Existing law, the Safe Drinking Water State Revolving Fund Law of 1997, establishes the Safe Drinking Water State Revolving Fund to provide grants or revolving fund loans for the design and construction of projects for public water systems that will enable those systems to meet safe drinking water standards. Existing law authorizes the State Water Resources Control Board, to the extent permitted by federal law, to provide grant funding, and principal forgiveness and 0% financing on loans, from the Safe Drinking Water State Revolving Fund to a project for a water system with a service area that qualifies as a severely disadvantaged community if the water system demonstrates that repaying a Safe Drinking Water State Revolving Fund loan with interest would result in unaffordable water rates, as defined.

This bill would instead authorize the board, to the extent permitted by federal law, to provide up to 100% grant funding, and principal forgiveness and 0% financing on loans, from the Safe Drinking Water State Revolving Fund to a project for a water system that serves a severely disadvantaged community.

Existing law, the Safe Drinking Water State Revolving Fund Law of 1997, establishes the Safe Drinking Water State Revolving Fund to provide grants or revolving fund loans for the design and construction of projects for public water systems that will enable those systems to meet safe drinking water standards. Existing law authorizes the State Water Resources Control Board, to the extent permitted by federal law, to provide grant funding, and principal forgiveness and 0% financing on loans, from the Safe Drinking Water State Revolving Fund to a project for a water system with a service area that qualifies as a severely disadvantaged community if the water system demonstrates that repaying a Safe Drinking Water State Revolving Fund loan with interest would result in unaffordable water rates, as defined.

This bill would instead authorize the board, to the extent permitted by federal law, to provide up to 100% grant funding, and principal forgiveness and 0% financing on loans, from the Safe Drinking Water State Revolving Fund to a project for a water system that serves a severely disadvantaged community.

The Porter-Cologne Water Quality Control Act establishes a statewide program for the control of the quality of all the waters in the state and makes certain legislative findings and declarations.

This bill would make technical, nonsubstantive changes to the legislative findings and declarations.

 CONSENT  

Bill No: AB 2541

Author: Salas (D)

Amended: 3/15/18 in Assembly

Vote: 21

SENATE ENVIRONMENTAL QUALITY COMMITTEE: 5-0, 6/6/18

AYES: Wieckowski, Stone, Gaines, Hill, Skinner

NO VOTE RECORDED: Lara, Stern

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

ASSEMBLY FLOOR: 71-0, 5/3/18 (Consent) - See last page for vote

SUBJECT: Safe Drinking Water State Revolving Fund: project financing: severely disadvantaged communities

SOURCE: Self-Help Enterprises

DIGEST:

1. This bill authorizes the State Water Resources Control Board (SWRCB) to provide up to 100% grant funding, in addition to providing principal forgiveness and zero-percent financing on loans, from the Safe Drinking Water State Revolving Fund (DWSRF) to a project for a water system that serves a severely disadvantaged community (SDAC).

ANALYSIS:

Existing law:

1. Establishes, under the Human Right to Water Act, as the policy of the state, that every human being has the right to safe, clean, affordable, and accessible water adequate for human consumption, cooking, and sanitary purposes.
2. Requires all relevant state agencies, including the Department of Water Resources, SWRCB, and the State Department of Public Health, to consider the above state policy when revising, adopting, or establishing policies, regulations, and grant criteria when those policies, regulations, and criteria are pertinent to the uses of water, as defined.
3. Provides that because the federal Safe Drinking Water Act (SDWA) (42 U.S.C. Sec. 300j et seq.) provides for the establishment of a perpetual drinking water revolving fund, which will be partially capitalized by federal contributions, it is in the interest of the people of the state, in order to ensure full participation by the state under the SDWA, to enact the DWSRF law to authorize the state to establish and implement a state drinking water revolving fund that will meet federal conditions for receipt of federal funds. (Health and Safety Code (HSC) §116760.10 (a))
4. Creates in the State Treasury the DWSRF, and provides that moneys in the fund are continuously appropriated, without regard to fiscal years, to SWRCB for expenditure in accordance with DWSRF law. (HSC §116760.30 (a))
5. Defines “severely disadvantaged community” as a community with a median household income of less than 60 percent of the statewide average. (HSC §116760.20 (n))
6. Requires, under the DWSRF law, SWRCB to determine what portion of the full costs the water system is capable of repaying and authorizes funding in the form of a loan or other repayable financing for that amount. Authorizes SWRCB to authorize a grant or principal forgiveness to a system, as defined, that serves a disadvantaged community (DAC) only to the extent that the SWRCB finds the water system is unable to repay the full costs of the financing. (HSC § 116761.20 (b)(1))
7. Authorizes SWRCB to provide principal forgiveness, grant funding, and zero percent financing to a water system serving a SDAC if the water system demonstrates that repaying a DWSRF loan would result in unaffordable water rates.

