BILL ANALYSIS Ó
AB 118
SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
Senator Jerry Hill, Chair
2013-2014 Regular Session
BILL NO: AB 118
AUTHOR: Asm. Comm. on Environmental Safety and Toxic
Materials
AMENDED: As Introduced
FISCAL: Yes HEARING DATE: June 12, 2013
URGENCY: No CONSULTANT: Rachel Machi
Wagoner
SUBJECT : SAFE DRINKING WATER REVOLVING FUND
SUMMARY :
Existing federal law :
1) Establishes the federal Safe Drinking Water Act (SDWA) to
regulate the nation's public drinking water supply.
2) Requires the U.S. Environmental Protection Agency (US EPA) to
establish mandatory nationwide drinking water standards.
3) Requires state drinking water programs to set drinking water
standards that are at least as stringent as the US EPA
standards.
4) Establishes the Drinking Water State Revolving Fund (DWSRF)
to make funds available to drinking water systems to finance
infrastructure improvements and emphasizes providing funds to
small and disadvantaged communities and to programs that
encourage pollution prevention as a tool for ensuring safe
drinking water.
Existing state law , pursuant to the Safe Drinking Water State
Revolving Fund (SDWSRF) Law of 1997 (Health and Safety Code
§116760 et seq.):
5) Provides funding for public water systems through SDWSRF to
correct deficiencies and problems that pose public health
risks and to meet safe drinking water standards.
(§116760.10).
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6) Establishes SDWSRF and requires the California Department of
Public Health (DPH) to administer the fund. (§116760.30).
7) Requires DPH to establish criteria for eligibility of SDWSRF
funding consideration. Among the criteria includes
completion of California Environmental Quality Act (CEQA)
environmental review and the requirement that an applicant's
preliminary plans for the project must include plans for CEQA
compliance. (§116761.50(d)) .
8) Requires DPH to establish a priority list of proposed
projects to be considered for SDWSRF funding and requires
priority be given to projects that meet specified criteria.
(§116760.70).
9) Authorizes up to 30% of the total amount of funds deposited
in SDWSRF may be expended for grants to serve disadvantaged
communities. (§116761.21).
10)Provides specified maximum amounts for grant and loan funding
and authorizes up to 100% grant funding for eligible costs to
a small community water system or nontransient noncommunity
water system that serves severely disadvantaged communities.
(§116761.23).
11)Authorizes DPH to enter into contracts with funding
recipients and requires specified terms and conditions in the
contract. (§116761.50).
12)Authorizes DPH to include terms and conditions in contracts
pertaining to the funding recipient's financial
responsibilities. (§116761.50).
13)Authorizes DPH to establish a reasonable schedule of
administrative fees for loans paid by applicants.
(§116761.70).
14)Under the Administrative Procedure Act (APA) (Government Code
§11340 et seq.), establishes rulemaking procedures and
standards for state agencies. State regulations must also be
adopted in compliance with regulations adopted by the Office
of Administrative Law (OAL).
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This bill authorizes DPH, when implementing the SDWSRF, to adopt
interim regulations and take other actions to expedite the
process of providing funds for drinking water projects,
especially to severely disadvantaged communities.
Specifically, this bill :
1)Authorizes DPH to adopt interim regulations to implement the
SDWSRF and to meet the requirements of the federal SDWA.
a) Exempts the interim regulations from the rulemaking
provisions of the APA and requires the interim regulations
to:
i) Be subject to a public review and comment period of
not less than 30 days;
ii) Take effect when filed with the Secretary of State,
and to be published in the California Code of Regulations
(CCR);
iii) Remain in effect for three years, unless sooner
repealed or amended by additional interim regulations;
and,
iv) Supersede any conflicting emergency regulations.
b) Authorizes the interim regulations to amend or repeal
emergency regulations.
c) Requires applicable regulations in effect at the time a
complete funding application is received by DPH to apply to
the project funding, unless DPH determines a regulation
adopted later, but prior to the date a funding agreement is
issued for a project, would be more beneficial to the
project applicant, in which case the later adopted
regulation may be applied.
