BILL ANALYSIS �
AB 2529
Page 1
Date of Hearing: April 24, 2012
ASSEMBLY COMMITTEE ON ENVIRONMENTAL SAFETY AND TOXIC MATERIALS
Bob Wieckowski, Chair
AB 2529 (Wieckowski) - As Amended: March 29, 2012
SUBJECT : Safe Drinking Water: Revolving Fund.
SUMMARY : Authorizes the California Department of Public Health
(CDPH), when implementing the Safe Drinking Water State
Revolving Fund (SDWSRF), to adopt interim regulations and take
other actions to expedite the process of providing funds for
drinking water projects, especially to severely disadvantaged
communities. Specifically, this bill :
1)Authorizes CDPH to adopt interim regulations to implement the
SDWSRF and to meet the requirements of the federal Safe
Drinking Water Act (SDWA).
a) Exempts the interim regulations from the rulemaking
provisions of the Administrative Procedures Act (APA) and
requires the interim regulations to:
i) Be subject to a public review and comment period of
not less than 30 days;
ii) Take effect when filed with the Secretary of State,
and to be published in the California Code of Regulations
(CCR); Remain in effect for three years, unless sooner
repealed or amended by additional interim regulations;
and,
iii) Supersede any conflicting emergency regulations.
b) Authorizes the interim regulations to amend or repeal
emergency regulations.
c) Requires applicable regulations in effect at the time a
complete funding application is received by CDPH to apply
to the project funding, unless CDPH determines a regulation
adopted later, but prior to the date a funding agreement is
issued for a project, would be more beneficial to the
project applicant, in which case the later adopted
regulation may be applied.
2)Makes the following changes to CDPH criteria for project
funding through the SDWSRF:
a) Requires the applicant to complete, prior to receiving a
funding agreement, environmental review and documentation
of the defined project, including, but not limited to, the
review required by the California Environmental Quality Act
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(CEQA). Requires any measures required for compliance with
applicable environmental laws and regulations to be
included in the final plans for the defined project, rather
than to be included in the preliminary plans for the
project.
b) Provides that a defined project may be subject to
further or supplemental review consistent with the
requirements of any applicable environmental laws or
regulations.
c) Requires the applicant to demonstrate that it has the
technical, managerial, and financial capacity to operate
and maintain its water system, including the project, in
accordance with the federal SDWA, state law, and applicable
regulations for at least 20 years, or requires the
applicant to submit an acceptable plan for achieving this
capacity by the time the project is scheduled to be
completed.
3)Provides that planning and preliminary engineering studies,
project design, and construction costs incurred by community
and not-for-profit non-community public water systems may be
funded under the SDWSRF by loans, and, if these systems are
owned by public agencies or private not-for-profit water
companies, by grants, or a combination of grants and loans.
4)Deems as having no ability to repay a loan, a small community
water system or non-transient non-community water system that
is owned by a public agency or a private not-for-profit water
company and that serves a severely disadvantaged community.
5)Sets limits for grant expenditures from the capitalization
grant, instead of from the total amount deposited in the
SDWSRF.
6)Authorizes an applicant to receive up to the full cost of the
project in the form of a loan bearing interest, instead of the
current limit of $20 million per project.
7)Requires CDPH, when it enters into contracts with applicants
for grants or loans from the SDWSRF, to include in the
contract the time for the completion of the project.
Authorizes CDPH to determine an appropriate amount of time,
not to exceed 36 months, for the completion of a planning and
a preliminary design project, instead of the current time
limit of 18 months.
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8)Adds the following terms and conditions to those that CDPH is
authorized to require in contracts with applicants for grants
or loans from the SDWSRF:
a) An agreement by the supplier to complete, as part of the
project, a rate study pursuant to guidelines established by
CDPH;
b) An agreement by the supplier to implement, not later
than the conclusion of the project, the approved plan for
achieving technical, managerial, and financial capacity, as
specified; and,
c) An agreement by the supplier to comply with guidelines
adopted by CDPH for any procurement of engineering,
environmental compliance, or architectural services if the
supplier is a small community water system or non-transient
non-community water system owned by a public agency or
private not-for-profit water company receiving grant
funding.
9)Requires all loans made pursuant to the SDWSRF to carry the
interest rate established for the calendar year in which the
funds are committed to the loan, as of the date of the
issuance of the funding, rather than of the date of the letter
of commitment.
10)Clarifies that the administrative fees for loans are to be
paid by the funding recipient instead of the applicant.
11)Requires CDPH to annually establish in the Intended Use Plan
the amount of any administrative fee.
EXISTING LAW :
1)Pursuant to the federal 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. Under the
SDWA Amendments of 1996 (PL 104-182), establishes the SDWSRF
program which authorizes the US EPA to award capitalization
grants to states and authorizes the states to, in turn,
provide low-cost loans and other types of assistance to public
water systems to finance the costs of infrastructure projects
needed to achieve or maintain compliance with federal SDWA
requirements.
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2)Pursuant to the California SDWA (Health and Safety Code (HSC)
� 116275 et seq.), requires CDPH to regulate drinking water
and to enforce the federal SDWA and other regulations.
