BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON APPROPRIATIONS
                             Senator Ricardo Lara, Chair
                            2015 - 2016  Regular  Session

          AB 1588 (Mathis) - Water and Wastewater Loan and Grant Program
          
           ----------------------------------------------------------------- 
          |                                                                 |
          |                                                                 |
          |                                                                 |
           ----------------------------------------------------------------- 
          |--------------------------------+--------------------------------|
          |                                |                                |
          |Version: June 15, 2016          |Policy Vote: E.Q. 7 - 0         |
          |                                |                                |
          |--------------------------------+--------------------------------|
          |                                |                                |
          |Urgency: Yes                    |Mandate: No                     |
          |                                |                                |
          |--------------------------------+--------------------------------|
          |                                |                                |
          |Hearing Date: August 1, 2016    |Consultant: Narisha Bonakdar    |
          |                                |                                |
           ----------------------------------------------------------------- 
          
          This bill meets the criteria for referral to the Suspense File.


          Bill  
          Summary:  AB 1588 establishes a program to provide funding for  
          local agencies to offer low-interest loans and grants to  
          eligible applicants for drinking water or wastewater treatment  
          projects. The bill also appropriates $10 million from the  
          General Fund for this purpose.


          Fiscal  
          Impact:  
           One-time appropriation of $10 million (General Fund) for the  
            financial assistance program.
           Ongoing costs of $500,000 annually for five years (General  
            Fund) to the State Water Resources Control Board (SWRCB) to  
            administer the grant program.


          Background:               
          
          The federal Clean Water Act. The federal Clean Water Act  
          establishes federal guidelines for surface water quality  







          AB 1588 (Mathis)                                       Page 1 of  
          ?
          
          
          protection, authorizes water quality programs; require quality  
          standards and permits for discharge; provides enforcement  
          mechanisms; and establishes the Clean Water State Revolving Fund  
          (CWSRF) to offer financial assistance for water quality  
          projects. 


          The federal Safe Drinking Water Act. The federal Safe Drinking  
          Water Act (SDWA) establishes federal standards for contaminants  
          in drinking water, and authorizes states to enter into primacy  
          agreements with the federal United States Environmental  
          Protection Agency (US EPA) to enforce SDWA if the state  
          establishes drinking water standards that are at least as  
          stringent as those developed by US EPA, as required by SDWA. 


          The Porter-Cologne Water Quality Control Act. The Porter-Cologne  
          Water Quality Control Act establishes the State Water Resources  
          Control Board (SWRCB) and Regional Water Quality Control Boards  
          to regulate and protect water quality in California. It also  
          establishes the State Water Pollution Control Revolving Fund to,  
          among other things, implement the federal CWSRF program. In  
          2014, the state transferred the Drinking Water Program and the  
          Safe Drinking Water State Revolving Fund (SDWSRF) from the  
          Department of Public Health to SWRCB.


          The California Safe Drinking Water Act. The California Safe  
          Drinking Water Act requires SWRCB to protect the public from  
          contaminants in drinking water. It also establishes the state  
          SDWSRF which is partially capitalized by federal contributions  
          from the federal Safe Drinking Water Act, and specifies that the  
          SDWSRF provide funding for public water systems to correct  
          deficiencies and problems that pose public health risks and to  
          meet safe drinking water standards.


          Proposition 1: The Water Quality, Supply, and Infrastructure  
          Improvement Act of 2014. Proposition 1 included $260 million,  
          upon appropriation by the Legislature to the SWRCB to be placed  
          in the CWSRF and used for grants for wastewater treatment  
          projects.  It also included another $260 million, upon  
          appropriation by the Legislature, (recipient agency not  
          specified) for public water system infrastructure improvements  








          AB 1588 (Mathis)                                       Page 2 of  
          ?
          
          
          and related actions to meet safe drinking water standards,  
          ensure affordable drinking water, or both.  


          The Household and Small Water System Drought Assistance Program.  
          The low-interest loans and other financing mechanisms available  
          through the above-mentioned programs do not fund water  
          infrastructure on private property such as wells, sewer  
          laterals, or septic systems.  However, the 2016-17 Budget  
          allocated $15 million to the SWRCB from the Clean-up and  
          Abatement Account for Drought-related Interim Emergency Drinking  
          Water. The Governor directed the SWRCB to $5 million for the  
          Household and Small Water System Drought Assistance Program.

