BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
SB 1456 (Galgiani) - Safe Drinking Water State Revolving Fund
Law of 1997: public water systems: financing
-----------------------------------------------------------------
| |
| |
| |
-----------------------------------------------------------------
|--------------------------------+--------------------------------|
| | |
|Version: April 27, 2016 |Policy Vote: E.Q. 7 - 0 |
| | |
|--------------------------------+--------------------------------|
| | |
|Urgency: No |Mandate: No |
| | |
|--------------------------------+--------------------------------|
| | |
|Hearing Date: May 9, 2016 |Consultant: Narisha Bonakdar |
| | |
-----------------------------------------------------------------
Bill Summary: This bill expands the eligibility for loan
forgiveness for capital all water systems serving severely
disadvantaged communities with fewer than 200 service
connections.
Fiscal
Impact:
Cost pressures on the SDWRF resulting from eligibility for
loan forgiveness for an increased number of water systems.
Background:1)
SDWSRF. Congress established the SDWSRF as part of the 1996 Safe
Drinking Water Act amendments to better enable public water
systems to comply with national primary drinking water standards
and to protect public health. The SDWSRF provides financial
assistance in the form of capitalization grants to states to
provide low-interest loans and other assistance to public water
systems.
In order to receive these funds, states must provide a state
match equal to 20% of the federal capitalization grants and must
SB 1456 (Galgiani) Page 1 of
?
create a drinking water state revolving fund program for public
water system infrastructure needs and other drinking
water-related activities. In response, California established
the SDWSRF through SB 1307 (Costa, Chapter 734, Statutes of
1997) to help fund the state's drinking water needs.
SDWSRF provides low-interest preconstruction and construction
loans or grants to drinking water systems. These loans or
grants cover capital improvements that increase public health
and compliance with drinking water regulations.
Financial incentives including reduced interest rates, extended
financing terms, principal forgiveness and grants targeted
toward small disadvantaged communities with financial hardship.
SWRCB division of drinking water evaluates financial hardship
and ability to repay based on affordability criteria including
population, median household income, and rates as a percent of
median household income.
What are investor-owned water utilities? Investor-owned water
companies are water service providers that own regulated water
and wastewater utilities, partner with municipalities to form
public-private partnerships, or operate and maintain water and
wastewater systems as contracted services providers. These
companies may be privately owned or publicly traded.
In California, these water service providers who own and operate
utilities are regulated by the California Public Utilities
Commission (CPUC). CPUC establishes rates and terms of service.
In setting rates, CPUC reviews the company's costs, audits
system needs, conducts public hearings for customers, holds
formal evidentiary hearings adjudicated by administrative law
judges, and issues a final decision authorizing the utility to
establish approved rates and terms of service.
Rates are set to collect an authorized revenue requirement to
compensate for just and reasonable expenses for operating and
SB 1456 (Galgiani) Page 2 of
?
maintaining a water system and costs related to capital
expenditure, including an authorized rate of return on the
undepreciated capital investment (rate base), depreciation
expense, property and income taxes.
There are 108 investor-owned water utilities under the CPUC's
jurisdiction providing water service to about 16% of
California's residents. Approximately 95% of that total is
served by nine large water utilities each serving more than
10,000 connections. Annual water and wastewater revenues under
the CPUC's regulation total $1.4 billion.
CPUC regulates 70 Class D water utilities that have less than
500 connections. Of these 70, 55 have less than 200 service
connections. There are also eight districts of Class A and B
multi-district utilities that have less than 200 connections.
CPUC's regulation of water utilities does not consider whether
or not the utility is serving severely disadvantaged
communities. As such, CPUC does not maintain information to
know if any of the 55 Class D water utilities or the eight
districts of the Class A and B multi-district utilities serve
severely disadvantaged communities.
The after-tax authorized rate of return on a utility's rate base
is between 10.2% and 11.2% for Class D water utilities.
Proposed Law: This bill expands the eligibility for loan
forgiveness for capital all water systems serving severely
disadvantaged communities with fewer than 200 service
connections.
Related
Legislation:
AB 983 (Perea) Chapter 515, Statutes of 2011 makes several
changes to the SDWSRF regarding providing grants and loans for
safe drinking water projects, including allowing certain
disadvantaged communities to be eligible for grants up to 100%
of project costs.
SB 1456 (Galgiani) Page 3 of
?
Staff
Comments: The SDWSRF was constructed to be a revolving loan
program. If California expands the pool (to every water system
in the state) for loan forgiveness of a continuously
appropriated program, it increases the probability of depleting
the revenue more quickly and the program eventually ceasing to
be a revolving loan program and rather becoming a grant program
that does not serve the ongoing needs of California's most
vulnerable communities and water systems. It is not clear that
the current SDWSRF loan forgiveness criteria as set by SWRCB is
limiting enough to prevent this from happening.
-- END --