BILL ANALYSIS Ó AB 850 Page 1 Date of Hearing: April 24, 2013 ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT K.H. "Katcho" Achadjian, Chair AB 850 (Nazarian) - As Amended: April 15, 2013 SUBJECT : Public capital facilities: water quality. SUMMARY : Authorizes a joint powers authority to issue rate reduction bonds for local publicly-owned water utilities to finance projects necessary to comply with water quality, water conservation or water reclamation mandates. Specifically, this bill : 1)Authorizes a joint powers authority (JPA) to finance utility projects through the issuance of rate reduction bonds, and to impose and adjust utility project charges in connection with the financing pursuant to the provisions of this bill. 2)Allows a local agency that owns and operates a publicly owned utility (POU) that provides water service to apply to a JPA to finance costs of a utility project for the POU with the proceeds of rate reduction bonds. In its application to a JPA for the financing, the local agency shall specify the utility project to be financed, the maximum principal amount, the maximum interest rate, and the maximum stated terms of the rate reduction bonds. 3)Prohibits a local agency from applying to a JPA for financing of a utility project pursuant to this bill unless the legislative body of the local agency has determined all of the following: a) The project to be financed is a utility project; b) The local agency is electing to finance costs of the utility project pursuant to this bill and the financing costs associated with the financing are to be paid from utility project property, as defined, including the utility project charge for the rate reduction bonds issued for the utility project in accordance with this bill; and, c) Based on information available to, and projections used by, the legislative body, the financing is expected to result in lower rates to the customers of the local AB 850 Page 2 agency's POU compared with financing the utility project through bonds payable from revenues of the POU. 4)Provides, subject to the requirements of Article XIII D of the California Constitution, that a JPA financing the costs of a utility project or projects for a local agency's POU with rate reduction bonds is authorized and directed to impose and collect a utility project charge with respect to the rate reduction bonds as provided in this bill. The imposition of the utility project charge shall be made and evidenced by the adoption of a financing resolution by the governing body of the JPA. 5)Requires the financing resolution described above to include a number of components, including a separate charge to the bill of each customer, as specified; a description of the financial calculation, formula, or other method that the JPA is to use to determine the utility project charge, which includes a periodic adjustment method to be applied at least annually to correct for any overcollection or undercollection of financing costs or to make any other adjustment necessary to ensure timely payment of the financing costs of the rate reduction bonds, as specified; and, a requirement that the JPA enter into a servicing agreement with the local agency for the collection of the utility project charge, as specified. 6)Requires the financial calculation, formula, or other method, including the periodic adjustment method, established in the financing resolution, and the allocation of utility project charges to, and among, water distribution customers to be decided solely by the governing body of the JPA and requires it to be final and conclusive. 7)Prohibits the periodic adjustment method from being applied less frequently than required by the financing resolution and the documents relating to the applicable rate reduction bonds. Once the financial calculation, formula, or other method for determining the utility project charge, and the periodic adjustment method, have been established in the financing resolution and have become final and conclusive, they shall not be changed. 8)Provides that moneys collected by the local agency or its POU, acting as a servicing agent on behalf of the JPA, as a utility project charge shall be held in trust for the exclusive AB 850 Page 3 benefit of the persons entitled to the financing costs to be paid, directly or indirectly, from the utility project charge and shall not lose their character as revenues of the JPA by virtue of possession by the local agency or its POU. The local agency or its POU shall provide the JPA with the information as to estimated sales of water and any other information concerning the POU required by the JPA in connection with the initial establishment and the adjustment of the utility project charge. 9)Provides that the determination of the legislative body of the local agency that a project to be financed with rate reduction bonds is a utility project shall be final and conclusive and the rate reduction bonds issued to finance the utility project and the utility project charge shall be valid and enforceable in accordance with the terms of the financing resolution and the documents relating to the rate reduction bonds. 