BILL ANALYSIS �
AB 2529
SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
Senator S. Joseph Simitian, Chairman
2011-2012 Regular Session
BILL NO: AB 2529
AUTHOR: Wieckowski
AMENDED: May 1, 2012
FISCAL: Yes HEARING DATE: July 2, 2012
URGENCY: No CONSULTANT: Joanne Roy
SUBJECT : SAFE DRINKING WATER: REVOLVING FUND
SUMMARY :
Existing federal law :
1) Establishes the federal Safe Drinking Water Act to regulate
the nation's public drinking water supply.
2) Requires the U.S. Environmental Protection Agency (US EPA) to
establish mandatory nationwide drinking water standards.
3) Requires state drinking water programs to set drinking water
standards that are at least as stringent as the US EPA
standards.
4) Establishes the Drinking Water State Revolving Fund (DWSRF)
to make funds available to drinking water systems to finance
infrastructure improvements and emphasizes providing funds to
small and disadvantaged communities and to programs that
encourage pollution prevention as a tool for ensuring safe
drinking water.
Existing state law , pursuant to the Safe Drinking Water State
Revolving Fund (SDWSRF) Law of 1997 (Health and Safety Code
�116760 et seq.):
1) Provides funding for public water systems through SDWSRF to
correct deficiencies and problems that pose public health
risks and to meet safe drinking water standards.
(�116760.10).
2) Establishes SDWSRF and requires the California Department of
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Public Health (DPH) to administer the fund. (�116760.30).
3) Requires DPH to establish criteria for eligibility of SDWSRF
funding consideration. Among the criteria includes
completion of California Environmental Quality Act (CEQA)
environmental review and the requirement that an applicant's
preliminary plans for the project must include plans for CEQA
compliance. (�116761.50(d)) .
4) Requires DPH to establish a priority list of proposed
projects to be considered for SDWSRF funding and requires
priority be given to projects that meet specified criteria.
(�116760.70).
5) Authorizes up to 30% of the total amount of funds deposited
in SDWSRF may be expended for grants to serve disadvantaged
communities. (�116761.21).
6) Provides specified maximum amounts for grant and loan funding
and authorizes up to 100% grant funding for eligible costs to
a small community water system or nontransient noncommunity
water system that serves severely disadvantaged communities.
(�116761.23).
7) Authorizes DPH to enter into contracts with funding
recipients and requires specified terms and conditions in the
contract. (�116761.50).
8) Authorizes DPH to include terms and conditions in contracts
pertaining to the funding recipient's financial
responsibilities. (�116761.50).
9) Authorizes DPH to establish a reasonable schedule of
administrative fees for loans paid by applicants.
(�116761.70).
Existing state law , under the Administrative Procedure Act (APA)
(Government Code �11340 et seq.), establishes rulemaking
procedures and standards for state agencies. State regulations
must also be adopted in compliance with regulations adopted by
the Office of Administrative Law (OAL). The APA, among other
things:
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1) Requires every agency to prepare and submit a specified
notice of the proposed action and make certain information
available to the public (e.g., draft regulation in "plain
English"; statement of reasons for proposing the adoption,
amendment, or repeal of a regulation; the problem the agency
intends to address; benefits anticipated from the regulatory
action; evidence to support a determination that the action
will not have a significant adverse economic impact on
business). (�11346.2). The statement of reasons must
identify each technical, theoretical, and empirical report
upon which the agency relies in proposing the regulation.
(�11346.2(b)(3)). A standardized regulatory impact analysis
is required for a major regulation proposed on or after
January 1, 2013. (�11346.2(b)(2)).
2) Requires state agencies in proposing to adopt, amend, or
repeal any regulation to assess the potential for adverse
economic impact on California business enterprises and
individuals. In assessing the potential for adverse economic
impact, state agencies must meet certain requirements (e.g.,
be based on adequate information concerning the need for, and
consequences of, proposed action; consider industries
affected including the ability to compete with businesses in
other states). State agencies must also assess whether, and
to what extent, regulations will affect certain matters
(e.g., creation or elimination of jobs in the state, creation
of new businesses or elimination of existing businesses in
the state, expansion of businesses currently doing business
in the state; benefits of the regulation). Additional
requirements are specified for major regulations adopted,
amended, or repealed after November 13, 2013, and for
economic impact analyses of regulations (�11346.3). OAL must
return any regulation to the adopting agency under certain
conditions, including failure to complete the economic impact
assessment or failure to include the assessment in the
rulemaking proceeding. (�11349.1).
