BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                     SB 552


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          Date of Hearing:  June 14, 2016


           ASSEMBLY COMMITTEE ON ENVIRONMENTAL SAFETY AND TOXIC MATERIALS


                                  Luis Alejo, Chair


          SB  
          552 (Wolk) - As Amended May 17, 2016


          SENATE VOTE:  31-5


          SUBJECT:  Public water systems:  disadvantaged communities:   
          consolidation or extension of service:  administrative and  
          managerial services


          SUMMARY:  Authorizes the State Water Resources Control Board  
          (State Water Board) to contract with an administrator to provide  
          administrative and managerial services to a designated public  
          water system, as defined, to assist with the provision of an  
          adequate and affordable supply of safe drinking water.   
          Specifically, this bill:  





          1)Updates, in statute referring to water system consolidation,  
            the definition of "affected residence" by stating that the  
            residence must be within a disadvantaged community.


          2)Updates, in statute referring to water system consolidation,  
            the definition of "disadvantaged community," by adding a  








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            "mobilehome park" to the list of locations that a  
            disadvantaged community may be in. 


          3)Updates statute requiring public meetings at the initiation of  
            a consolidation process by providing that an initial public  
            meeting is not required for a potentially subsumed area that  
            is served only by domestic wells.


          4)Clarifies that, in the case of an ordered consolidation, fees  
            or charges imposed on a customer of a subsumed water system  
            shall not exceed the cost of consolidating the water system  
            with a receiving system or the extension of service to the  
            area.


          5)Defines "administrator" as a person that the State Water Board  
            has determined is competent to perform the administrative and  
            managerial services of a public water system, as specified.   
            Authorizes the State Water Board, in determining competency,  
            to consider demonstrated experience in managing and operating  
            a public water system.





          6)Defines "designated public water system" as a public water  
            system that serves a disadvantaged community and that the  
            State Water Board finds consistently fails to provide an  
            adequate and affordable supply of safe drinking water.



          7)Authorizes the State Water Board, in order to provide  
            affordable, safe drinking water to disadvantaged communities  
            and to prevent fraud, waste, and abuse, to do both of the  
            following:








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             a)   Contract with an administrator to provide administrative  
               and managerial services to a designated public water system  
               to assist the designated public water system with the  
               provision of an adequate and affordable supply of safe  
               drinking water; and,



             b)   Order the designated public water system to accept  
               administrative and managerial services, including full  
               management and control, from an administrator selected by  
               the State Water Board.



          8)Provides that the State Water Board may contract with more  
            than one administrator, but only one administrator may be  
            assigned to provide services to a given designated public  
            water system.



          9)Provides that an administrator may provide administrative and  
            managerial services to more than one designated public water  
            system.



          10)Provides that in contracting with an administrator, the State  
            Water Board may use criteria from its policy handbook.



          11)Requires the State Water Board, before it determines that a  
            public water system is a designated public water system, to  
            provide the public water system with notice and an opportunity  








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            to show either of the following:



             a)   That the public water system has not consistently failed  
               to provide an adequate and affordable supply of safe  
               drinking water; or,



             b)   That the public water system has taken steps to timely  
               address its failure to provide an adequate and affordable  
               supply of safe drinking water.



          12)Requires the State Water Board to make financial assistance  
            available to an administrator for a designated public water  
            system, as appropriate and to the extent that funding is  
            available.



          13)Authorizes an administrator to do the following:



             a)   Expend available moneys for capital infrastructure  
               improvements that the designated public water system needs  
               to provide an adequate and affordable supply of safe  
               drinking water;



             b)   Set and collect user water rates and fees; and,



             c)   Expend available moneys for operation and maintenance  








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               costs of the designated public water system.



          14)Provides that a designated public water system is not  
            responsible for any costs associated with an administrator.



          15)Provides that administrative and managerial contracts for  
            consolidations are exempt from state acquisition of goods and  
            services statute and may be awarded on a noncompetitive bid  
            basis.



          16)Makes other clarifying and conforming changes to statute  
            referring to water system consolidation.



          


          EXISTING LAW:   


          1)Pursuant to the federal Safe Drinking Water Act (SDWA),  
            authorizes the United States Environmental Protection Agency  
            (US EPA) to set standards for drinking water quality and to  
            oversee the states, localities, and water suppliers who  
            implement those standards.   