This bill:

1. Authorizes SWRCB to provide up to 100% grant funding, in addition to providing principal forgiveness and zero-percent financing on loans, from the DWSRF to a project for a water system that serves a SDAC.
2. Deletes the requirement that a water system must demonstrate that repaying a DWSRF loan with interest would result in unaffordable water rates.
3. Deletes the definition of unaffordable water rates.

Background

1. Drinking water contamination in DACs. According to the SWRCB report, "Communities that Rely on Contaminated Groundwater," released in January 2013, 682 community public water systems, which serve nearly 21 million people, rely on contaminated groundwater as a primary source of drinking water. The report points out that an additional two million Californians rely on groundwater from either a private domestic well or a smaller groundwater-reliant system that is not regulated by the state, the water quality of which is uncertain. The findings from SWRCB report, and a 2012 University of California at Davis study, “Addressing Nitrate in California's Drinking Water,” suggest that drinking water contamination in California disproportionally affects small, rural, and low-income communities that depend mostly on groundwater as their drinking water source.
2. Safe Drinking Water State Revolving Fund. Congress established the DWSRF as part of the 1996 amendment of the SDWA to better enable public water systems to comply with national primary drinking water standards and to protect public health. The DWSRF provides financial assistance in the form of capital 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 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 the DWSRF through SB 1307 (Costa, Thompson, Chapter 734, Statutes of 1997) to help fund the state’s drinking water needs. In California, the SWRCB’s Division of Financial Assistance administers the DWSRF Program.

Based on the United States Environmental Protection Agency (US EPA) 2011 Drinking Water Infrastructure Needs Survey, California drinking water needs are more than $2.2 billion per year for the next 20 years.

1. Intended Use Plan (IUP): According to SWRCB, the IUP serves as part of the SWRCB’s application for the grant from US EPA. In establishing the terms of the IUP, SWRCB considered statewide policy that declares it is the established policy and law of the state that “every human being has the right to safe, clean, affordable, and accessible water adequate for human consumption, cooking, and sanitary purposes.” SWRCB is required to consider this state policy when “revising, adopting, or establishing policies, regulations, and grant criteria when those policies, regulations, and criteria are pertinent to the uses of water.”

The IUP provides specific details on key aspects of the DWSRF program, including short and long-term goals, the priority setting process used to rank projects, and a list of projects considered eligible to receive available DWSRF funding. The 2017-18 DWSRF IUP provides specific details on key aspects of the DWSRF program, including short and long-term goals, the priority setting process used to rank projects, and the types of projects considered eligible to receive available DWSRF funding. The IUP states that subject to certain affordability criteria, SWRCB intends to provide the maximum amount allowed from the 2017 Capitalization Grant as principal forgiveness to eligible public water systems that serve DACs and SDACs for projects that represent California’s highest public health priorities and that are ready to proceed to a financing agreement. (Capitalization grants are federal grants from the US EPA awarded to states to create and maintain DWSRF programs; California uses those grant funds for the state revolving fund to assist public water systems finance the costs of infrastructure needed to comply with the SDWA.)