3) Requires the notice of proposed adoption, amendment, or
repeal of a regulation to include certain matters (e.g.,
policy statement overview explaining the broad objectives of
the regulation and specific anticipated benefits; an
evaluation of whether the proposed regulation is inconsistent
or incompatible with existing state regulations; specified
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information if there may be a significant, statewide adverse
economic impact; description of all cost impacts to be
incurred by a private person or business; statement of the
results of the economic impact assessment; a statement of the
results of the economic impact analysis). (�11346.5).
4) Requires OAL to either approve a submitted regulation and
transmit it to the Secretary of State for filing, or
disapprove it, within 30 working days. If OAL fails to act
within 30 days, the regulation is deemed approved and OAL
must transmit it to the Secretary of State. (�11349.3).
5) Requires a regulation that is required to be filed with the
Secretary of State to become effective 30 days after the date
of filing unless: a) otherwise specifically provided by
statute under which the regulation was adopted, in which case
it is effective on that date; b) a later date is prescribed
by the state agency or is part of the regulation; or c) the
agency makes a written request to OAL demonstrating good
cause for an earlier effective date, in which case OAL may
prescribe an earlier date. (�11343.4).
6) Requires OAL to compile, print, and publish the adopted,
amended, or repealed regulations, and to also make this
available on the Internet. (�11344).
This bill makes several changes to the SDWSRF Law of 1997
related to implementation, administering the fund, and
processing applications for grant and loan funding, which:
1) Authorizes DPH to adopt interim regulations to implement
SDWSRF and to meet federal requirements, which:
a) Exempts the interim regulations from the APA and
requires public review and comment period for at least 30
days of the interim regulations.
b) Provides that the interim regulations take effect once
filed with the Secretary of State and must be published in
the California Code of Regulations.
c) Terminates the interim regulations after three years
unless repealed or amended by subsequent regulations prior
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to expiration.
d) Authorizes the interim regulations to amend or repeal
emergency regulations adopted to implement SDWSRF and to
meet federal requirements.
e) If a regulation is adopted during the time a funding
application is being considered and prior to DPH issuing a
funding agreement, requires DPH to apply the later adopted
regulation if it would be more beneficial to the
applicant.
2) Provides that any measures required for compliance with
applicable environmental laws must be included in the final
plans for the defined project. A defined project may be
subject to further or supplemental environmental review.
3) Requires the applicant to show that it has the technical,
managerial, and financial capacity to operate and maintain
its water system for at least 20 years or submit an
acceptable plan for achieving this capacity by the time the
project is scheduled for completion.
4) Clarifies that community and nonprofit noncommunity public
water systems are eligible for grants and/or loans for
specified planning and construction costs.
5) Provides that a small community water system or nontransient
noncommunity water system that is owned by a public water
agency or a private nonprofit water company and that serves a
severely disadvantaged community is automatically considered
to have no ability to repay a loan.
6) Authorizes up to 30% of the federal capitalization grant to
be expended for grants serving disadvantaged communities.
7) Allows an applicant to receive a loan for a maximum of 100%
of its costs depending on the availability of funds and the
applicant's ability to repay the loan.
8) Requires a contract between DPH and a funding recipient to
include an allotted amount of time to complete the project
and authorizes up to three years for completion as determined
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by DPH.
9) Authorizes a contract between DPH and a funding recipient to
include specified terms and conditions related to the funding
recipient's fiscal and operating responsibilities.
10)Authorizes DPH to include in a grant contract a condition
requiring the funding recipient to comply with DPH guidelines
for procurement of engineering, environmental compliance, or
architectural services.
11)Requires DPH to establish the amount of any administrative
fee in the Intended Use Plan (IUP) that DPH submits to US
EPA.
