BILL ANALYSIS                                                                                                                                                                                                    Ó

                                                                  AB 21
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          AB 21 (Alejo and V. Manuel Pérez)
          As Amended  February 14, 2013
          Majority vote 

           ENVIRONMENTAL SAFETY       6-0  APPROPRIATIONS      17-0        
          |Ayes:|Alejo, Dahle, Bloom,      |Ayes:|Gatto, Harkey, Bigelow,   |
          |     |Donnelly, Stone, Ting     |     |Bocanegra, Bradford, Ian  |
          |     |                          |     |Calderon, Campos,         |
          |     |                          |     |Donnelly, Eggman, Gomez,  |
          |     |                          |     |Hall, Ammiano, Linder,    |
          |     |                          |     |Pan, Quirk, Wagner, Weber |
          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)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.

          2)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 (ECWGF) provisions  
            and that serve disadvantaged and severely disadvantaged  

          3)Requires, for the purpose of approving grants, DPH to give  
            equal priority to projects that serve severely disadvantaged  

          4)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  LAW  :


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          1)Authorizes, pursuant to the federal Safe Drinking Water Act  
            (SDWA), the US EPA to make funds available to drinking water  
            systems to finance infrastructure improvements.

          2)Requires, pursuant to Safe Drinking Water State Revolving Fund  
            Law, DPH to implement the SDWSRF, which provides funding to  
            correct public water system deficiencies (Health and Safety  
            Code (HSC) Section 116760 et seq.).  

           FISCAL EFFECT  :   According to the Assembly Appropriations  
          Committee, potentially millions of dollars could shift from the  
          SDWSRF to the newly created Safe Drinking Water Small Community  
          Emergency Grant Fund.  The bill would result in on-going  
          absorbable costs to DPH to administer the new grant program that  
          would otherwise be spent administering the SDWSRF.

           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.    

           Actions for addressing groundwater and drinking water  


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          contamination  :  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.  

          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."   

          This bill 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.
          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.  

           This bill intends to fund those projects that meet both the  
          state's drinking water emergency fund criteria and DWSRF funding  


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          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  

          Analysis Prepared by  :    Bob Fredenburg / E.S. & T.M. / (916)  

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