          2)Pursuant to the California SDWA, requires the State Water  
            Board to regulate drinking water and to enforce the federal  
            SDWA and other regulations.  (Health and Safety Code (HSC) §  
            116275 et seq.)

          3)Requires the State Water Board, in administering SDWA programs  








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            to fund improvements and expansions of small community water  
            systems, to encourage the consolidation of small community  
            water systems that serve disadvantaged communities, and  
            prioritize funding for construction projects that involve the  
            physical restructuring of two or more community water systems,  
            at least one of which is a small community water system that  
            serves a disadvantaged community, into a single, consolidated  
            system. (HSC § 116326)

          4)Authorizes the State Water Board, where a public water system  
            or a state small water system within a disadvantaged  
            community, consistently fails to provide an adequate supply of  
            safe drinking water, to order consolidation with a receiving  
            water system.  Provides that the consolidation may be physical  
            or operational. (HSC § 116682 (a))

          5)Limits the liability of a consolidated water system,  
            wholesaler, or any other agency in the chain of distribution  
            that delivers water to a consolidated water system, as  
            specified.  (HSC § 116684) 



          6)Makes legislative findings that regional solutions to water  
            contamination problems are often more effective, efficient,  
            and economical than solutions designed to address solely the  
            problems of a single small public water system, and that it is  
            in the interest of the people of the State of California to  
            encourage the consolidation of the management and the  
            facilities of small water systems to enable those systems to  
            better address their water contamination problems. (HSC §  
            116760.10 (h)) 



          7)Declares that it is the established policy of the state that  
            every human being has the right to safe, clean, affordable,  
            and accessible water adequate for human consumption, cooking,  
            and sanitary purposes. (Water Code § 106.3)  








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          FISCAL EFFECT:  Unknown.  This bill was substantially amended  
          since it was analyzed by the Senate Appropriations Committee.  


          COMMENTS:  


          Need for the bill:  According to the author, "This bill would  
          authorize the State Water Resources Control Board to require  
          public water systems that serve disadvantaged communities and  
          that consistently fail to provide an adequate and affordable  
          source of safe drinking water, to obtain administrative and  
          managerial services from a third party administrator, selected  
          by the State Water Board.  The bill also provides clean-up  
          language to SB 88, the 2015 trailer bill that permits the state  
          Water Board to order water system consolidation or extension of  
          services."


          Drinking water contamination in disadvantaged communities:  The  
          State Water Board report, "Communities that Rely on Contaminated  
          Groundwater," released in January 2013, reported that 682  
          community public water systems in California, which serve nearly  
          21 million people, rely on contaminated groundwater as a primary  
          source of drinking water.  It also found that 265 community  
          public water systems that rely on contaminated groundwater,  
          which serve a little more than two million people, had received  
          at least one drinking water quality violation within the last  
          compliance cycle.  The report points out that an additional two  
          million Californians rely on groundwater from a private domestic  
          well or a smaller groundwater-reliant system that is not  
          regulated by the state, of which the water quality is uncertain.  
           The findings from the State Water Board report, and a January  
          2012, University of California at Davis study, "Addressing  
          Nitrate in California's Drinking Water," suggest that drinking  
          water contamination in California disproportionally affects  
          small, rural, and low-income communities that depend mostly on  
          groundwater as their drinking water source.









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          The recent drought has further compromised the state's drinking  
          water supplies.  Since many rural households rely on shallow  
          domestic wells or small, poorly funded community water supply  
          systems, they have been hardest hit.  According to the Public  
          Policy Institute of California, as of early July 2015, more than  
          2,000 domestic wells were reported to be dry, mostly in the  
          Central Valley and the Sierras.  Emergency water supply needs  
          have also been identified for more than 100 small water  
          community water systems around the state.  Indeed, the State  
          Water Board currently notes that the numbers of failing water  
          systems have increased since their comprehensive report  
          mentioned above, and estimates that now approximately 500  
          communities rely on public water systems that provide water that  
          does not meet drinking water standards.  

          Providing safe drinking water to disadvantaged communities:   
          According to the State Water Board, for common sources of  
          drinking water contamination, such as arsenic and nitrates,  
          expensive systems must be installed and operated to treat the  
          water to meet drinking water standards.  In many cases,  
          technological advances have not yet been sufficient to make such  
          treatment systems affordable, especially to small, disadvantaged  
          communities.  In addition, many small disadvantaged communities  
          do not have the technical, managerial, or financial capability  
          to operate what are sometimes complex drinking water systems.  