The IUP additionally states that it is the intent of the SWRCB to provide for the effective and equitable use of the limited amount of DWSRF and Water Quality, Supply, and Infrastructure Improvement Act of 2014 (Proposition 1) Drinking Water funds for principal forgiveness/grant funds, and the eligible grant and/or principal forgiveness funding amount for any project may be reduced for good cause.

This bill states in statute that SWRCB may provide principal forgiveness, grant funding, and zero percent financing to a water system serving a SDAC, regardless of size, if the water system demonstrates that repaying a DWSRF loan would result in unaffordable water rates. This is consistent with the 2017-2018 IUP.

Comments

1. Purpose of bill. According to the author,

AB 560 (Salas, Chapter 552, Statutes of 2017) authorized the State Water Board to provide grants and principal forgiveness, rather than loans, to SDACs accessing funding under the DWSRF.

AB 560 required that, in order for the funding to be provided as a grant, the applicant must show that repaying a loan would result in unaffordable water rates, or that their water rates already exceeded the affordability threshold of 1.5 percent of median household income. However, before the bill became law, the State Water Board published the 2017-18 DWSRF Intended Use Plan, which provides grants to SDACs without evaluation of current water rates. The DWSRF Intended Use Plan is revised and released annually.

AB 2541 would clarify the law and ensure continuing authority for the State Water Board to provide grants and principal forgiveness to SDACs without showing that water rates exceed the affordability threshold.

This measure enables water systems serving SDACs to keep their water rates as low as possible, and ensures that they do not need to artificially raise water rates in order to qualify for grant funding. This will ensure that all SDACs are eligible for grants to provide badly needed drinking water improvements.

1. Would increasing the community population size for eligibility for grants and principal forgiveness or zero percent financing on loans potentially mean less grants for small DACs? Unlike loans that provide a return to the DWSRF in the form of interest repayment, grants and principal forgiveness and zero percent financing on loans from the DWSRF reduce the balance of the fund without contributing to it in the future. While expanding eligibility for grants and principal forgiveness and zero percent financing on loans through the DWSRF to larger communities will surely help those communities that receive the funding, expanding eligibility will reduce the overall balance of the fund and could prevent smaller communities, which may have additional challenges to affording infrastructure improvements, from receiving needed funding.

Related/Prior Legislation

AB 560 (Salas, Chapter 552, Statutes of 2017) authorized the SWRCB to provide grants and principal forgiveness, rather than loans, to SDACs accessing funding under the DWSRF.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

SUPPORT: (Verified 7/2/18)

Self-Help Enterprises (source)

California Municipal Utilities Association

OPPOSITION: (Verified 7/2/18)

None received

ASSEMBLY FLOOR: 71-0, 5/3/18

AYES: Acosta, Aguiar-Curry, Arambula, Baker, Berman, Bigelow, Bloom, Bonta, Brough, Burke, Calderon, Carrillo, Cervantes, Chau, Chávez, Chen, Chiu, Chu, Cooley, Cooper, Cunningham, Dahle, Daly, Eggman, Flora, Fong, Frazier, Friedman, Gallagher, Eduardo Garcia, Gipson, Gloria, Gonzalez Fletcher, Gray, Harper, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Quirk, Reyes, Rodriguez, Rubio, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Waldron, Weber, Wood, Rendon

NO VOTE RECORDED: Travis Allen, Caballero, Choi, Cristina Garcia, Grayson, Quirk-Silva, Voepel

Prepared by: Rachel Machi Wagoner / E.Q. / (916) 651-4108

7/3/18 15:53:10

**** END ****

SENATE COMMITTEE ON ENVIRONMENTAL QUALITY

Senator Wieckowski, Chair

2017 - 2018 Regular

Bill No: AB 2541

SUBJECT: Safe Drinking Water State Revolving Fund: project financing: severely disadvantaged communities

ANALYSIS:

EXISTING LAW:

