BILL ANALYSIS                                                                                                                                                                                                    

                                                                  AB 21
                                                                  Page 1

          Date of Hearing:   February 12, 2013

                                Luis A. Alejo, Chair
            AB 21 (Alejo and V. M. Perez) - As Amended:  February 5, 2012
          SUBJECT  :  Safe Drinking Water Small Community Emergency Grant  

           SUMMARY  :   Creates the Safe Drinking Water Small Community  
          Emergency Grant Fund and authorizes the Department of Public  
          Health (DPH) to assess an annual charge to be deposited in this  
          fund in lieu of interest that would otherwise be charged on Safe  
          Drinking Water State Revolving Fund (SDWSRF) loans.   
          Specifically,  this bill  :  

          1)Creates the Safe Drinking Water Small Community Emergency  
            Grant Fund.

          2)Provides that the following monies shall be deposited in the  
            grant fund:

             a)   Monies transferred to the grant fund pursuant to the  
               below charge in lieu of interest provisions; and, 

             b)   Any interest earned upon the monies deposited in the  
               grant fund.

          3)Authorizes, for any loans made for projects meeting the  
            eligibility criteria of SDWSRF Law, DPH to assess an annual  
            charge to be deposited in the grant fund in lieu of interest  
            that would otherwise be charged.

          4)Authorizes the charge to be applied at any time during the  
            term of the financing, requires that the charge, once applied,  
            remain unchanged, and prohibits the charge from increasing the  
            financing repayment amount.

          5)Authorizes the monies in the grant fund to be for grants for  
            emergency drinking water projects that meet the requirements  
            stated in Emergency Clean Water Grant Fund (ECWG) provisions  
            (see next page) and that serve disadvantaged and severely  
            disadvantaged communities.

          6)Requires, for the purpose of approving grants, DPH to give  


                                                                  AB 21
                                                                  Page 2

            equal priority to projects that serve severely disadvantaged  

          7)Requires that charge in lieu of interest funds be expended in  
            a manner consistent with federal Environmental Protection  
            Agency (US EPA) Drinking Water State Revolving Fund (DWSRF)  
            grant regulations.


          1)Pursuant to the federal Safe Drinking Water Act (SDWA),  
            authorizes the US EPA to set standards for drinking water  
            quality and to oversee the states, localities, and water  
            suppliers who implement those standards.  As amended in 1996,  
            establishes the DWSRF to make funds available to drinking  
            water systems to finance infrastructure improvements.

           EXISTING STATE LAW  :

          1)Pursuant to the California SDWA, requires DPH to regulate  
            drinking water and to enforce the federal SDWA and other  
            regulations (Health and Safety Code (HSC)  116270 et seq.).

          2)Pursuant to Safe Drinking Water State Revolving Fund Law,  
            requires DPH to implement the SDWSRF, which provides funding  
            to correct public water system deficiencies (HSC  116760 et  

          3)Establishes the Emergency Clean Water Grant Fund (ECWG), which  
            is continuously appropriated to the Department of Public  
            Health (DPH) to provide financial assistance to public water  
            systems and to fund emergency actions by DPH to ensure that  
            safe drinking water supplies are available to all Californians  
            who are served by public water systems (HSC 116475).  

             a)   Authorizes DPH to expend funds in the ECWG for specified  
               purposes, including, but not limited to, the following  
               i)     The provision of alternative water supplies and  
                 bottled water; 
               ii)    Improvements of the existing water supply system; 
               iii)   Hookups with adjacent water systems; and, 
               iv)    Design, purchase, installation, and operation and  
                 maintenance of water treatment technologies.   


                                                                  AB 21
                                                                  Page 3

             b)   Requires DPH to develop and revise guidelines, which are  
               exempted from the Administrative Procedure Act, for the  
               allocation and administration of monies in the ECWG.  

          4)Under the Safe Drinking Water, Water Quality and Supply, Flood  
            Control, River and Coastal Protection Bond Act of 2006  
            (Proposition 84), as passed by the voters, allocates $10  
            million to DPH for grants and direct expenditures to fund  
            emergency and urgent actions to ensure that safe drinking  
            water supplies are available to all Californians.  Lists  
            eligible project criteria.  (Public Resources Code (PRC)   

           FISCAL EFFECT  :   Unknown.

           COMMENTS  :  

           Need for the bill  :  According to supporters, communities with a  
          single drinking water source are the most vulnerable to  
          interruption of their water supply.  When that community is very  
          small and low-income, that vulnerability is increased, as they  
          lack the economies of scale and financial resources to address  
          their problem.  While the state does provide technical  
          assistance and grants for capital projects, it is very difficult  
          for these communities to access the funding.  Some water systems  
          have been in the waiting list for the SDWSRF since its inception  
          in 1998; each year they pass up the opportunity for funding  
          because of the onerous requirements attached to the funding.