          Current sources of financial assistance, such as Proposition 1,  
          the Water Quality, Supply, and Infrastructure Improvement Act of  
          2014 (Rendon, Chapter 188, Statutes of 2014), and the Safe  
          Drinking Water State Revolving Fund (SDWSRF), do not provide  
          financial assistance for the long-term operation and maintenance  
          costs of drinking water systems, which the community must  
          provide in order to qualify for the capital improvement funding  
          that is available from those sources.  Disadvantaged communities  
          often lack the rate base to pay for operation and maintenance  
          costs, meaning that they are effectively prohibited from  
          accessing capital improvement funding.

          Consolidation in California:  According to the US EPA,  








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          restructuring can be an effective means to help small water  
          systems achieve and maintain technical, managerial, and  
          financial capacity, and to reduce the oversight and resources  
          that states need to devote to these systems.  The State Water  
          Board maintains that consolidating public water systems and  
          extending service from existing public water systems to  
          communities and areas which currently rely on under-performing  
          or failing small water systems, as well as private wells,  
          reduces costs and improves reliability. Consolidation does this  
          by extending costs to a larger pool of ratepayers.


          The goal of drinking water system consolidation and regional  
          water projects was recognized in California during the inception  
          of the state's SDWSRF (SB 1307 (Costa and Thompson), Chapter  
          734, Statutes of 1997), which is the state program to implement  
          the federal SDWSRF program.  With SB 1307 the legislature  
          declared that, "It is in the interest of the people of the State  
          of California to encourage the consolidation of the management  
          and the facilities of small water systems to enable those  
          systems to better address their water contamination problems."  
          (HSC § 116760.10 (h))  


          To promote consolidation, the California Department of Public  
          Health (CDPH), which managed that state's drinking water program  
          at the time, established the Consolidation Incentive Program  
          (Program).  The Program provided an incentive to encourage  
          larger, compliant water systems to consolidate with nearby  
          noncompliant systems.  Previously, CDPH only invited drinking  
          water systems that were out of compliance with drinking water  
          standards to submit applications for SDWSRF funding.  However,  
          through the consolidation incentive process, lower-ranked  
          projects for compliant systems that hadn't previously received  
          SDWSRF invitations became eligible for SDWSRF funding.  By  
          agreeing to consolidate with a neighboring noncompliant system,  
          CDPH re-ranked low-ranked, compliant system projects into a  
          fundable category.  









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          In order to provide further support and direction for the  
          state's consolidation efforts, AB 783 (Arambula, Chapter 614,  
          Statutes of 2007) required CDPH to prioritize funding of water  
          projects in disadvantaged communities, and directed CDPH to  
          encourage; provide funds for and studies on; and, prioritize  
          funding for projects that consolidate small public water systems  
          in certain situations.  


          The State Water Board received authority over the state's  
          drinking water program in July 2014, and since that time, the  
          consolidation of failing drinking water systems in order to  
          supply safe, affordable, and reliable drinking water has been a  
          priority for the State Water Board.  


          The Governor's safe drinking water framework:  In May 2015,  
          Governor Jerry Brown released his "Resilient, Affordable, Safe  
          Drinking Water for Disadvantaged Communities Framework," the  
          goal of which is to, "ensure that every Californian has access  
          to an adequate supply of safe water for daily human needs."  The  
          framework lays out steps that the Administration plans to take  
          to achieve this goal, one of which is to, "improve technical,  
          managerial, and financial capacity where possible, consolidating  
          as a second option, and if neither of those work, contracting  
          with a third party to manage the system with a commitment to  
          transitioning the system to a sustainable condition."





          The Governor's 2015 consolidation budget trailer bill:  SB 88  
          (Senate Committee on Budget and Fiscal Review, Chapter 27,  
          Statutes of 2015) enacted the Brown Administration's public  
          water system consolidation proposal.  Governor Jerry Brown's  
          office summarized the intent of the bill as follows, 









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            "When a public water system, or state small water system  
            serving a disadvantaged unincorporated community or a water  
            mutual serving a disadvantaged community, consistently fails  
            to provide an adequate supply of safe drinking water, the  
            State Water Board may order that system to consolidate with,  
            or receive an extension of service from, another public water  
            system referred to as the receiving system.  The receiving  
            system would not be held liable for claims resulting from the  
            subsumed system's actions prior to the consolidation or  
            extension of service.  Before ordering consolidation or  
            extension of service the State Water Board must notify the  
            systems, consult with various entities, and allow time to  
            negotiate another means of providing an adequate supply of  
            safe drinking water.  The State Water Board must also make  
            certain findings prior to mandating consolidation or extension  
            of service."