10)Provides that the JPA shall require, in its financing resolution with respect to a utility project charge, that as long as a customer obligated to pay the utility project charge obtains water distribution service from the applicable POU, the customer shall pay the utility project charge regardless of whether or not the customer obtains water or water services other than water distribution service from a person or entity other than the POU. 11)Provides that the utility project charge shall be a nonbypassable charge to all water distribution customers of the POU in the class or classes of customers specified in the financing resolution that are receiving water distribution service from the POU at the time of adoption of the financing resolution and all future water distribution customers in that class or classes. If a customer of the POU that is subject to a utility project charge ceases taking water or water services other than water distribution service from the POU, the customer shall remain liable for the payment of its share of the utility project charge as if it had not ceased taking the water or water service from the POU. The liability may be discharged by the continued payment of its share of the utility project charge as it accrues or by a one-time payment, as determined by the JPA. 12)Provides that all provisions of a financing resolution adopted pursuant to this bill shall be binding on the JPA. AB 850 Page 4 13)Requires the timely and complete payment of all utility project charges by a person liable for the charges to be a condition of receiving water service from the POU of the local agency and provides that the local agency and its POU are authorized to use established collection policies and all rights and remedies provided by law to enforce payment and collection of the utility project charge. In no event shall a person liable for a utility project charge be entitled or authorized to withhold payment, in whole or in part, of the utility project charge for any reason. 14)Requires the JPA to determine whether adjustments to the utility project charge are required upon the issuance of the rate reduction bonds and at least annually, and at additional intervals as may be provided for in the financing resolution or the documents relating to the rate reduction bonds, as specified. 15)Requires all revenues with respect to utility project property related to rate reduction bonds, including payments of the utility project charge, to be applied first to the payment of the financing costs of the related rate reduction bonds then due, including the funding of reserves for the rate reduction bonds, with any excess being applied as determined by the JPA for the benefit of the utility for which the rate reduction bonds were issued. 16)Requires the JPA to be obligated to impose and collect the utility project charge in amounts, based on estimates of water usage subject to the utility project charge, sufficient to pay on a timely basis the financing costs associated with the rate reduction bonds when due. 17)Provides that the pledge of a utility project charge to secure the payment of rate reduction bonds shall be irrevocable, and the State of California, the JPA, or any limited liability company (LLC) acting pursuant to 38), below, shall not reduce, impair, or otherwise adjust the utility project charge, except that the JPA shall implement the periodic adjustments to the utility project charge relating to rate reduction bonds as required by the applicable financing resolution and the documents relating to the rate reduction bonds. Revenue from a utility project charge shall be deemed special revenue of the JPA and shall not constitute revenue of the local agency or its POU for any purpose, as specified. AB 850 Page 5 18)Provides that a utility project charge shall constitute a utility project property when, and to the extent that, a financing resolution authorizing the utility project charge has become effective in accordance with its terms, and the utility project property shall thereafter continuously exist as property for all purposes with all of the rights and privileges of this bill for the period, and to the extent, provided in the financing resolution, but in any event until all financing costs with respect to the related rate reduction bonds are paid in full, including all arrearages. 19)Provides that utility project property shall constitute a current property right notwithstanding that the value of the property right will depend on consumers using water or, in those instances where consumers are customers of the POU, the POU performing certain services. 20)Provides that, in the event a local agency for which rate reduction bonds have been issued and remain outstanding ceases to provide water distribution services, either directly or through its POU, references in this bill to the local agency or to its POU shall be to the entity providing water distribution service in lieu of the local agency and the entity shall assume and perform all obligations of the local agency and its POU required by this bill and the servicing agreement with the local agency while the rate reduction bonds remain outstanding. 21)Requires rate reduction bonds to be within the parameters of the financing set forth by the local agency pursuant to this bill in connection with the rate reduction bonds and requires the proceeds of the rate reduction bonds made available to the local agency or its POU to be utilized for the utility project identified in the application for financing of the utility project or projects, as specified. 22)Requires a JPA to authorize the issuance of rate reduction bonds by a resolution of its governing body. Rate reduction bonds shall be nonrecourse to the credit or any assets of the local agency and the POU for which the utility project is financed and shall be payable from, and secured by a pledge of, the utility project property relating to the rate reduction bonds and any additional security or credit enhancement specified in the documents relating to the rate AB 850 Page 6 reduction bonds. 