BILL ANALYSIS                                                                                                                                                                                                    Ó

                   Senate Appropriations Committee Fiscal Summary
                            Senator Kevin de León, Chair

          AB 21 (Alejo) - Safe Drinking Water Small Community Emergency  
          Grant Fund.
          Amended: February 14, 2013      Policy Vote: EQ 9-0, Health 9-0
          Urgency: No                     Mandate: No
          Hearing Date: August 30, 2013                     Consultant:  
          Marie Liu     
          SUSPENSE FILE.
          Bill Summary: AB 21 would create the Safe Drinking Water Small  
          Community Emergency Grant Fund (fund) which would be  
          administered by the Department of Public Health (DPH) and used  
          to provide grants for emergency drinking water projects that  
          serve disadvantaged and severely disadvantaged communities.

          Fiscal Impact: 
              Unknown on-going costs, possibly in hundreds of thousands  
              to millions of dollars, in the form of reduced revenues to  
              the Safe Drinking Water State Revolving Fund (SDWSRF)  
              (special) due to forgone interest payments.
              One-time costs of approximately $100,000 from the SDWSRF  
              for the development of regulations guiding the allocation of  
              the fund.
              Unknown, but likely minimal, increases administrative costs  
              to SDWSRF for the administration of the fund. 

          Background: The California Safe Drinking Water Act requires the  
          Department of Public Health to regulate drinking water and the  
          SDWSRF, which provides funding to correct public water system  
          deficiencies. The SDWSRF provides funding for projects that  
          correct public water system deficiencies, including financial  
          assistance for the capital costs associated with water quality  
          infrastructure projects, but not ongoing operations and  
          maintenance costs. The majority of SDSRF funds are allocated to  
          construction projects, though funding is also available for  
          planning and feasibility studies for certain eligible  
          applicants. Financial assistance is given in several forms  
          including low-interest loans, zero-interest loans, debt  
          refinancing, principal forgiveness, and grants.


          AB 21 (Alejo)
          Page 1

          Under the California Porter-Cologne Water Quality Control Act,  
          the SWRCB also administers the Clean Water State Revolving Fund  
          (CWSRF) in order to fund grants to small communities for  
          wastewater management. Until January 1, 2014, the SWRCB is  
          authorized to assess an annual surcharge on loans issued from  
          the CWSRF in lieu of interest on the loans. This surcharge is  
          then deposited into the Small Communities Grant Fund (SCG Fund)  
          for the purpose of funding the construction of wastewater  
          collection, treatment, or disposal projects for small  
          communities. No more than $50 million in surcharges may be  
          collected. Projects that serve severely disadvantaged  
          communities have priority for grants from the SCG Fund. The  
          surcharge may be authorized at any time during the loan  
          repayment schedule, but once the surcharge is applied, it must  
          remain unchanged unless the SWRCB is ceasing collection of the  

          Proposed Law: This bill would create the Safe Drinking Water  
          Small Community Emergency Grant Fund, which may be expended  
          through grants for projects that are eligible for financial  
          assistance from the SDWSRF and serve disadvantaged and severely  
          disadvantaged communities. The fund would be funded by a  
          surcharge on a loan issued from the SDWSRF in lieu of interest.  
          The surcharge may be applied at any time during the loan  
          repayment, but once the surcharge is applied, it must remain  
          unchanged. The charge cannot increase the financing repayment  

          Related Legislation: AB 30 (Perea) would remove restrictions on  
          the SWRCB's authority to collect an in lieu surcharge on loans  
          from the CWSRF in order to fund grants to small communities for  
          wastewater management. 

          Staff Comments: This bill gives DPH full authority in  
          determining the size of the fund as DPH will determine how many  
          loans will be assessed the surcharge instead of interest and how  
          much the surcharge will be. The size of the fund ultimately  
          represents a lost to the SDWSRF as the SDWSRF will receive less  
          loan interest repayments. The SDWSRF currently has a large  
          reserve, which is representative of problematic administration  
          of the monies rather than a lack of demand. 

          As this bill does not allow the fund to be used for  
          administrative costs, presumably the administration of grants  


          AB 21 (Alejo)
          Page 2

          from this program are likely to be paid by the SDWSRF and  
          therefore, staff believes the financial assistance programs from  
          the two funding sources should be administered together. The  
          administrative costs caused by this bill will be dependent on  
          the number of applicants to the fund. While this new grant  
          program may bring out some new applicants, staff anticipates  
          that most applicants could have, or already have, applied for  
          assistance from the SDWSRF especially since the eligibility  
          requirements are the same between the two programs and the  
          SDWSRF can already be awarded as grants (HSC §116761.21).  
          Therefore this bill may not necessarily increase the number of  
          applicants seeking assistance, but would rather shift applicants  
          for the SDWSRF assistance to the fund. Staff notes that the  
          SDWSRF has been criticized for having a lengthy and burdensome  
          application process that is particularly difficult to navigate  
          for disadvantaged communities. There is no language in the bill  
          that suggests that the fund will be administered any different  
          than the SDWSRF, which further increases the likelihood that  
          there will not be a significant increase in applications, and  
          therefore administration of the program.