          Effective June 24, 2015, SB 88 added HSC § 116680-116684, which  
          authorized the State Water Board to require certain water  
          systems that consistently fail to provide safe drinking water to  
          consolidate with, or receive an extension of service from,  
          another public water system.  The consolidation can be physical  
          or managerial.  While for many years the state's drinking water  
          program had encouraged voluntary consolidation of public water  
          systems, the new authority allows the state to mandate the  
          consolidation of water systems where appropriate. 


          This bill makes technical and clarifying changes to the  
          consolidation statute enacted by SB 88, including increasing the  
          State Water Board's authority to require consolidation or  
          extension of service of drinking water systems to apply to  
          mobilehome parks regardless of whether the mobilehome park is  
          located in an incorporated or unincorporated area.


          New tools for addressing drinking water system failures: In  








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          addition to the consolidation authority provided by SB 88, SB  
          552 would give the State Water Board another tool to address the  
          systemic issues affecting public water systems serving small,  
          disadvantaged communities.  SB 552 would authorize the State  
          Water Board to identify public water systems that are  
          consistently unable to provide an adequate and affordable supply  
          of safe drinking water and, once funding is available, to then  
          contract with a competent administrator to provide managerial  
          and technical expertise to that system.  The bill provides that  
          the administrator may expend available capital funds necessary  
          to provide an adequate and affordable supply of safe drinking  
          water and may set and collect user water rates and fees.  SB 552  
          also provides that a public water system designated for this  
          assistance will not be responsible for any costs associated with  
          contracting with an administrator.





          The State Water Board notes that the use of a contracted entity,  
          in cases where public water systems have proven inadequate,  
          would provide technical and managerial capacity, economies of  
          scale, and other efficiencies such as web-based operating  
          systems.  The use of a contracted entity would also provide  
          transparency and avoid fraud, waste, and abuse in the provision  
          of these services.


          Arguments in opposition: The Association of California Water  
          Agencies (ACWA) writes in opposition, 





            "SB 552 does not specify what entity would be responsible for  
            costs associated with the required administrative and  
            managerial services in the bill?  As ACWA expressed during the  








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            debate on SB 88 last year, the State Water Board does not have  
            subject-matter expertise in Cortese-Knox-Hertzberg local  
            government law or staff steeped in local agency organization.   
            There is a lack of specificity in the bill relating to funding  
            of the required administrative services and whether the  
            administrator would be subject to Proposition 218.  This bill  
            would specify that customers of a subsumed water system may  
            not be charged an additional fee beyond the costs of the  
            consolidation itself.  As the current structure of the bill  
            offers no funding for the predictable increase in operation,  
            maintenance, and administrative expenses, this bill would  
            place an undue burden on the receiving water system.  Safe  
            drinking water is a right of every Californian, but it is a  
            cost that should not be paid in full by public water agencies  
            and their customers already in compliance with the law.   
            Additionally, this bill would remove the requirement for a  
            public meeting prior to consolidation for areas served only by  
            domestic wells.  ACWA believes that this provision violates a  
            necessary opportunity for the public to comment on needed  
            consolidations and maintain public transparency of  
            consolidation efforts."





          Double referral:  This bill has been double referred to the  
          Assembly Committees on Environmental Safety and Toxic Materials  
          and on Water, Parks, and Wildlife.  


          Clarification needed:  The Committee may wish to consider the  
          following technical amendment in order to clarify that statute  
          was intended to authorize the State Water Board to order the  
          consolidation of public water systems and state small water  
          systems that serve disadvantaged communities, not necessarily  
          those systems that are located within disadvantaged communities.










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          1)HSC § 116682 (a)  Where a public water system or a state small  
            water system,  within   serving  a disadvantaged community,  
                                    consistently fails to provide an adequate supply of safe  
            drinking water, the State Water Resources Control Board may  
            order consolidation with a receiving water system as provided  
            in this section and Section 116684. 
          REGISTERED SUPPORT / OPPOSITION:




          Support


          None on file.




          Opposition


          Association of California Water Agencies (ACWA)


          Analysis Prepared by:Shannon McKinney / E.S. & T.M. / (916)  
          319-3965