3)Pursuant to the Safe Drinking Water State Revolving Fund
(SDWSRF) Law of 1997 (HSC � 116760 et seq.):
a) Establishes the SDWSRF and continuously appropriates the
SDWSRF to CDPH to provide grants or revolving fund loans
for the design and construction of projects for public
water systems that will enable suppliers to meet safe
drinking water standards.
b) Requires CDPH to administer the SDWSRF and authorizes
CDPH to undertake specified actions to implement the SDWSRF
pursuant to the federal SDWA.
c) Authorizes CDPH to adopt emergency regulations to
implement the SDWSRF.
d) Requires CDPH to establish criteria that must be met for
projects to be eligible for consideration for funding,
including requiring the applicant to have included plans
for compliance with CEQA in its preliminary plans for the
project.
e) Sets requirements and standards for approval of
applications for funds.
f) Authorizes planning and preliminary engineering studies,
project design, and construction costs to be funded by
loans, or, in the case of public agencies or private
not-for-profit water companies, by grants or a combination
of grants and loans.
i) Requires CDPH to determine what portion of the full
costs the public agency or private not-for-profit water
company is capable of repaying and to authorize a loan
for that amount.
ii) Authorizes CDPH to authorize a grant only to the
extent that it finds the public agency or not-for-profit
water company is unable to repay the full costs of a
loan.
g) Establishes guidelines for disbursements of SDWSRF
funds, including that the total funding for a single
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project, whether in the form of a loan or a grant, or both,
is determined by an assessment of affordability using
criteria established by CDPH.
h) Authorizes a small community water system or
non-transient non-community water system, owned by a public
agency or private not-for-profit water company, serving
severely disadvantaged communities to be eligible to
receive up to 100 percent of eligible project costs in the
form of a grant, to the extent the system cannot afford a
loan as determined by CDPH.
i) Authorizes CDPH to enter into contracts with applicants
for grants or loans under the SDWSRF and sets certain
requirements for those contracts.
j) Requires CDPH to establish the interest rate for loans
from the SDWSRF according to specified guidelines,
including requiring that all loans carry the interest rate
established for the calendar year in which the funds are
committed to the loan, as of the date of the letter of
commitment.
aa) Authorizes CDPH to establish a reasonable schedule of
administrative fees for loans, and requires that the fees
be paid by the applicant to reimburse the state for the
costs of the state administration of the SDWSRF.
FISCAL EFFECT : Unknown.
COMMENTS :
Need for the bill : According to the sponsor, CDPH, "The SDWSRF
is largely federally funded and subject to extensive federal law
and regulations. In addition, the Program is established in
state statute (HSC � 116760) and regulations and is administered
by CDPH?. This bill would allow severely disadvantaged
communities to access 100% grant funding without undergoing an
affordability review. Pursuant to the federal SDWA, CDPH cannot
provide funding to an entity which does not have the technical,
managerial, and financial (TMF) capacity to achieve and maintain
compliance with the federal SDWA and state laws. Severely
disadvantaged communities have difficulty accessing funds due to
their limited financial capacity to charge adequate water rates.
CDPH intends to provide increased support to these severely
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disadvantaged communities to enable them to access SDWSRF monies
and, at the same time, ensure compliance with the federal SDWSRF
law and regulations?.
Since the SDWSRF was implemented in 1997, changes have occurred
in federal and state laws that affect the infrastructure needs
of public water systems, the systems targeted for financial
assistance and the amount of funding available. To address
these changes, it is necessary that CDPH have greater
flexibility in its rulemaking process in order to be more
responsive to changes in federal laws and more responsive to the
needs of the regulated utilities (public water systems) and the
communities they serve. This bill would modify SDWSRF statutes
to provide CDPH with the flexibility necessary to assist the
neediest water systems with SDWSRF funding, while still
complying with the SDWSRF federal requirements. In addition,
this bill would provide CDPH with statutory authority to adopt
interim regulations as necessary to implement the changes to the
SDWSRF."
Safe Drinking Water State Revolving Fund (SDWSRF) : Congress
established the SDWSRF as part of the SDWA Amendments of 1996 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 percent of the federal capitalization grants and must create
a drinking water state revolving fund program for public water
system infrastructure needs and other drinking water-related
activities. In response to this opportunity, California
established the SDWSRF through SB 1307 (Chapter 734, Statutes of
1997) to help fund projects to address the state's drinking
water needs. The CDPH, which administers the SDWSRF, argues
that this bill will better enable them to efficiently and
effectively administer the SDWSRF. The CDPH provided background
material to support its proposal, which is included below.
Interim regulations : The CDPH implements the requirements of
SDWSRF statutes, as well as federal requirements and guidelines,
through regulations. However, the process of adopting
regulations through the APA does not allow CDPH to respond
promptly to changes in state or federal law. AB 2529 authorizes
CDPH to adopt "interim regulations" for the SDWSRF, which would
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remain in effect for up to three years while CDPH completes the
full APA rule-making process for permanent regulations. The
CDPH has already successfully utilized interim regulations for
implementation of point-of-use and point-of-entry treatment
devices. While the interim regulations are subject to public
review and comment, they can still be adopted more quickly than
permanent regulations.