COMMENTS :
1) Purpose of Bill . The sponsor states that AB 2529 "would
modify SDWSRF statutes to enable DPH to ease the process of
providing funds to correct small water system deficiencies,
particularly those serving severely disadvantaged
communities."
2) SDWSRF . Congress established the federal Drinking Water
State Revolving Fund (DWSRF) 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. DWSRF 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 create a drinking water state
revolving fund program for public water system infrastructure
needs and other drinking water related activities. In
response, California established SDWSRF through SB 1307
(Costa) Chapter 734, Statutes of 1997, to help fund the
state's drinking water needs. The fund provides public water
systems the opportunity to use subsidized funding to correct
infrastructure problems, assess and protect source water, and
improve technical, managerial, and financial capability.
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US EPA allocates federal DWSRF funds to the states according to
a formula that reflects their proportional share of needs
identified in the most recent Drinking Water Infrastructure
Needs Survey. In order for a state to receive the DWSRF
funds allotted to it, the state must submit a complete
capitalization grant application which includes various forms
and the state's annual Intended Use Plan (IUP).
California annually receives approximately $86 million in DWSRF
capitalization grant money while the state matches with
approximately $17 million.
3) Interim Regulations . AB 2529 authorizes DPH to adopt interim
regulations, which are not subject to APA, to implement
SDWSRF and to meet federal requirements. DPH states, "Since
the SDWSRF was implemented in 1997, changes have occurred in
federal and state laws that affect the administration of the
Program. To address these changes, it is necessary that DPH
has greater flexibility in its rulemaking process in order to
be more responsive to changes in federal laws, the needs of
the regulated utilities (public water systems), and the
communities they serve."
DPH states that a regular rulemaking takes DPH approximately 2
to 3 years to complete and that adopting interim regulations
pursuant to this bill would take 3 to 6 months.
a) "Additional Regulations" . AB 2529 proposes to allow
the interim regulations to be in effect for "three years
unless sooner repealed or amended by additional
regulations pursuant to this subdivision." This bill does
not specify "additional regulations" which would allow
subsequent interim regulations in addition to regular or
emergency regulations to suffice. Although DPH states
that it intends to create permanent regulations while
interim regulations are in place, this bill would give DPH
the authority to continually adopt interim regulations
indefinitely rather than adhere to the APA rulemaking
process.
b) APA . Generally, there are two types of rulemaking
procedures that a state agency can pursue: regular or
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emergency. APA sets forth the procedures that state
agencies must follow when adopting regulations. Among
other requirements for regular rulemaking, APA requires
state agencies to give public notice, to receive and
consider public comments, to submit regulations and
rulemaking files to OAL for review to ensure compliance
with the requirements of APA, and to have the regulations
published in the California Code of Regulations (CCR).
The emergency rulemaking process has different
requirements but generally includes a brief public notice
period, a brief public comment period, review by OAL and
an OAL decision. The APA provides a greater level of
checks and balances to which DPH's proposed interim
regulations would not be subject.
Pursuant to APA requirements for a regular rulemaking, the
time between when an agency notifies OAL that the agency
proposes to adopt, amend, or repeal regulations and when
OAL decides whether to approve the regulations is at most
14 months. However, if an agency fails to complete the
proposed regulation or transmit it to OAL within the
one-year period, then the agency must issue a notice of
the proposed action again. Also, APA gives OAL 30 working
days to either approve or disapprove a proposed regulation
after an agency submits it for OAL review and provides
that if OAL fails to act within 30 days, then the
regulation must be deemed approved. As noted earlier, DPH
states that the regular rulemaking process takes DPH 2
to 3 years to complete. Is current law the reason for
such delay or are other factors outside of the APA
rulemaking process an issue?
c) Conforming to Federal Law . In the past, DPH has made
adjustments to conform to federal law through legislation.
For example, AB 1194 (Block) Chapter 516, Statutes of
2011, made changes to the California Safe Drinking Water
Act to conform with the federal Safe Drinking Water Act.