          The Household and Small Water System Drought Assistance program  
          offers loan/grant funding to assist individual households and  
          small water systems (that serve less than 15 connections) to  
          address their drought-related drinking water emergencies.  The  
          funds will be administered by three non-profit organizations:  
          Self-Help Enterprises, Rural Community Assistance Corporation,  
          and California Rural Water Association.  These monies will fund  
          the following activities: new well construction, design of cost  
          of necessary infrastructure, permit and connection fees, well  
          rehabilitation/repair (including extending deep wells to deeper  
          aquifers, distribution/conveyance pipelines (up to point of  
          entry of household), limited consolidation efforts (i.e.  
          laterals, above-ground interties), and all necessary  
          appurtenances/equipment.  Individual households may receive up  
          to $45,000 and small water systems may receive $100,000 in  
          maximum funding.  


          Proposed Law:  
           This bill:  
          1)Requires SWRCB to establish a program to provide funding for  
            local agencies to offer low-interest loans and grants to  
            eligible applicants for drinking water or wastewater treatment  
            projects. 




          2)Transfers $10 million from the General Fund to the  
            newly-created Water and Wastewater Loan and Grant Fund (LGF).








          AB 1588 (Mathis)                                       Page 3 of  
          ?
          
          


          3)Allows SWRCB to adopt guidelines for administering the program  
            exempt from the Administrative Procedures Act (APA).  


          4)Requires SWRCB to develop guidelines to apportion funds among  
            the counties.


          5)Allows a county to apply to SWRCB for funds to award grants  
            and/or loans to residents within its jurisdiction.


          6)Requires counties receiving LGF to annually provide specified  
            information to the SWRCB regarding projects and funding  
            recipients.


          7)Limits loan eligibility to households with incomes below the  
            statewide median, who have an ownership interest in the house,  
            are unable to obtain financial assistance with reasonable  
            terms from private lenders, and who are able to repay the  
            loan.


          8)Limits the loan interest rate to 1%, requires loans to be  
            secured by a mortgage on the residence and repaid within 20  
            years, and requires loan recipients to maintain homeowners  
            insurance during the life of the loan.  


          9)Allows counties to enter into contracts with private financial  
            institutions to provide loans as specified.


          10)States that the bill is an urgency statute.




          Related  
        Legislation:1)  AB 954 (Mathis, 2015), similar to AB 1588, would have  
          established a program to provide funding for local agencies to  








          AB 1588 (Mathis)                                       Page 4 of  
          ?
          
          
          offer low-interest loans and grants to eligible applicants for  
          projects that provide access to drinking water or wastewater  
          treatment. The bill was held in the Senate Appropriations  
          Committee.  


          Staff  
          Comments:  
          Staff notes that this bill establishes a local financial  
          assistance program. That is, the state will be giving funds to  
          locals who will then distribute assistance to individual  
          homeowners. The SWRCB estimates that it would need approximately  
          $500,000 for 3.5 positions to administer a $10 million grant  
          program. These costs are assuming that the local agencies  
          administering the program will be doing all of their own program  
          development including establishing loan and grant repayment  
          terms and vetting of homeowner applicants. 

          Staff notes that the bill does not establish any parameters  
          regarding how the SWRCB will determine how much each local  
          agency applicant can receive from the program, how the SWRCB is  
          to prioritize local agency requests for funds assuming that the  
          program will be oversubscribed, whether the SWRCB issues a grant  
          or a loan to the local agencies, and whether the local agencies  
          can use part of the financial assistance for their own  
          administrative costs. The SWRCB costs assume that they would  
          only issue grants to locals and grants would be issued to local  
          agencies based on their "readiness to proceed" and the severity  
          of the deficiencies the water systems Administrative costs may  
          change if the author requires the SWRCB to run the program  
          differently.
          Staff notes that this bill is silent on whether the state or the  
          local agency bears the risk if a homeowner defaults on a loan  
          and the costs cannot be recovered from the mortgage. However,  
          this is only an issue that needs to be resolved if the author  
          intends for the SWRCB to issue loans instead of or in addition  
          to grants to local agencies. 





                                      -- END --









          AB 1588 (Mathis)                                       Page 5 of  
          ?