23)Requires a JPA issuing rate reduction bonds to pledge the utility project property relating to the rate reduction bonds as security for the payment of the rate reduction bonds, as specified. All rights of a JPA with respect to utility project property pledged as security for the payment of rate reduction bonds shall be for the benefit of, and enforceable by, the beneficiaries of the pledge to the extent provided in the documents relating to the rate reduction bonds. 24)Provides, to the extent that any interest in utility project property is pledged as security for the payment of rate reduction bonds, that the applicable local agency or its POU shall contract with the JPA, which contract shall be part of the utility project property, that the local agency or its POU will continue to operate its publicly owned utility system that includes the financed utility project to provide service to its customers, will, as servicer, collect amounts in respect of the utility project charge for the benefit and account of the JPA and the beneficiaries of the pledge of the utility project charge and will account for and remit these amounts to, or for the account of, the JPA. 25)Provides that a financing resolution, any other resolution of the JPA, or the provisions of the documents relating to rate reduction bonds to the effect that the JPA shall take action with respect to the utility project property relating to the rate reduction bonds shall be binding upon the JPA, as its governing body may be constituted from time to time, and the JPA shall have no power or right to rescind, alter, or amend any resolution or document containing the requirement. 26)Provides, except as otherwise provided in this bill, that the recovery of the financing costs for the rate reduction bonds from the utility project charge shall be irrevocable and the JPA shall not have the power either by rescinding, altering, or amending the applicable financing resolution or otherwise, to revalue or revise for ratemaking purposes the financing costs of rate reduction bonds, determine that the financing costs for the related rate reduction bonds or the utility project charge is unjust or unreasonable, or in any way reduce or impair the value of utility project property that includes the utility project charge, either directly or indirectly; nor shall the amount of revenues arising with respect to the AB 850 Page 7 financing costs for the related rate reduction bonds or the utility project charge be subject to reduction, impairment, postponement, or termination for any reason until all financing costs to be paid from the utility project charge are fully met and discharged. 27)Provides, except as otherwise provided in this bill, that the State of California does hereby pledge and agree with the owners of rate reduction bonds that the State of California shall neither limit nor alter the financing costs or the utility project property, including the utility project charge, relating to the rate reduction bonds, or any rights in, to or under, the utility project property until all financing costs with respect to the rate reduction bonds are fully met and discharged. This provision does not preclude limitation or alteration if and when adequate provision shall be made by law for the protection of the owners. 28)Authorizes the JPA to include the pledge described above and undertaking by the State of California in the governing documents for rate reduction bonds, and requires the JPA to make the adjustments to the utility project charge relating to rate reduction bonds provided by this bill and the documents related to those rate reduction bonds as may be necessary to ensure timely payment of all financing costs with respect to the rate reduction bonds. The adjustments shall not impose the utility project charge upon classes of customers which were not subject to the utility project charge pursuant to the financing resolution imposing the utility project charge. 29)Provides that financing costs in connection with rate reduction bonds do not constitute a debt or liability of the State of California or of any political subdivision thereof, other than the special obligation of the JPA, and do not constitute a pledge of the full faith and credit of the State of California or any of its political subdivisions, including the JPA, but are payable solely from the funds provided for under this bill and in the documents relating to the rate reduction bonds. This provision in no way precludes guarantees or credit enhancements in connection with rate reduction bonds. 30)Requires all the rate reduction bonds to contain on their face a statement to the following effect: Neither the full faith and credit nor the taxing power of the State of California or any political subdivision thereof is pledged to AB 850 Page 8 the payment of the principal of, or interest on, this bond. 31)Provides that the issuance of rate reduction bonds shall not directly, indirectly, or contingently obligate the State of California or any political subdivision thereof to levy or to pledge any form of taxation to pay the rate reduction bonds or to make any appropriation for their payment. 32)Provides that utility project property shall constitute property for all purposes, including for contracts securing rate reduction bonds, whether or not the revenues and proceeds arising with respect thereto have accrued. 