to process payment requests and make payments within 30 days. The bill requires the Department to give priority to projects that include consolidation with a small community water system to improve drinking water quality. The bill authorizes the Department to provide up to 100 percent of project costs through grants (rather than loans) to small community water systems that serve disadvantaged communities. Finally, the bill authorizes the Department to extend loan terms to 30 years for disadvantaged communities. According to the Department, the administrative costs to expedite payments and comply with the other requirements of the bill can be absorbed within existing resources. This bill will likely result in cost pressures on the Revolving Fund, because additional funds will be provided as grants rather than loans. This will reduce the amount of funds available to other loan applicants and in the long-run will reduce loan repayment revenues into the Revolving Fund. The extent of this cost pressure is unknown and will depend on particular project applications. Based on the number and size of loans made to disadvantaged communities in past years, the shift in funding from loans to grants may be in the hundreds of thousands per year, with commensurate cost pressures on the fund.