BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
AB 54 (Solorio)
Hearing Date: 08/15/2011 Amended: 07/11/2011
Consultant: Mark McKenzie Policy Vote: EQ 7-0; G&F 9-0
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BILL SUMMARY: AB 54 would place new requirements on mutual water
companies and authorize the operator of a public water system to
enter into a letter of no prejudice (LNOP) agreement with the
Department of Public Health (DPH) for reimbursement of eligible
project expenditures on safe drinking water projects.
Specifically, this bill would:
Require the board members of mutual water companies to
complete a two-hour training course on managerial duties
related to providing clean drinking water.
Authorize mutual water companies to levy assessments on
shareholders to pay any fines or penalties related to the Safe
Drinking Water Act.
Require mutual water companies to maintain a financial reserve
fund and comply with California Waterworks standards for
construction on public water systems.
Require mutual water companies to provide a map of its service
area to the local agency formation commission (LAFCO) by
December 31, 2012.
Provide LAFCO with any information requested for preparation
of municipal service reviews or spheres of influence within 45
days of a request.
Authorize LAFCOs to review whether a mutual water company is
in compliance with the Safe Drinking Water Act.
Authorize LAFCOs to approve or disapprove the annexation of
territory served by a mutual water company into a city or
special district.
Authorize DPH to approve a letter of no prejudice for projects
by public water system applicants that have received an
invitation to apply for funding from the Safe Drinking Water
Revolving Fund. The LNOP would make the applicant eligible
for reimbursement from the Fund for project expenditures
incurred by the local agency, up to a maximum amount specified
in the LNOP, if certain conditions are met.
Specify that the timing and amount of reimbursement would be
subject to the terms of the LNOP and availability of funds.
The actual amount of reimbursement may be less than the amount
stated in the LNOP.
AB 54 (Solorio)
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Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13 2013-14 Fund
DPH: administration of LNOPs likely minor costs of up to
$50 annually Special*
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* Safe Drinking Water Revolving Fund
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STAFF COMMENTS: Drinking water may be delivered by local public
agencies, investor-owned public utilities, or mutual water
companies. The latter are water-specific nonprofit mutual
benefit corporations authorized under the Corporations Code to
deliver water only to their shareholders, who are usually
landowners receiving water service. While mutual water
companies have only limited public oversight, if they deliver
drinking water to household taps they are considered public
water systems that are subject to clean water regulations
administered by DPH. Many mutual water companies are
highly-functioning and well-funded operations, but other smaller
operations may be unaware of Clean Water Act obligations and
have failed to properly maintain water treatment and delivery
infrastructure. In emergency situations, public water agencies
have stepped in to make infrastructure improvements to address
water quality issues, often with state funding.
Existing law establishes the Safe Drinking Water State Revolving
Fund (SDWSRF) and continuously appropriates funds to DPH to
finance design and construction of public water system projects
that enable suppliers to meet safe drinking water standards.
Federal grants from the U.S. Environmental Protection Agency
capitalize the SDWSRF, and the state must provide a 20% match.
DPH awards grants and loans for maintenance and improvements to
public water systems, but demand far exceeds available funding.
The application process for receiving an allocation of SDWSRF
funds can sometimes take over a year. Water systems that are
seeking SDWSRF funding sometimes choose to, or are required to,
begin improvement projects prior to entering into funding
agreements with DPH. For example, there may be issues of
urgency, seasonal limitations, or restrictions on other funds
AB 54 (Solorio)
Page 2
that require expenditure within a certain period of time.
AB 54 responds to the problem by providing reimbursement
authority through the LNOP process, which would allow public
water system operators whose application for SDWRF funds is
pending to begin projects using their own funds without
prejudice to receiving funds upon approval by DPH. The LNOP
agreement would specify the project and the maximum amount of
funding that may be allocated for reimbursement of eligible
expenditures, subject to availability. The final amount of
reimbursement may be less than the amount stated in the LNOP.
This bill would require DPH to establish guidelines related to
implementation of an LNOP process. DPH would incur costs to
draft agreements with public water system applicants specifying
the terms and conditions for future reimbursement from the
SDWSRF, and to review completed projects to determine
expenditures incurred by a local agency are eligible for
reimbursement. DPH indicates that one-time costs to adopt
guidelines would be minor. Staff estimates that ongoing
administrative costs could be up to $50,000 annually. Staff
notes that the LNOP process may provide an advantage to more
sophisticated public water systems that have the means to
advance their own funds over smaller, poorly-funded entities
that are dependent upon SDWSRF awards.
Staff notes that there are no state costs associated with
provisions of the bill that place new requirements on mutual
water companies and provide new authority to LAFCOs with respect
to mutual water company service areas. Staff suggests the
following technical amendments:
Page 4, line 15, strike "The" and insert: "Based on the"
Page 7, line 10, strike "or disapprove"
Page 7, line 11, after "conditionally," insert "or disapprove"
Page 13, line 22, strike "bond"
Page 14, line 25, strike "bond"