33)Provides, subject to the terms of the pledge document with respect to a pledge of utility project property, that the validity and relative priority of a pledge created or authorized under this bill is not defeated or adversely affected by the commingling of revenues arising with respect to the utility project property with other funds of the local agency or the POU collecting a utility project charge on behalf of a JPA. 34)Creates a statutory lien on the utility project property relating to rate reduction bonds. Upon the effective date of the financing resolution relating to rate reduction bonds, there shall exist a first priority statutory lien on all utility project property, then existing or, thereafter arising, to secure the payment of the rate reduction bonds. This lien shall arise pursuant to law by operation of this bill automatically without any action on the part of the JPA, the local agency or its POU, or any other person. This lien shall secure the payment of all financing costs, then existing or subsequently arising, to the holders of the rate reduction bonds, the trustee or representative for the holders of the rate reduction bonds, and any other entity specified in the financing resolution or the documents relating to the rate reduction bonds. This lien shall attach to the utility project property regardless of who shall own, or shall subsequently be determined to own, the utility project property including any local agency or its POU, the JPA, or any other person. This lien shall be valid and enforceable against the owner of the utility project property and all third parties upon the effectiveness of the financing resolution without any further public notice. AB 850 Page 9 35)Provides that the statutory lien on utility project property created by this bill is a continuously perfected lien on all revenues and proceeds arising with respect thereto, whether or not the revenues or proceeds have accrued. Utility project property shall constitute property for all purposes, including for contracts securing rate reduction bonds, whether or not the revenues or proceeds arising with respect thereto have accrued. 36)Allows the JPA to require, in a financing resolution creating utility project property, that, in the event of default by the local agency or its POU, in payment of revenues arising with respect to the utility project property, the JPA, upon the application by the beneficiaries of the statutory lien, and without limiting any other remedies available to the beneficiaries by reason of the default, shall order the sequestration and payment to the beneficiaries of revenues arising with respect to the utility project property. 37)Provides that a JPA that has financed a utility project through the issuance of rate reduction bonds is not authorized, and no governmental officer or organization shall be empowered to authorize the JPA, to become a debtor in a case under the United States Bankruptcy Code or to become the subject of any similar case or proceeding under any other law, whether federal or State of California, as long as any payment obligation from utility project property remains with respect to the rate reduction bonds. 38)Provides that a JPA may elect to effect a financing of a utility project pursuant to this bill through a single member LLC formed by the JPA, as specified. 39)Provides that this bill and all grants of power and authority in it shall be liberally construed to effectuate their purposes, and all incidental powers necessary to carry into effect the provisions of this bill are expressly granted to, and conferred upon, public entities. 40)Provides that the provisions of this bill are severable. If any provision of this bill or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application. AB 850 Page 10 41)Makes conforming changes to the Joint Exercise of Powers Act (Act). 42)Provides the following terms and definitions: a) "Authority" includes any successor to the powers and functions of that entity. b) "Conservation or reclamation purposes" means a utility project designed to reduce the amount of potable water to be supplied by a POU or reduce the amount of water imported by the POU, including without limitation, storm water capture and treatment, water recycling, development of local groundwater resources, groundwater recharging, and water reclamation. c) "Financing costs" means any of the following: i) Interest and redemption premiums that are payable on rate reduction bonds; ii) The cost of retiring the principal of rate reduction bonds, whether at maturity, including acceleration of maturity upon an event of default, or upon redemption, including sinking fund redemption; iii) A cost related to issuing or servicing rate reduction bonds, including, but not limited to, servicing fees, trustee fees, legal fees, administrative fees, bond counsel fees, bond placement or underwriting fees, remarketing fees, broker dealer fees, independent manager fees, payment under an interest rate swap agreement, financial advisor fees, accounting report fees, engineering report fees, and rating agency fees; iv) A payment or expense associated with a bond insurance policy, financial guaranty or a contract, agreement, or other credit enhancement for rate reduction bonds or a contract, agreement, or other financial agreement entered into in connection with rate reduction bonds; or, v) The funding of one or more reserve accounts related to rate reduction bonds. AB 850 Page 11 d) "Financing resolution" means a resolution adopted by the governing body of a JPA financing a utility project with rate reduction bonds that establishes and imposes a utility project charge in connection with the rate reduction bonds in accordance