          Supporters continue that the ECWGF was created within DPH to  
          provide immediate relief to water systems with a disruption in  
          their potable water supply, including exemptions from  
          contracting and procurement requirements as needed.  While DPH  
          received $10 million in funding from Proposition 84 in 2006 to  
          fund its emergency drinking water program, this resource is not  
          renewable, and DPH has only expended or allocated about half of  
          the funds.    

          Supporters argue that this bill makes use of a funding tool -  
          and in lieu fee assessed in place of interest on SDWSRF loans -  
          to provide a renewable funding source for emergency drinking  
          water projects, and targets the funds raised at disadvantaged  
          and severely disadvantaged communities.  Because this funding  
          comes from the SDWSRF, it can only be used for capital projects;  
          however, by assessing a fee instead of using interest payment  


                                                                  AB 21
                                                                  Page 4

          funds, DPH is able to disburse funds without requiring  
          applicants to comply with the same level of requirements that  
          make the SDWSRF so difficult to access.

           Nitrate contamination in California :  While many contaminants  
          are present in California's groundwater and drinking water,  
          nitrate contamination has been the focus of recent study.   
          Senate Bill SB X2 1 (Perata, Chapter 1, Statutes of 2008 Second  
          Extraordinary Session) required the SWRCB, in consultation with  
          other agencies, to prepare a report to the Legislature focusing  
          on nitrate groundwater contamination in the state and potential  
          remediation solutions.  In response, the SWRCB contracted with  
          the University of California at Davis (UCD) to gather  
          information for the report, which was released in January 2012.   
          The study showed that nitrate loading to groundwater in the  
          four-county Tulare Lake Basin and the Monterey County portion of  
          the Salinas Valley is widespread and chronic, and is  
          overwhelmingly the result of crop and animal agricultural  
          activities.  Due to long transit times, the impact of nitrates  
          on groundwater resources will likely worsen in scope and  
          concentration for several decades. 

          According to the UCD study, infants who drink water containing  
          nitrate in excess of the maximum contaminant level (MCL) for  
          drinking water may quickly become seriously ill and, if  
          untreated, may die because high nitrate levels can decrease the  
          capacity of an infant's blood to carry oxygen  
          (methemoglobinemia, or "blue baby syndrome").  High nitrate  
          levels may also affect pregnant women and susceptible adults.   
          In addition, nitrate and nitrite ingestion in humans has been  
          linked to goitrogenic (anti-thyroid) actions on the thyroid  
          gland, fatigue, reduced cognitive functioning, maternal  
          reproductive complications including spontaneous abortion, and a  
          variety of carcinogenic outcomes.
          Challenges in addressing groundwater and drinking water  
          contamination  :  The slow response of groundwater quality to  
          source reduction efforts implies that the most immediate path  
          toward attaining safe drinking water in nitrate contaminated  
          areas is in the form of safe drinking water actions.  However,  
          the costs to provide safe drinking water to affected communities  
          in this region are high, due to the large number of  
          groundwater-contaminating nitrate sources, the dispersed  
          population, and the high incidence of elevated nitrate levels in  
          drinking water.  


                                                                  AB 21
                                                                  Page 5

          The fact that many of the affected communities are small and  
          impoverished adds to the challenges of providing safe drinking  
          water to these areas.  Many of the community public water  
          systems are small water systems, which often already face  
          chronic financial problems.  They have difficulty in applying  
          for and meeting the eligibility requirements for receiving  
          existing State funds because they lack economies of scale and  
          often have inadequate technical, managerial, and financial  
          capacity.  Even when funding is provided, these systems often  
          lack the capacity to manage operation and maintenance costs or  
          make loan repayments.

           Actions for addressing groundwater and drinking water  
          contamination:  The UCD study proposed a range of actions that  
          could be taken to address groundwater and drinking water  
          contamination, including policy and regulatory changes and  
          funding options.  To examine these proposed actions and to  
          "identify specific, creative, viable solutions," in June 2012,  
          Governor Jerry Brown convened a Drinking Water Stakeholder  

          The Drinking Water Stakeholder Group, comprised of  
          representatives from, among others, California State and local  
          agencies, the agricultural community, the environmental justice  
          community, academia, and other water related entities, submitted  
          its "Final Report to the Governor's Office," on August 20, 2012.  
           Among the recommendations in the report was to "Increase access  
          to existing funding sources for disadvantaged communities in  
          unincorporated areas for both long-term and interim safe  
          drinking water solutions."  