2)Makes the following changes to DPH criteria for project
funding through SDWSRF:
a) Requires the applicant to complete, prior to receiving a
funding agreement, environmental review and documentation
of the defined project, including, but not limited to, the
review required by CEQA. Requires any measures required
for compliance with applicable environmental laws and
regulations to be included in the final plans for the
defined project, rather than to be included in the
preliminary plans for the project.
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b) Provides that a defined project may be subject to
further or supplemental review consistent with the
requirements of any applicable environmental laws or
regulations.
c) Requires the applicant to demonstrate that it has the
technical, managerial, and financial capacity to operate
and maintain its water system, including the project, in
accordance with the federal SDWA, state law, and applicable
regulations for at least 20 years, or requires the
applicant to submit an acceptable plan for achieving this
capacity by the time the project is scheduled to be
completed.
3)Provides that planning and preliminary engineering studies,
project design, and construction costs incurred by community
and not-for-profit non-community public water systems may be
funded under SDWSRF by loans, and, if these systems are owned
by public agencies or private not-for-profit water companies,
by grants, or a combination of grants and loans.
4)Provides that a small community water system or non-transient
non-community water system that is owned by a public agency or
a private not-for-profit water company and that serves a
severely disadvantaged community is deemed as having no
ability to repay a loan.
5)Sets limits for grant expenditures (not more than 30% and not
less than 15%) from the capitalization grant, instead of from
the total amount deposited in SDWSRF.
6) Authorizes an applicant to receive up to the full cost
of the project in the form of a loan bearing interest,
instead of the current limit of $20 million per project.
7) Requires DPH, when it enters into contracts with
applicants for grants or loans from SDWSRF, to include in
the contract the time for the completion of the project.
Authorizes DPH to determine an appropriate amount of time,
not to exceed 36 months, for the completion of a planning
and a preliminary design project, instead of the current
time limit of 18 months.
8)Adds the following terms and conditions to those that DPH is
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authorized to require in contracts with applicants for grants
or loans from SDWSRF:
a) An agreement by the supplier to complete, as part of the
project, a rate study pursuant to guidelines established by
CDPH;
b) An agreement by the supplier to implement, not later
than the conclusion of the project, the approved plan for
achieving technical, managerial, and financial capacity, as
specified; and,
c) An agreement by the supplier to comply with guidelines
adopted by DPH for any procurement of engineering,
environmental compliance, or architectural services if the
supplier is a small community water system or non-transient
non-community water system owned by a public agency or
private not-for-profit water company receiving grant
funding.
9)Requires all loans made pursuant to SDWSRF to carry the
interest rate established for the calendar year in which the
funds are committed to the loan, as of the date of the
issuance of the funding commitment, rather than of the date of
the letter of commitment.
10)Clarifies that the administrative fees for loans are to be
paid by the funding recipient instead of the applicant.
11) Requires DPH to annually establish in the Intended Use Plan
(IUP) the amount of any administrative fee.
COMMENTS :
1)Need for the bill : According to the author, "AB 118 is a
reintroduction of the May 1, 2012, version of AB 2529
(Wieckowski), from the 2012 Legislative Session. AB 2529,
which was an Administration-sponsored bill, passed the
Assembly ESTM Committee on a 9 - 0 vote; the Assembly
Appropriations Committee on a 17 - 0 vote; and, the Assembly
floor on a 78 - 0 vote. The bill was substantially amended in
the Senate Environmental Quality Committee, and subsequently
gutted and amended in the Senate Appropriations Committee to
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amend provisions of the California Global Warming Solutions
Act of 2006. The author argues that the provisions of AB 118
are necessary to improve efficiency within the SDWSRF
program."
The author states that "AB 118 was sponsored by DPH, which
argued at the time that the bill would modify SDWSRF statutes
to, "Enable the CDPH to ease the process of providing funds to
correct small water system deficiencies, particularly those
serving severely disadvantaged communities? Since the SDWSRF
was implemented in 1997, changes have occurred in federal and
state laws that affect the administration of the [SDWSRF]
Program. To address these changes, it is necessary that CDPH
has greater flexibility in its rulemaking process in order to
be more responsive to changes in federal laws, the needs of
the regulated utilities (public water systems), and the
communities they serve. AB 118 would modify the SDWSRF
statute to provide CDPH with the flexibility necessary to
assist the neediest water systems with SDWSRF funding, while
still complying with the SDWSRF federal requirements. In
addition, this would provide CDPH with statutory authority to
adopt interim and permanent regulations necessary to implement
the changes to the Program."
