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. AS AMENDED. 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 (as approved on August 30, 2013): Unknown on-going costs, up to $50 million, 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. Under the California Porter-Cologne Water Quality Control Act, AB 21 (Alejo) Page 1 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 surcharge. 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 amount. 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 from this program are likely to be paid by the SDWSRF and AB 21 (Alejo) Page 2 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. Committee Amendments: Amend to cap the amount of in lieu fees collected to $50 million.