          On November 9, 2012, the Stakeholder Group submitted  
          "Recommendations for Amendments to the 2013 SDWSRF Intended Use  
          Plan (IUP)," which are intended to ensure that DPH's SDWSRF IUP  
          will most effectively implement the goals of the Stakeholder  
          Group.  Among the recommendations was to, "Consider establishing  
          a fee in lieu of interest assessed on a portion of the repayment  
          stream to provide continuous funding for eligible (capital)  
          projects in the emergency fund."   

          AB 21 is intended to expedite SDWSRF funding disbursal for  
          drinking water solutions for disadvantaged communities, and is  
          based on the above recommendations of the Drinking Water  
          Stakeholder Group.


                                                                  AB 21
                                                                  Page 6

           Safe Drinking Water State Revolving Fund (SDWSRF  ):  The federal  
          DWSRF authorizes the US EPA to award capitalization grants to  
          States (with a 20% State match), which in turn are authorized to  
          provide low-cost loans and other types of assistance to public  
          water systems (PWS) to finance the costs of infrastructure  
          projects needed to achieve or maintain compliance with SDWA  

          DPH reports that the California SDWSRF program goals reflect  
          both federal and State legislative intent to provide funding to  
          correct PWS deficiencies based upon a prioritized funding  
          system.  The funding system utilizes a comprehensive multi-year  
          Project Priority List, whereby certain projects receive higher  
          funding priority than other eligible PWS projects.  

          Proponents of AB 21 argue that the application process for  
          SDWSRF is onerous and lengthy, especially for disadvantaged  
          communities lacking resources and technical expertise.  In  
          addition, a recent analysis of the SDWSRF by the Legislative  
          Analyst's Office provided to the author of the bill show that  
          the SDWSRF's fund utilization rate is below the national average  
          and that California's SDWSRF had the highest amount and rate of  
          unliquidated obligations in the nation, suggesting that DPH is  
          slow to disburse SDWSRF money.  
          Funding for drinking water emergencies  :  Proposition 84, as  
          passed by the voters in November 2006, included an allocation of  
          $10 million to DPH for emergency grants for projects meeting  
          specified criteria and an exemption for disbursements from  
          contracting and procurement requirements (PRC  75021).

          In April 2007, DPH adopted grant criteria to implement PRC   
          75021.  According to DPH, these criteria followed criteria  
          established in the 1980s for the ECWG, which was created under  
          Chapter 1428, Statutes of 1985 and amended under Chapter 885,  
          Statutes of 1987 (HSC  116475).  While the original ECWG fund  
          is essentially defunct, the ECWG criteria for awarding and  
          approving grants for emergencies is still being used as the  
          basis for awarding Proposition 84 emergency funds.  

          On December 21, 2012, DPH revised the emergency grant criteria  
          for PRC  75021 to expand the definition of "public health  
          emergency," and thus the allowable uses of the funding, to  
          include specified public water systems that serve severely  


                                                                  AB 21
                                                                 Page 7

          disadvantaged communities that cannot deliver water that meets  
          primary safe drinking water standards.  Historically, this  
          funding source had been used mainly to address sudden  
          unanticipated events that disrupt water supply, such as fires,  
          earthquakes, and landslides.  DPH's emergency grant criteria  
          also provide for expedited disbursal of funds, including an  
          option for an oral contract.  

          At the end of 2012, DPH allocated $2 million of the  
          approximately $7 million remaining of the Proposition 84  
          emergency grant funding for grants to provide interim  
          replacement drinking water for economically disadvantaged  
          communities eligible under the revised criteria.  In October of  
          2012, the SWRCB also allocated $2 million from their Cleanup and  
          Abatement Account (CAA) to supplement DPH's interim drinking  
          water program.

          While approximately $5 million remains of the original $10  
          million in Proposition 84 emergency grant funds, supporters of  
          AB 21 argue that this funding source is fixed, non-renewable and  
          is being drawn down.  AB 21 is intended to provide a long-term  
          and more readily available source of funding for disadvantaged  
          communities with immediate drinking water needs.

           Fee in lieu provisions  :  Charging a fee in lieu of collecting  
          interest on loans disbursed from the revolving funds in not a  
          new concept in California.  AB 2356 (Arambula) Chapter 609,  
          Statutes of 2008, created the Clean Water State Revolving Fund  
          (CWSRF) Small Community Grant (SCG) Fund, which authorized the  
          SWRCB to assess an annual charge on existing CWSRF financing  
          agreements for deposit into the SCG Fund.  The annual charge is  
          in lieu of interest that would otherwise be charged in  
          association with a CWSRF financing agreement.

