BILL ANALYSIS �
AB 118
Page 1
Date of Hearing: March 12, 2013
ASSEMBLY COMMITTEE ON ENVIRONMENTAL SAFETY AND TOXIC MATERIALS
Luis A. Alejo, Chair
AB 118 (Environmental Safety Committee) - As Introduced:
January 14, 2013
SUBJECT : Safe Drinking Water State 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);
iii) Remain in effect for three years, unless sooner
repealed or amended by additional interim regulations;
and,
iv) 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
AB 118
Page 2
of the defined project, including, but not limited to, the
review required by the California Environmental Quality Act
(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)Provides that 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 is deemed as having no
ability to repay a loan.
5)Sets limits for grant expenditures (not more than 30 percent
and not less than 15 percent) 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
AB 118
Page 3
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.
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 commitment, 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
AB 118
Page 4
needed to achieve or maintain compliance with federal SDWA
requirements.
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.
AB 118
Page 5
g) Establishes guidelines for disbursements of SDWSRF
funds, including that the total funding for a single
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) Provides that not more than 30 percent and not less than
15 percent of the total amount deposited in the SDWSRF may
be expended for grants. Limits grants to disadvantaged
communities.
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.
4)Pursuant to the Administrative Procedure Act (APA) (Government
Code �11340 et seq.), establishes rulemaking procedures and
standards for state agencies. Requires state regulations to
also be adopted in compliance with regulations adopted by the
Office of Administrative Law (OAL).
FISCAL EFFECT : Unknown.
COMMENTS :
Need for the bill : AB 118 is a reintroduction of the May 1,
2012, version of AB 2529 (Wieckowski), from the 2012 legislative
session. AB 2529, which was an Administration sponsored bill,
AB 118
Page 6
passed the Assembly ESTM Committee on a 9 - 0 vote; the Assembly
Appropriations Committee on a 17 - 0 vote; and, the Assembly
floor on a 78 - 0 vote. The bill was substantially amended in
the Senate Environmental Quality Committee, and subsequently
gutted and amended in the Senate Appropriations Committee to
amend provisions of the California Global Warming Solutions Act
of 2006. The author argues that the provisions of AB 118 are
necessary to improve efficiency within the SDWSRF program.
AB 2529 was sponsored by CDPH, which argued at the time that the
bill would modify the SDWSRF statutes to, "Enable the CDPH to
ease the process of providing funds to correct small water
system deficiencies, particularly those serving severely
disadvantaged communities? Since the SDWSRF was implemented in
1997, changes have occurred in federal and state laws that
affect the administration of the [SDWSRF] Program. To address
these changes, it is necessary that CDPH 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. AB 2529
would modify the SDWSRF statute 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 would provide CDPH with
statutory authority to adopt interim and permanent regulations
necessary to implement the changes to the Program."
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 (Costa) Chapter 734,
Statutes of 1997, to help fund projects to address the state's
drinking water needs.
The author argues that this bill will better enable CDPH to
efficiently and effectively administer the SDWSRF. The CDPH
AB 118
Page 7
provided background material to support last year's identical
proposal, which is included below.
Interim regulations : Last November, Chairman Alejo requested
the Legislative Analyst's Office (LAO) to complete an analysis
of CDPH's administration of the SDWSRF. The LAO found that, in
general, to complete the rulemaking process within CDPH, an
interdisciplinary Rulemaking Project Team is formed to develop
the rulemaking documents in accordance with APA standards.
Those documents are reviewed by the deputy of the Center for
Environmental Health, the CDPH Director, the California Health
and Human Services Agency, and the Department of Finance. Once
approved by those agencies, the regulation package then enters
the public participation process. CDPH has stated that it
generally takes 15 months from the formation of the Rulemaking
Project Team to the beginning of the public participation
process.
Once the public participation process has begun, CDPH submits
the regulatory package to the Director of CDPH for final
approval and then to the Office of Administrative Law for review
and approval. If approved, the regulations then go into effect.
CDPH stated that it may take another 15 months from the point
at which the regulations begin the public participation process
to the point at which they go into effect. CDPH stated that, in
general, it takes two to three years to complete a regulatory
package; however, a complex regulation may take significantly
longer to complete.
AB 118 authorizes CDPH to adopt "interim regulations" for the
SDWSRF, which would remain in effect for up to three years while
CDPH completes the full APA rule-making process for permanent
regulations. While the interim regulations are subject to
public review and comment, they can still be adopted more
quickly than permanent regulations. According to CDPH, it has
already successfully utilized interim regulations for
implementation of point-of-use and point-of-entry treatment
devices.
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
AB 118
Page 8
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 118 deems 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 118 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.
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
AB 118
Page 9
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.
Prior legislation:
AB 2529 (Wieckowski). Would have authorized the CDPH, when
implementing the 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. AB 2529 was substantially amended in the Senate
Environmental Quality Committee and then further amended in the
Senate Appropriations Committee to instead amend provisions of
the California Global Warming Solutions Act of 2006.
Related legislation :
1)AB 21 (Alejo). Creates the Safe Drinking Water Small
Community Emergency Grant Fund to address contaminated water
in small communities. Authorizes DPH to assess a specified
annual charge in connection with loans (in lieu of interest)
for certain drinking water projects funded by the SDWSRF.
This bill passed the Assembly ESTM Committee on February 12,
2013, and was referred to the Assembly Appropriations
Committee.
2)AB 115 (Perea). Authorizes funding, through the SDWSRF, of
projects to benefit a disadvantaged community that is not the
AB 118
Page 10
applying agency, extending applicant eligibility to larger
agencies with the expertise to assist disadvantaged
communities that suffer from contamination of their drinking
water sources. This bill is scheduled to be heard in the
Assembly ESTM Committee on March 12, 2013.
3)AB 145 (Perea and Rendon). Transfers the State drinking water
program under the California SDWA, including the SDWSRF, from
CDPH to the SWRCB. Makes findings regarding the need for
consolidation of programs for safe drinking water and clean
water. This bill has been double referred to the Assembly
Committees on Water, Parks and Wildlife and on ESTM.
4)SB 117 (Rubio). Transfers the various duties and
responsibilities imposed on CDPH under the California SDWA to
the SWRCB and makes conforming changes. This bill has been
double referred to the Senate Committees on Health and on
Environmental Quality.
REGISTERED SUPPORT / OPPOSITION :
Support
Association of California Water Agencies
Rural County Representatives of California
Sierra Club California
Opposition
None received.
Analysis Prepared by : Shannon McKinney / E.S. & T.M. / (916)
319-3965