There is no apparent reason why DPH cannot continue to
make conforming changes to federal law through the
legislative process.
d) Rarity of Interim Regulations . State agencies have
been granted the authority to adopt "interim regulations"
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three times.
i) In 1967, the California Tahoe Regional Planning
Agency was established and was required to adopt
interim regulations to begin its duties. The interim
regulations lasted a maximum of 18 months when final
regulations had to be adopted.
ii) In 1995, APA provisions regarding
administrative adjudication by state agencies were
substantially overhauled for the first time since the
APA was enacted in 1945. Agencies were authorized to
adopt interim regulations to comply with the revision
and provided a date certain for expiration of the
interim regulations.
iii) In 2004, the California Stem Cell Research and
Cures Act (Proposition 71), authorized the
Independent Citizen's Oversight Committee to adopt
interim regulations in order to facilitate immediate
commencement of research. The interim regulations
expired after 270 days (9 months) unless superseded
by regulations adopted pursuant to APA.
As shown above, interim regulations have been granted in
rare circumstances in which a newly created agency needs
to immediately begin fulfilling its duties or a drastic
overhaul in the law requires a short period of time to
adapt. SDWSRF has existed for approximately 15 years and
there has not been any unusual circumstance or major
change in federal or state law to warrant granting DPH
such a rarely granted authority indefinitely.
Amendments are needed to delete this provision of the bill
authorizing DPH to adopt interim regulations.
4) Environmental Review . Current law requires DPH to establish
criteria in order for an entity to be eligible for SDWSRF
funding consideration. Among the criteria includes
completion of CEQA environmental review and the requirement
that an applicant's preliminary plans for the project must
include plans for CEQA compliance. The purpose of an
environmental review is to inform governmental decisionmakers
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and the public about the potential significant environmental
effects of proposed activities and identify ways that
environmental damage can be avoided or significantly reduced.
AB 2529 would relax this requirement by allowing an entity to be
considered for SDWSRF funding before completing its
environmental review. DPH explains that it "requires
applicants to complete environmental documentation before
receiving construction SDWSRF funding. DPH offers planning
funding from SDWSRF that can be used to complete the
environmental review, as well as for project design and other
preliminary activities. However, for some projects,
additional time, steps, or analysis is required to complete
the environmental review. This change would provide DPH
additional flexibility to allow, in certain circumstances,
project processing to move forward while completing
environmental review."
If "further or supplemental" environmental review is required
for a proposed project, then the environmental review cannot
be considered complete. It is not prudent to allow project
processing to move forward while the full environmental
ramifications are still unknown and may have an impact on the
proposed project.
Amendments are needed to delete this provision of the bill.
5) Technical, Managerial, and Financial . AB 2529 requires a
grant applicant to show that it has the technical,
managerial, and financial capacity to operate and maintain
its water system or submit an acceptable plan for achieving
this capacity by the time the project is completed. DPH
states that this requirement "would clarify and implement the
federal requirement by placing it in state law and ensuring
the prudent use of SDWSRF funds."
Amendment is needed to clarify that this requirement is pursuant
to federal law, 42 USC 300j-12 (a)(3).
6) Loan for 100% of Costs . AB 2529 allows an applicant to
receive a loan for a maximum of 100% of its costs depending
on the availability of funds and the applicant's ability to
repay the loan. Currently, the cap on interest-bearing loans
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for water systems is set in regulation at $20 million per
project, with limited exceptions. DPH contends that lifting
the cap "will allow DPH to make larger interest-generating
loans, which increases the funds returning to SDWSRF and
provides additional security for revenue bonds?" DPH states
that it has not had any funding recipients default on loans.
However, an entity's ability to pay back a $20 million loan
may differ significantly than its ability to pay back an $80
million loan. By removing the cap altogether, is SDWSRF put
in a position to potentially lose money by increasing the
risk of defaults on loans?
7) Amount of Time to Complete a Project . AB 2529 authorizes DPH
to allow a funding recipient up to three years to complete a
project on a case-by-case basis. DPH states that this
proposal is intended for planning projects only. According
to 22 CCR 63011(c)), "projects funded by planning funding
shall be completed and a planning report submitted to the
Department within 18 months from funding agreement
execution." DPH states that 18 months is not enough time in
some cases. However, proposing to double the maximum amount
of time for completion may seem excessive in some cases and
it would be prudent to encourage completion in a timely
manner.