2)Background on SDWSR : Congress established the federal DWSRF
as part of the 1996 Safe Drinking Water Act Amendments to
better enable public water systems to comply with national
primary drinking water standards and to protect public health.
DWSRF provides financial assistance in the form of
capitalization grants to states to provide low-interest loans
and other assistance to public water systems. In order to
receive these funds, states must provide a state match equal
to 20% of the federal capitalization grants and must create a
drinking water state revolving fund program for public water
system infrastructure needs and other drinking water related
activities. In response, California established SDWSRF
through SB 1307 (Costa) Chapter 734, Statutes of 1997, to help
fund the state's drinking water needs. The fund provides
public water systems the opportunity to use subsidized funding
to correct infrastructure problems, assess and protect source
water, and improve technical, managerial, and financial
capability.
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US EPA allocates federal DWSRF funds to the states according to
a formula that reflects their proportional share of needs
identified in the most recent Drinking Water Infrastructure
Needs Survey. In order for a state to receive DWSRF funds
allotted to it, the state must submit a complete
capitalization grant application which includes various forms
and the state's annual IUP.
California annually receives approximately $86 million in DWSRF
capitalization grant money while the state matches with
approximately $17 million.
3)Amendments Still Needed : As noted above, the Senate
Environmental Quality Committee amended the identical bill
from last year, AB 118 (Wieckowski). As this bill is
identical to the bill that came to the Senate Environmental
Quality Committee last, all of the same amendments are needed
as noted below.
4)Interim Regulations . AB 118 authorizes DPH to adopt interim
regulations, which are not subject to APA, to implement SDWSRF
and to meet federal requirements. DPH stated last year,
"Since the SDWSRF was implemented in 1997, changes have
occurred in federal and state laws that affect the
administration of the Program. To address these changes, it
is necessary that DPH has greater flexibility in its
rulemaking process in order to be more responsive to changes
in federal laws, the needs of the regulated utilities (public
water systems), and the communities they serve."
DPH states that a regular rulemaking takes DPH approximately 2
to 3 years to complete and that adopting interim regulations
pursuant to this bill would take 3 to 6 months.
a) "Additional Regulations" . AB 118 proposes to allow the
interim regulations to be in effect for "three years
unless sooner repealed or amended by additional
regulations pursuant to this subdivision." This bill does
not specify "additional regulations" which would allow
subsequent interim regulations in addition to regular or
emergency regulations to suffice. Although DPH stated
last year that it intends to create permanent regulations
while interim regulations are in place, this bill would
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give DPH the authority to continually adopt interim
regulations indefinitely rather than adhere to the APA
rulemaking process.
b) APA . Generally, there are two types of rulemaking
procedures that a state agency can pursue: regular or
emergency. APA sets forth the procedures that state
agencies must follow when adopting regulations. Among
other requirements for regular rulemaking, APA requires
state agencies to give public notice, to receive and
consider public comments, to submit regulations and
rulemaking files to OAL for review to ensure compliance
with the requirements of APA, and to have the regulations
published in the California Code of Regulations (CCR).
The emergency rulemaking process has different
requirements but generally includes a brief public notice
period, a brief public comment period, review by OAL and
an OAL decision. APA provides a greater level of checks
and balances to which DPH's proposed interim regulations
would not be subject.
Pursuant to APA requirements for a regular rulemaking, the
time between when an agency notifies OAL that the agency
proposes to adopt, amend, or repeal regulations and when
OAL decides whether to approve the regulations is at most
14 months. However, if an agency fails to complete the
proposed regulation or transmit it to OAL within the
one-year period, then the agency must issue a notice of
the proposed action again. Also, APA gives OAL 30 working
days to either approve or disapprove a proposed regulation
after an agency submits it for OAL review and provides
that if OAL fails to act within 30 days, then the
regulation must be deemed approved. As noted earlier, DPH
states that the regular rulemaking process takes DPH 2
to 3 years to complete. Is current law the reason for
such delay or are other factors outside of the APA
rulemaking process an issue?
c) Conforming to Federal Law . In the past, DPH has made
adjustments to conform to federal law through legislation.
