BILL ANALYSIS Ó SB 552 Page 1 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 SB 552 Page 2 "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: SB 552 Page 3 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 SB 552 Page 4 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 SB 552 Page 5 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 SB 552 Page 6 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) SB 552 Page 7 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. SB 552 Page 8 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, SB 552 Page 9 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. SB 552 Page 10 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, SB 552 Page 11 "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 SB 552 Page 12 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 SB 552 Page 13 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. SB 552 Page 14 1)HSC § 116682 (a) Where a public water system or a state small water system,withinserving 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