with the provisions of this bill. A financing resolution may be separate from a resolution authorizing the issuance of the rate reduction bonds. e) "Mandate" means a requirement, imposed by a mandating entity by any means, including without limitation, a statute, rule, regulation, an administrative or judicial order, a building, operating, or licensing requirement or condition, or an agreement with, or license or permit from, the mandating entity, on a facility of a POU or a facility operated in whole or in part for the benefit of a POU, or on the operations of the POU, or on the water pumped, acquired, or supplied by the POU. f) "Mandating entity" means the United States (US); a state of the US; an agency, department, commission, or other subdivision of the US or a state of the US; a court of the US or a state of the US; or any other body or organization, that has jurisdiction over the operations of a POU, the facility of a POU, or a facility operated in whole or in part for the benefit of a POU, or the water pumped, acquired or sold by a POU. "Mandating entity" does not include a local agency that owns the POU. g) "Publicly owned utility" means a utility furnishing water service to retail customers that is owned and operated by a local agency or a department or other subdivision of a local agency and includes any successor to the powers and functions of the department or other subdivision. h) "Rate reduction bonds" mean bonds that are issued by a JPA, the proceeds of which are used directly or indirectly to pay or reimburse a local agency or its POU for the payment of the costs of a utility project, and that are secured by a pledge of, and are payable from, bonds as provided in this bill. i) "Utility project" means the acquisition, construction, installation, retrofitting, rebuilding, or other addition to, or improvement of, any equipment, device, structure, AB 850 Page 12 improvement, process, facility, technology, rights or property, located either within, or outside of, the State of California, and that is used, or to be used, in connection with the operations of a POU for conservation or reclamation purposes or in response to a mandate related to water quality. j) "Utility project charge" means a charge paid or to be paid by water distribution customers of a POU to pay financing costs of rate reduction bonds issued to finance a utility project for a POU that is imposed pursuant to this bill, including any adjustment of the charge pursuant to this bill. aa) "Utility project property" means the property right created pursuant to this bill, including without limitation, the right, title, and interest of a JPA for any of the following: i) In and to the financing resolution and the utility charge established with respect to the rate reduction bonds, as adjusted from time to time in accordance with this bill; ii) To be paid the financing costs of the rate reduction bonds and to all revenues, collections, claims, payments, moneys, or proceeds for, or arising from, the utility project charge relating to the rate reduction bonds; or, iii) In and to all rights to obtain adjustments to the utility project charge relating to the rate reduction bonds pursuant to this bill. EXISTING LAW : 1)Authorizes, under the Act, two or more public agencies (i.e. federal government, any state, any state department or agency, county, county board of education, county superintendent of schools, city, public corporation, public district, and regional transportation commission in any state) to enter into a joint powers agreement to exercise jointly any power common to the contracting agencies that each can do by itself. 2)Authorizes JPAs to issue tax-exempt bonds for a variety of purposes. AB 850 Page 13 3)Regulates POU activities and rates at the local level, through locally-elected boards and/or city councils. FISCAL EFFECT : None COMMENTS : 1)This bill allows JPAs to issue rate reduction bonds to finance projects for POUs that provide water service. Eligible projects must be necessary to respond to or comply with a water quality mandate, such as a mandate under the Safe Drinking Water Act, or to reduce customer water demand or the amount of imported water the POU provides. This bill is sponsored by the author. 2)According to the author, "AB 850 will result in interest savings, lower debt service, and reduce local borrowing costs to decrease future utility rate increases. JPAs, formed under existing law, have successfully allowed public agencies to finance the construction of capital projects by issuing tax-exempt revenue bonds. JPAs have helped meet critical needs, within the state, by helping to accelerate the construction, repair and maintenance of public capital improvements. AB 850 will simply expand this same authority and benefit to JPAs formed by municipal water utility companies." 3)California's joint powers agreements are federations of federal, state, and local public agencies that jointly perform duties that each entity could perform on its own. Joint powers agreements collaborate to address public needs, such as financing public facilities, forming insurance pools, and enhancing planning and regulation. Joint powers agreements can be structured as an agreement between existing agencies or as a creation of a new, separate entity called a JPA. 4)POU activities and rates are regulated by locally elected boards and/or city councils. POUs are subject to the Ralph M. Brown Act, the Public Records Act, and Competitive Bid Requirements. LADWP is the largest POU in California, serving 3.9 million customer owners. 