For example, AB 1194 (Block) Chapter 516, Statutes of
2011, made changes to the California Safe Drinking Water
Act to conform with the federal Safe Drinking Water Act.
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There is no apparent reason why DPH cannot continue to
make conforming changes to federal law through the
legislative process.
d) Rarity of Interim Regulations . State agencies have
been granted the authority to adopt "interim regulations"
three times.
i) In 1967, the California Tahoe Regional Planning
Agency was established and was required to adopt
interim regulations to begin its duties. The interim
regulations lasted a maximum of 18 months when final
regulations had to be adopted.
ii) In 1995, APA provisions regarding
administrative adjudication by state agencies were
substantially overhauled for the first time since the
APA was enacted in 1945. Agencies were authorized to
adopt interim regulations to comply with the revision
and provided a date certain for expiration of the
interim regulations.
iii) In 2004, the California Stem Cell Research and
Cures Act (Proposition 71) authorized the Independent
Citizen's Oversight Committee to adopt interim
regulations in order to facilitate immediate
commencement of research. The interim regulations
expired after 270 days (9 months) unless superseded
by regulations adopted pursuant to APA.
As shown above, interim regulations have been granted in
rare circumstances in which a newly created agency needs
to immediately begin fulfilling its duties or a drastic
overhaul in the law requires a short period of time to
adapt. SDWSRF has existed for approximately 16 years and
there has not been any unusual circumstance or major
change in federal or state law to warrant granting DPH
such a rarely granted authority indefinitely.
Amendments are needed to delete this provision of the bill
authorizing DPH to adopt interim regulations.
5 Environmental Review . Current law requires DPH to establish
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criteria in order for an entity to be eligible for SDWSRF
funding consideration. Among the criteria includes completion
of CEQA environmental review and the requirement that an
applicant's preliminary plans for the project must include
plans for CEQA compliance. The purpose of an environmental
review is to inform governmental decisionmakers and the public
about the potential significant environmental effects of
proposed activities and identify ways that environmental
damage can be avoided or significantly reduced.
AB 118 would relax this requirement by allowing an entity to be
considered for SDWSRF funding before completing its
environmental review. DPH explained last year that it
"requires applicants to complete environmental documentation
before receiving construction SDWSRF funding. DPH offers
planning funding from SDWSRF that can be used to complete the
environmental review, as well as for project design and other
preliminary activities. However, for some projects,
additional time, steps, or analysis is required to complete
the environmental review. This change would provide DPH
additional flexibility to allow, in certain circumstances,
project processing to move forward while completing
environmental review."
If "further or supplemental" environmental review is required
for a proposed project, then the environmental review cannot
be considered complete. It is not prudent to allow project
processing to move forward while the full environmental
ramifications are still unknown and may have an impact on the
proposed project.
Amendments are needed to delete this provision of the bill.
6)Technical, Managerial, and Financial . AB 118 requires a grant
applicant to show that it has the technical, managerial, and
financial capacity to operate and maintain its water system or
submit an acceptable plan for achieving this capacity by the
time the project is completed. DPH states that this
requirement "would clarify and implement the federal
requirement by placing it in state law and ensuring the
prudent use of SDWSRF funds."
Amendment is needed to clarify that this requirement is pursuant
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to federal law, 42 USC 300j-12 (a)(3).
7)Loan for 100% of Costs . AB 118 allows an applicant to receive
a loan for a maximum of 100% of its costs depending on the
availability of funds and the applicant's ability to repay the
loan. Currently, the cap on interest-bearing loans for water
systems is set in regulation at $20 million per project, with
limited exceptions. DPH contended last year that lifting the
cap "will allow DPH to make larger interest-generating loans,
which increases the funds returning to SDWSRF and provides
additional security for revenue bonds?" DPH stated that it
has not had any funding recipients default on loans. However,
an entity's ability to pay back a $20 million loan may differ
significantly than its ability to pay back an $80 million
loan. By removing the cap altogether, is SDWSRF put in a
position to potentially lose money by increasing the risk of
defaults on loans?