          Charging a fee in lieu of interest is an alternative means of  
          capitalizing on revolving fund loans.  This funding mechanism,  
          since it falls outside of the requirements associated with the  
          collection of interest, may enable fund disbursement to bypass  
          some of the oft onerous disbursement and grantee qualification  
          requirements of the revolving funds.  Revolving fund funds  
          collected from loan recipients, whether in the form of interest  
          or a fee, likely do, however, have to follow the general funding  
          criteria of each fund.  

          Fee in lieu, the SDWSRF and the ECWG  :  AB 21 authorizes a fee in  


                                                                  AB 21
                                                                  Page 8

          lieu of interest payments on SDWSRF loans, and to use those  
          fees, following ECWG criteria, for emergency grants for  
          disadvantaged communities lacking safe drinking water.  The  
          rationale for this authorization is that the fees will provide a  
          continuous funding source for addressing drinking water  
          emergencies and may enable disadvantaged communities in need of  
          immediate action for their drinking water deficiencies to bypass  
          some of the onerous and lengthy requirements of the SDWSRF  
          disbursal process.

          AB 21 intends to fund those projects that meet both the State's  
          drinking water emergency fund criteria and DWSRF funding  
          requirements.  Allowable expenditures under the emergency fund  
          criteria that would also likely be allowable under federal DWSRF  
          requirements include:
             1)   Improvements of the existing water supply system;
             2)   Hookups with adjacent water systems; and,
             3)   Design, purchase and installation of water treatment  
          Amendment  :  The Committee may wish to amend the bill to strike,  
          on page 2 line 31, the word "equal." 
          Related recent legislation  :  AB 2238 (Perea), as amended August  
          24, 2012, would have defined "public health emergency;"  
          authorized DPH to expend the monies from the ECWG; and listed  
          the provision of interim water treatment as one of the listed  
          specified actions for which the DPH may provide payment.  AB  
          2238 passed out of the Senate Environmental Quality Committee on  
          a 5 - 1 vote, but was not taken up by the Senate Appropriations  
          Committee and subsequently died on file.

           Related current legislation  :

          1)AB 1 (Alejo).  Appropriates $2 million to SWRCB for use by the  
            Greater Monterey County Regional Water Management Group to  
            develop an integrated plan to address the drinking water and  
            wastewater needs of disadvantaged communities suffering from  
            wastewater discharges into the region's groundwater in the  
            Salinas Valley.  This bill is scheduled for hearing in the  
            Assembly ESTM Committee on February 12, 2013.   

          2)AB 30 (Perea):  Eliminates the sunset on the charge in lieu of  
            interest provision for the State Water Pollution Control  
            Revolving Fund.


                                                                  AB 21
                                                                  Page 9

          3)AB 69 (Perea).  Establishes the Nitrate at Risk Area Fund, to  
            be administered by the SWRCB, for developing and implementing  
            sustainable and affordable solutions for disadvantaged  
            communities.  This bill has not yet been referred to  

          4)AB 115 (Perea).  Authorizes funding, through the SDWSRF, of  
            projects to benefit a disadvantaged community that is not the  
            applying agency, extending applicant eligibility to larger  
            agencies with the expertise to assist disadvantaged  
            communities that suffer from contamination of their drinking  
            water sources.  This bill has been referred to the Assembly  
            ESTM Committee.  

          5)AB 118 (ESTM). Authorizes DPH to adopt interim regulations for  
            purposes of implementing provisions relating to the SDWSRF,  
            and amends other statutory provisions relating to the drinking  
            water program.  This bill has been referred to the Assembly  
            ESTM Committee.  

          6)AB 145 (Perea - Rendon).  Transfers the State drinking water  
            program under the California Safe Drinking Water Act,  
            including the SDWSRF, from DPH to the SWRCB.  Makes findings  
            regarding the need for consolidation of programs for safe  
            drinking water and clean water.  This bill has been double  
            referred to the Assembly Committees on Water, Parks and  
            Wildlife Committee and on ESTM.  

          7)SB 117 (Rubio).  Transfers the various duties and  
            responsibilities imposed on DPH by the California Safe  
            Drinking Water Act to the SWRCB, and makes conforming changes.  
             This bill has been double referred to Senate Committees on  
            Health and on Environmental Quality.


          California Latino Water Coalition
          California Rural Legal Assistance Foundation
          California Water Association
          Clean Water Action
          Community Water Center
          Environmental Justice Coalition for Water


                                                                  AB 21
                                                                  Page 10

          Environmental Working Group
          Monterey County Board of Supervisors
          Pesticide Action Network
          Sierra Club California
          Winnemem Wintu Tribe

          None received.
          Analysis Prepared by  :    Shannon McKinney / E.S. & T.M. / (916)