BILL ANALYSIS                                                                                                                                                                                                    Ó



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

          SB 208 (Lara) - Integrated regional water management plans:   
          grants:  advanced payment
          
           ----------------------------------------------------------------- 
          |                                                                 |
          |                                                                 |
          |                                                                 |
           ----------------------------------------------------------------- 
          |--------------------------------+--------------------------------|
          |                                |                                |
          |Version: February 11, 2015      |Policy Vote: N.R. & W. 7 - 2,   |
          |                                |          E.Q. 5 - 0            |
          |                                |                                |
          |--------------------------------+--------------------------------|
          |                                |                                |
          |Urgency: No                     |Mandate: No                     |
          |                                |                                |
          |--------------------------------+--------------------------------|
          |                                |                                |
          |Hearing Date: April 27, 2015    |Consultant: Marie Liu           |
          |                                |                                |
           ----------------------------------------------------------------- 


          This bill meets the criteria for referral to the Suspense File. 


          Bill  
          Summary:  SB 208 would allow a project proponent that is awarded  
          a grant under the Integrated Regional Water Management Planning  
          (IRWMP) Program, to receive an advance payment of up to 50% of  
          the grant award provided that specific conditions are met.


          Fiscal  
          Impact:  
           Unknown potential losses, potentially in the hundreds of  
            thousands of dollars, of bond/General Fund monies for advanced  
            funds that are spent on ineligible uses and are unrecoverable.
           Unknown costs, but potentially in the tens of thousands of  
            dollars, from the General Fund for increased administrative  
            costs to DWR for the administration and oversight of advanced  
            funds.









          SB 208 (Lara)                                          Page 1 of  
          ?
          
          
          Background:  Numerous water bonds, including most recently Proposition 1,  
          provide funding for projects and programs through the IRWMP  
          program. Typically, the Legislature appropriates bond funds to  
          DWR for a competitive grant solicitation.  DWR then issues  
          guidelines for a round of IRWMP funding, and regional water  
          management groups submit their list of local projects. DWR ranks  
          the projects and makes the awards within each IRWMP funding  
          region.  
          In many cases, regional water management groups contract with  
          their local entities to carry out the projects. These entities  
          are reimbursed for their work by submitting invoices to its  
          regional water management group, who then submits the invoices  
          to DWR. Depending on the specific details of the funding  
          agreement and the administrative processes of the management  
          group, a number of months may pass between the time the local  
          entity incurs the expense and the time they receive  
          reimbursement from the management group.




          Proposed Law:  
            This bill would establish a process whereby the state agency  
          administering an IRWMP grant could provide advance funding of an  
          IRWMP grant award if the project proponent is a nonprofit  
          organization or a disadvantaged community, or the project  
          benefits a disadvantaged community. The process would be as  
          follows:
          1.Within 90 days of receiving notice of that it has been awarded  
            in IRWMP grant, the regional water management group would be  
            required to provide DWR with a list of projects to be funded  
            by the grant funds where the project proponent is a nonprofit  
            organization or a disadvantaged community, or the project  
            benefits a disadvantaged community. The list shall specify how  
            the projects are consistent with the adopted integrated  
            regional water management plan and shall include specific  
            information each project.


          2.Within 60 days of receiving the project information from the  
            regional water management group, DWR would provide advanced  
            payment of 50 percent of the grant award for those projects  
            that satisfy both of the following criteria:









          SB 208 (Lara)                                          Page 2 of  
          ?
          
          

               a.     The project proponent is a nonprofit organization or  
                 a disadvantaged community, or the project benefits a  
                 disadvantaged community.


               b.     The grant award for the project is less than one  
                 million dollars.


          3.Recipients of advanced funds would be required to do the  
            following:


               a.     Deposit the funds in a noninterest-bearing account  
                 until expended.


               b.     Expend the funds within six months of receipt,  
                 unless DWR waives this requirement.


               c.     Periodically, but not more frequently than  
                 quarterly, provide an accountability report to the  
                 administering agency regarding the expenditure and use of  
                 any advanced grant funds in a format as determined by  
                 that state entity.


               d.     Return any funds to the administering agency that  
                 are not expended within 60 days after project completion  
                 or the end of the grant performance period, whichever is  
                 earlier.


          The provisions of this bill sunset on January 1, 2025.




          Staff  
          Comments:  According to the sponsor of the bill, under the  
          existing reimbursement process, it can sometimes take up to 12  
          months to receive reimbursement for projects. This wait period  








          SB 208 (Lara)                                          Page 3 of  
          ?
          
          
          for reimbursement is especially difficult for nonprofits or  
          disadvantaged communities who may not have the cash flow to  
          shoulder project debt for such a long period. This bill would  
          try to alleviate this difficultly by advancing up to half of the  
          project funds for small awards (less than $1 million). 
          While advanced funds can assist project proponents, especially  
          those with limited budgets, advanced funds pose a financial risk  
          to the state is if the award is spent not in accordance with  
          grant guidelines. Ensuring monies are only spent on eligible  
          purposes is straightforward in a reimbursement process as  
          payments can simply be denied for ineligible expenses. But when  
          funds are advanced, the administering agency, in this case DWR,  
          would need to take corrective action to recover monies that are  
          spent on ineligible expenditures. Recovering funds is more  
          difficult than simply denying reimbursement and may not be  
          successful, especially if the grantee has a small budget, which  
          are the entities most likely to utilized advanced funds. 


          This bill provides several assurances to reduce the odds of any  
          funds being spent on ineligible expenses or becoming  
          unrecoverable. Specifically, the requirements that the monies be  
          spent in a set period of time and the reporting requirements  
          will assist DWR's oversight in verifying expenditures. Also,  
          limiting advanced funds to only half the award grant may help  
          ease the recovery of any funds spent on ineligible expenses as  
          DWR could recover the funds by reducing reimbursements for later  
          project expenditures rather than requesting payment from the  
          project proponent. The author and committee may wish to consider  
          additional assurances, such as explicitly allowing DWR to make  
          advance payments in several installments with each installment  
          being contingent on completing specific benchmarks and requiring  
          that all or a portion of the advanced funds be spent before  
          reimbursements begin.


          To give an estimate on the magnitude of funds that potentially  
          could be advanced, in the last three IRWMP grant rounds, the  
          state awarded $577 million in grants for 462 projects. Of this  
          amount, $57.6 million and 140 projects would have fit the  
          eligibility criteria under this bill, which translates to a  
          maximum of $29 million in advanced funds. It is unknown what  
          portion of these funds might be spent on ineligible expenditures  
          but if one assumes that less than one percent of project  








          SB 208 (Lara)                                          Page 4 of  
          ?
          
          
          spending is questionable, state costs could potentially be in  
          the low hundreds of thousands of dollars, some of which may be  
          recoverable from the project proponent.


          Staff notes that allowing advance payments would increase DWR's  
          workload to administer the IWRMP grants, with part of this  
          increase being offset by the reduction in reimbursement claims.  
          The increased workload would be dependent on the number of  
          requests for advances and therefore is an unknown cost. Staff  
          estimates that this cost is potentially in the tens of thousands  
          of dollars. However, staff further notes that most bonds,  
          including the most recent water bond, cap the amount of bond  
          dollars that can be used for administration. As such, any  
          workload increases as a result of this bill must be absorbed, or  
          be paid for from another funding source, presumably General Fund  
          dollars.




                                      -- END --