8) Amount of Time to Complete a Project . AB 118 authorizes DPH
to allow a funding recipient up to three years to complete a
project on a case-by-case basis. DPH states that this
proposal is intended for planning projects only. According
to 22 CCR 63011(c), "projects funded by planning funding
shall be completed and a planning report submitted to the
Department within 18 months from funding agreement
execution." DPH states that 18 months is not enough time in
some cases. However, proposing to double the maximum amount
of time for completion may seem excessive in some cases and
it would be prudent to encourage completion in a timely
manner.
Amendments are needed to give a planning funding recipient the
current 18 months to complete planning pursuant to 22 CCR
63011(c), allow the recipient to apply for an extension of
time to finish the planning/studies if needed, and authorize
DPH to grant the extension applicant a maximum of an
additional 18 months (for a total of three years) to complete
a planning project.
9) Complying with Guidelines . AB 118 authorizes DPH to include
in a grant contract a condition requiring the funding
recipient to comply with DPH guidelines for procurement of
specified consulting services. The purpose of a guideline is
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to advise and recommend practices in order to help people
comply with laws and regulations. A guideline generally
provides leeway for alternative approaches to be acceptable.
A guideline is not a mandate. To require the grant recipient
to obey guidelines would essentially turn the guidelines into
requirements.
Amendments are needed to change "comply" to "review and
consider."
10)Establishing Administrative Fees Through the Intended Use
Plan (IUP) . AB 118 requires DPH to annually establish the
amount of any administrative fee in the IUP. Last year, DPH
stated, "Current law provides DPH the authority to 'establish
a reasonable schedule of administrative fees for loans.'
However, because it was not clear how the fees were to be
established, whether through statute, regulations, or some
other mechanism, they were never put in place." This bill
proposes the "other mechanism."
As a condition to receiving a federal DWSRF capitalization
grant, states must annually submit an IUP to US EPA. The IUP
describes the state plan for expenditure of program funding.
Federal guidelines require that the IUP include a description
of how the program is structured, planned use of the funds,
the criteria and methods to be used to distribute the funds,
goals for the program, and a specific project priority list.
Last year, DPH stated that it must obtain public input on and
adopt the IUP annually. If DPH established a fee through the
regular rulemaking process, APA would apply. It is
questionable whether DPH's process for adopting the IUP would
provide an equivalent level of vetting as APA's rulemaking
process for purposes of establishing a fee and may be
considered inappropriate. Establishing and adjusting the
amount of an administrative fee should be done via more
traditional means such as a regulation or statute.
Amendments are needed to delete the provision requiring DPH to
establish the amount of any administrative fee in the IUP.
11)Clarification Amendments Needed . Throughout AB 118, the
term "project" is used but with varying meanings. "Project"
may refer to planning, a feasibility study, construction, or
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all of the above. Amendments are needed to clarify "project"
by specifying the type of project to which is being referred
in each instance.
In addition, technical amendments are needed to change
"supplier" to "funding recipient" for clarification purposes
in §116761.50.
12)Amendments needed: strategic fix . AB 145 (Perea, Rendon)
transfers the state drinking water program under the
California SDWA, including SDWSRF, from DPH to SWRCB. If it
is the intent of the Legislature to make such a major change
to the drinking water program, then the Committee should
amend this legislation to delay enactment of the provisions
of this bill for a period of at least one year to allow the
transfer to take place prior to making additional changes to
the program.
13)Double Referral to Senate Health Committee . If this measure is
approved by this committee, the do pass motion must include the
action to re-refer the bill to the Senate Health Committee.
SOURCE : Author
SUPPORT : Association of California Water Agencies
King River Conservation District
King River Water Association
Rural County Representatives of California
Sierra Club California
Silicon Valley Leadership Group
OPPOSITION: None on file