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 --