5)A rate reduction bond is a type of financing method, one of AB 850 Page 14 several types of asset-backed securities, that provides for lower borrowing costs than traditional financing sources used by municipal water utilities. Under this bill, bonds would be issued to investors by the JPA and the bond proceeds would go the participating municipal water utility. The security for repayment of the bonds (the asset) takes the form of a non-bypassable, dedicated special tariff that would be collected by the participating water utility on behalf of the JPA as a separate line item on water utility customers' bills. Rate reduction bonds were used by California's investor-owned electric utilities (IOUs) when the state restructured its energy industry in the late 1990's. In that instance, the California Infrastructure and Development Bank (I-Bank) formed a trust that issued the bonds on behalf of the IOUs. These instruments proved to be very successful on the bond market despite a challenge by The Utility Reform Network (TURN), which argued that ratepayers should have received a greater rate reduction under the state's deregulation law - which provided an across-the-board 10% rate cut - because ratepayers were shouldering the debt service of the bonds. After losing an appeal before the California Public Utilities Commission (PUC), TURN petitioned the Supreme Court, which refused to grant a judicial review of the PUC's decision. 6)This bill restricts the issuance of rate reduction bonds exclusively to fund capital utility projects for publicly-owned water utilities that are required to respond to or comply with a water quality mandate, such as a mandate under the Safe Drinking Water Act. Bond proceeds can fund projects that reduce the amount of potable water supplied by the utility or reduce the amount of water imported by the utility. This would include projects for storm water capture and treatment, water recycling, development of local groundwater resources, groundwater recharging, and water reclamation. LADWP is seeking this financing structure because it qualifies for a higher bond-rating (AAA) than other types of financing available to the utility, thereby reducing interest rates and financing costs and, ultimately, rates for its customers. LADWP argues that a JPA is necessary because rate reduction bonds require a special tariff that is dedicated as a secured asset to the rate reduction bondholders. LADWP states that, like other municipal water utilities with outstanding revenue AB 850 Page 15 bonds, it is limited in its ability to pledge a portion of its revenues only to the rate reduction bondholders. A JPA charging the special tariff would not have such restrictions. In addition, the rate reduction bond issuer must be bankruptcy remote from the municipal water utility collecting the special tariff. An entity that is separate from the municipal water utility (such as a JPA) must issue the rate reduction bonds in order to meet this requirement. This method of securitization allows a lower debt service coverage ratio by the bond rating agencies due to the enhanced security provided by the dedicated special tariff and bankruptcy remoteness. As a result, the amount of funds collected from customers to meet the debt service coverage ratio is reduced. Individual municipal utilities can have debt service coverage requirements of about two times the annual principal and interest payments of the bonds. With the rate reduction bonds, this can be reduced to one times coverage. The required debt service coverage ratio for the LADWP Water System (currently at 2.00x, with a pending proposal to reduce it to 1.85x) is a financial metric adopted by the LADWP Board of Commissioners. These metrics are adopted based on standards of the bond rating agencies, which publish guidelines for financial metrics related to each rating category, as well as specific rating considerations for the LADWP Water System. Rated entities that wish to qualify for a good credit rating need to establish financial metrics consistent with those rating criteria or risk a downgrade, which increases borrowing costs. LADWP estimates that ratepayers would save as much as $3 million per year for each $100 million of financing under this bill's provisions. In the case of LADWP, with its planned spending for water quality and local water supply projects, rates are projected to be 2-4% lower during the course of the next five years than they would be absent this financing approach. 7)LADWP cites several types of projects that could be financed under the structure created by this bill: Water quality compliance : LADWP is currently working to AB 850 Page 16 implement multiple projects as part of a Water Quality Improvement Program (WQIP) to comply with two primary drinking water standards under the Safe Drinking Water Act (SDWA): the Long-Term 2 Enhanced Surface Water Treatment (LT2) Rule and the Stage 2 Disinfectants and Disinfection Byproduct (Stage 2 DBP) Rule. The LT2 Rule requires open distribution reservoirs to be covered, treated, or removed from service to protect finished tap water from microbial pathogens such as Cryptosporidium. The Stage 2 DBP Rule addresses disinfection byproducts suspected to have carcinogenic and reproductive health effects. LADWP expects to spend about $1.4 billion between fiscal years 2011/12 through 2015/16 to complete the WQIP and meet the compliance deadlines set by the California Department of Public Health. This expenditure amount represents 40% of LADWP's total Water System capital budget for that period. Groundwater cleanup : Despite