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 ?