Amendments are needed to give a planning funding recipient the
current 18 months to complete planning pursuant to 22 CCR
63011(c), allow the recipient to apply for an extension of
time to finish the planning/studies if needed, and authorize
DPH to grant the extension applicant a maximum of an
additional 18 months (for total of three years) to complete a
planning project.
8) Complying with Guidelines . AB 2529 authorizes DPH to include
in a grant contract a condition requiring the funding
recipient to comply with DPH guidelines for procurement of
specified consulting services. The purpose of a guideline is
to advise and recommend practices in order to help people
comply with laws and regulations. A guideline generally
provides leeway for alternative approaches to be acceptable.
A guideline is not a mandate. To require the grant recipient
to obey guidelines would essentially turn the guidelines into
requirements.
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Amendments are needed to change "comply" to "review and
consider."
9) Establishing Administrative Fees Through the Intended Use
Plan (IUP) . AB 2529 requires DPH to annually establish the
amount of any administrative fee in the IUP. DPH states,
"Current law provides DPH the authority to 'establish a
reasonable schedule of administrative fees for loans.'
However, because it was not clear how the fees were to be
established, whether through statute, regulations, or some
other mechanism, they were never put in place." DPH has
chosen the "other mechanism."
As a condition to receiving a federal DWSRF capitalization
grant, states must annually submit an IUP to US EPA. The IUP
describes the state plan for expenditure of program funding.
Federal guidelines require that the IUP include a description
of how the program is structured, planned use of the funds,
the criteria and methods to be used to distribute the funds,
goals for the program, and a specific project priority list.
DPH states that it must obtain public input on and adopt the
IUP annually. If DPH established a fee through the regular
rulemaking process, the APA would apply. It is questionable
whether DPH's process for adopting the IUP would provide an
equivalent level of vetting as APA's rulemaking process for
purposes of establishing a fee and may be considered
inappropriate. Establishing and adjusting the amount of an
administrative fee should be done via more traditional means
such as a regulation or statute.
Amendments are needed to delete the provision requiring DPH to
establish the amount of any administrative fee in the IUP.
10)Clarification Amendments Needed . Throughout AB 2529, the
term "project" is used but with varying meanings. "Project"
may refer to planning, a feasibility study, construction, or
all of the above. Amendments are needed to clarify "project"
by specifying the type of project to which is being referred.
In addition, technical amendments are needed to change
"supplier" to "funding recipient" for clarification purposes
in �116761.50.
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11)Related legislation . AB 2208 (Perea) authorizes DPH to
combine proposed studies or projects from multiple
applicants, with their consent, when evaluating applications
for SDWSRF funding. The Senate Environmental Quality
Committee will hear this bill July 2, 2012.
AB 2238 (Perea) requires DPH to review and consider pertinent
local agency formation commission (LAFCO) studies or reports
and consult with the LAFCO executive officer when processing
an application for SDWSRF funding. The Senate Environmental
Quality Committee will hear this bill July 2, 2012.
12)Prior legislation . AB 983 (Perea) Chapter 515, Statutes of
2011, made several changes to the laws governing the state
program 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.
AB 2515 (V.M. Perez) Chapter 601, Statutes of 2010, authorized
DPH to provide a grant from SDWSRF for point-of-entry and
point-of-use water treatment systems.
AB 2356 (Arambula) Chapter 607, Statutes of 2008, required the
State Water Resources Control Board (SWRCB) to take specified
actions when allocating funds to small, disadvantaged
communities for wastewater collection, treatment or disposal
projects and establishing a payment process pursuant to which
the recipient of financial assistance receives funds within
30 days of the date on which SWRCB receives a project payment
request.
AB 783 (Arambula) Chapter 614, Statutes of 2007, directed DPH to
prioritize funding of water projects in disadvantaged
communities; and directs DPH to promote, provide funds for
studies on, and prioritize funding for projects which
consolidate small public water systems in certain situations.
SOURCE : California Department of Public Health
SUPPORT : Association of California Water Agencies,
California Rural Legal Assistance Foundation,
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Clean Water Action California,
Community Water Center, Eastern Municipal Water District,
Regional Council of Rural Counties, Upper San
Gabriel Valley Municipal Water District
OPPOSITION : None on file