BILL ANALYSIS Ó AB 21 Page 1 Date of Hearing: February 12, 2013 ASSEMBLY COMMITTEE ON ENVIRONMENTAL SAFETY AND TOXIC MATERIALS Luis A. Alejo, Chair AB 21 (Alejo and V. M. Perez) - As Amended: February 5, 2012 SUBJECT : Safe Drinking Water Small Community Emergency Grant Fund. 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 communities. 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. EXISTING FEDERAL LAW : 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 seq.). 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 actions: 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) § 75021). 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 Group. 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 requirements. 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 technologies. 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 Committee. 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. REGISTERED SUPPORT / OPPOSITION : Support 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 PolicyLink Sierra Club California Winnemem Wintu Tribe Opposition None received. Analysis Prepared by : Shannon McKinney / E.S. & T.M. / (916) 319-3965