efforts that began in the late 1980's under the US Environmental Protection Agency's Superfund program, groundwater contamination has continued to spread in the San Fernando Basin (SFB), forcing LADWP to shut down half of its local groundwater wells in the basin. Typically, local groundwater provides approximately 11% of the City of Los Angeles' total water supply and up to 30% during drought years. Recent projections indicate that local groundwater is expected to provide only 8% of total supply during this upcoming water year (April - March) due to increasing contamination. Replacement water is purchased from the Metropolitan Water District of Southern California, which imports their supplies from the Sacramento-San Joaquin Delta and the Colorado River. In 2009, LADWP began an $11.5 million 6-year study to develop a comprehensive remediation and cleanup strategy to address the contamination in the SFB and preserve the basin's public and environmental benefits. This strategy includes the development of a state-of-the-art Groundwater Remediation Complex that will include both centralized and localized (well head) treatment facilities. The design and construction of the Groundwater Remediation Complex is estimated to cost between $600 and $900 million. The Complex is anticipated to be operational by 2021. AB 850 Page 17 Water recycling : The City of Los Angeles' Water Recycling Program includes planned investments to expand the "purple pipe" network for non-potable water use, upgrade existing treatment plants, and use advanced-treated, recycled water for groundwater replenishment. These projects would be candidates for funding through rate reduction bonds. An example of a "purple pipe" project is the Elysian Park Water Recycling Project, which is currently in the planning phase. The project scope includes the construction of about 10,800 linear feet of pipe, a 3,000 gallons-per-minute pump station, and a two-million-gallon storage tank. The project would replace about 400 acre-feet per year of potable water with recycled water for Elysian Park and future customers in central Los Angeles. The total cost of the project is currently estimated at about $30 million. Groundwater replenishment (GWR) is a process in which advanced-treated recycled water can be sent to spreading basins to percolate underground and augment the City's groundwater supply for later use. GWR is a proven alternative for expanding availability of safe, high-quality drinking water, and has been successfully implemented in communities across the US. GWR for Los Angeles will require an additional treatment system to be built at an existing water reclamation plant in Van Nuys. The additional treatment will include microfiltration, reverse osmosis and other purification processes. Stormwater capture : Stormwater capture projects facilitate groundwater recharge and help maintain healthy water levels in groundwater basins. The projects can also provide local flood control benefits, improve surface water quality, increase water conservation and reuse, and result in societal benefits including open space enhancements, habitat restoration, and watershed education opportunities. Centralized stormwater capture projects typically include projects such as spreading grounds upgrades and dam improvements. Distributed stormwater capture projects can include residential-level improvements (e.g., rain barrel, rain garden installation) and neighborhood-level improvements (e.g., vegetated swales, infiltration basins). AB 850 Page 18 An example of a centralized stormwater capture project is the Hansen Dam Water Conservation Project, which will create a water conservation pool behind Hansen Dam to allow for stormwater capture and storage. The stored water would allow for additional dam releases to downstream spreading grounds, where an additional 3,400 acre-feet per year would then percolate back into the groundwater basin. The design and construction cost of this project is estimated at about $5 million. An example of a decentralized stormwater capture project is the Woodman Avenue Stormwater Capture Project, which will capture surface runoff and stormwater from a 130-acre drainage area and divert it to a new street median containing a vegetated swale. The project will create new habitat with native and California-friendly plants, provide about 80 acre-feet-per year of groundwater recharge, and include other amenities that benefit the neighborhood. The total cost of this on-going project is estimated at $3.5 million. 8)Support arguments : Supporters argue that rate reduction bonds have been a proven way to provide low cost financing and could have a significant benefit to publicly owned water utilities and their ratepayers. Opposition arguments : Opponents could raise concerns about state oversight of the financing method and entity proposed in this bill and could argue that increasing the authority of JPAs by allowing them to issue rate-reduction bonds might not be necessary, as LADWP could possibly achieve its purposes by having the I-Bank issue the bonds. Opponents could also suggest the addition of a reporting requirement to the California Debt and Investment Advisory Commission. 9)This bill is double-referred to the Banking and Finance Committee. AB 850 Page 19 REGISTERED SUPPORT / OPPOSITION : Support Association of California Water Agencies California Municipal Utilities Association California Special Districts Association City of Los Angeles Department of Water and Power Opposition None on file Analysis Prepared by : Angela Mapp / L. GOV. / (916) 319-3958