Affordability review : Currently, CDPH utilizes a two-step
evaluation process to authorize grant funding from the SDWSRF.
First, it determines whether the applicant community is a
disadvantaged community, based on a review of Median Household
Income (MHI) for the service area. Second, in accordance with
federal SDWA requirements, it determines the loan amount the
community can afford to assume for the project. This requires
obtaining the average residential water rate, and comparing it
to the MHI for the service area. Only communities for which the
water rate exceeds 1.5% of the MHI are eligible for grant
funding. AB 2529 would deem severely disadvantaged communities
(MHI of less than 60% of the statewide MHI) to be unable to
afford a loan, thus reducing the time necessary to process
SDWSRF funding for these communities.
Technical, managerial, and financial capacity requirements :
According to CDPH, a water system that must obtain a loan for
infrastructure improvements is more likely to properly maintain
the facilities constructed with those funds, due to the water
system's vested interest. Water systems that receive 100% grant
funding for construction may not have the same dedication to the
facilities. For example, CDPH cites a water treatment facility
recently built with US Department of Agriculture funds. Neither
the number of customers nor the anticipated water use was
accurately ascertained, nor was the water system required to
adopt rates sufficient to maintain the system. After completion
of the project, the demand for water exceeded expectations,
increasing the costs for chemicals and electric services and
forcing the water system to close - wasting taxpayer funds. To
avoid similar situations, AB 2529 requires a recipient for grant
funding to demonstrate that it will have technical, managerial,
and financial capacity to operate and maintain the water system.
Grant funding : Recent legislation, including AB 983 (Perera,
Chapter 515, Statutes of 2011) and AB 1438 (Conway, Chapter 531,
Statutes of 2009), increased the amount and proportion of grant
funding for disadvantaged communities available from the SDWSRF.
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While these actions reduced the financial burden for many
communities (by authorizing grants instead of loans), they
increased the potential for a large proportion of the SDWSRF
funding to be awarded as grants. Current state law limits the
amount of grants to 30% of the "amount deposited in the fund,"
which includes repayments of principal and interest (now nearing
$40 million per year), the annual capitalization grant from US
EPA (currently $87 million per year), and interest earned on the
fund balance. This bill would limit the amount of grants
available each year to 30% of the annual capitalization grant
from US EPA, thus maintaining the revolving nature and long-term
viability of the SDWSRF.
Interest-bearing loans : By removing the cap on interest-bearing
loans for water systems (the current cap is set in regulation at
$20 million per project, with limited exceptions), this bill
will allow CDPH to make larger interest-generating loans, which
increases the funds returning to the SDWSRF and provides
additional security for revenue bonds that were authorized by AB
1292 (Hernandez, Chapter 518, Statutes of 2011).
Length of projects : Currently, planning studies that are funded
by the SDWSRF are limited by regulation to 18 months, which has
been found to be insufficient time for some projects to
accomplish all the necessary elements. This bill would
authorize up to 36 months for planning projects at CDPH's
discretion.
Qualified consultants : According to CDPH, in the past, small
water systems have been taken advantage of by unqualified
consultants. To help prevent that situation, this bill requires
grant recipients to follow guidelines adopted by CDPH for
procurement of engineering, environmental compliance, or
architectural services. This requirement will also speed the
funding process because CDPH will work with knowledgeable
professionals acting on behalf of the water systems.
Related legislation :
1)AB 1669 (Perea), establishes the Nitrate at Risk Area Fund for
the purposes of developing and implementing sustainable and
affordable solutions for disadvantaged communities in areas
reliant on nitrate-contaminated groundwater as their source of
drinking water and requires the SWRCB to identify those areas.
AB 1669 is scheduled for hearing in the Assembly
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Environmental Safety and Toxic Materials Committee (ESTM)
Committee on April 24, 2012.
2)AB 2208 (Perea), authorizes the CDPH, when implementing the
SDWSRF, to consolidate multiple community projects to meet
safe drinking water standards. AB 2208 is scheduled for
hearing in the Assembly ESTM Committee on April 24, 2012.
3)AB 2238 (Perea), requires the CDPH to promote the
consolidation and merger of small community water systems that
serve disadvantaged communities. Requires Local Agency
Formation Commissions (LAFCOs) to examine drinking water and
waste treatment service consolidation as part of a LAFCO local
agency service review. AB 2238 is scheduled for hearing in
the Assembly ESTM Committee on April 24, 2012.
4)AB 2334 (Fong), requires the Department of Water Resources to
analyze drinking water and wastewater services affordability
for low-income residents. AB 2334 is scheduled for hearing in
the Assembly ESTM Committee on April 24, 2012.
Technical amendment : On page 8, line 22, add the word
"commitment" after "funding."
REGISTERED SUPPORT / OPPOSITION :
Support:
California Department of Public Health (sponsor)
Association of California Water Agencies
Eastern Municipal Water District
Opposition:
None on file.
Analysis Prepared by : Shannon McKinney / E.S. & T.M. / (916)
319-3965