1. Under the Human Right to Water Act, establishes, as the policy of the state, that every human being has the right to safe, clean, affordable, and accessible water adequate for human consumption, cooking, and sanitary purposes.
2. Requires all relevant state agencies, including the Department of Water Resources, The State Water Resources Control Board (SWRCB), and the State Department of Public Health, to consider the above state policy when revising, adopting, or establishing policies, regulations, and grant criteria when those policies, regulations, and criteria are pertinent to the uses of water, as defined.
3. Provides that because the federal Safe Drinking Water Act (42 U.S.C. Sec. 300j et seq.) provides for the establishment of a perpetual drinking water revolving fund, which will be partially capitalized by federal contributions, it is in the interest of the people of the state, in order to ensure full participation by the state under the federal Safe Drinking Water Act, to enact the Safe Drinking Water State Revolving Fund (DWSRF) law to authorize the state to establish and implement a state drinking water revolving fund that will meet federal conditions for receipt of federal funds. (Health and Safety Code (HSC) §116760.10 (a))
4. Creates in the State Treasury the DWSRF, and provides that moneys in the fund are continuously appropriated, without regard to fiscal years, to SWRCB for expenditure in accordance with DWSRF law. (HSC §116760.30 (a))
5. Defines “severely disadvantaged community” as a community with a median household income of less than 60 percent of the statewide average. (HSC §116760.20 (n))
6. Requires, under the DWSRF law, SWRCB to determine what portion of the full costs the water system is capable of repaying and authorizes funding in the form of a loan or other repayable financing for that amount. Authorizes SWRCB to authorize a grant or principal forgiveness to a system, as defined, that serves a disadvantaged community only to the extent that the SWRCB finds the water system is unable to repay the full costs of the financing. (HSC § 116761.20 (b)(1))
7. Authorizes SWRCB to provide principal forgiveness, grant funding, and zero percent financing to a water system serving a severely disadvantaged community if the water system demonstrates that repaying a Safe Drinking Water State Revolving Fund (DWSRF) loan would result in unaffordable water rates.

This bill:

1. Authorizes SWRCB to provide up to 100% grant funding, in addition to providing principal forgiveness and zero-percent financing on loans, from the Safe Drinking Water State Revolving Fund (DWSRF) to a project for a water system that serves a severely disadvantaged community.
2. Deletes the requirement that a water system must demonstrate that repaying a Safe Drinking Water State Revolving Fund (DWSRF) loan with interest would result in unaffordable water rates.
3. Deletes the definition of unaffordable water rates.

Background

1. Drinking water contamination in disadvantaged communities: According to the SWRCB report, "Communities that Rely on Contaminated Groundwater," released in January 2013, 682 community public water systems, which serve nearly 21 million people, rely on contaminated groundwater as a primary source of drinking water. The report points out that an additional two million Californians rely on groundwater from either a private domestic well or a smaller groundwater-reliant system that is not regulated by the state, the water quality of which is uncertain. The findings from SWRCB report, and a 2012 University of California at Davis study, “Addressing Nitrate in California's Drinking Water,” suggest that drinking water contamination in California disproportionally affects small, rural, and low-income communities that depend mostly on groundwater as their drinking water source.
2. Safe Drinking Water State Revolving Fund (DWSRF): Congress established the DWSRF as part of the 1996 amendment of the Safe Drinking Water Act to better enable public water systems to comply with national primary drinking water standards and to protect public health. The DWSRF provides financial assistance in the form of capital 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 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 the DWSRF through SB 1307 (Costa, Thompson, Chapter 734, Statutes of 1997) to help fund the state’s drinking water needs. In California, the SWRCB’s Division of Financial Assistance administers the DWSRF Program.

Based on the United States Environmental Protection Agency (US EPA) 2011 Drinking Water Infrastructure Needs Survey, California drinking water needs are more than $2.2 billion per year for the next 20 years.

1. Intended Use Plan (IUP): According to SWRCB, the IUP serves as part of the SWRCB’s application for the grant from US EPA. In establishing the terms of the IUP, SWRCB considered statewide policy that declares it is the established policy and law of the state that “every human being has the right to safe, clean, affordable, and accessible water adequate for human consumption, cooking, and sanitary purposes.” SWRCB is required to consider this state policy when “revising, adopting, or establishing policies, regulations, and grant criteria when those policies, regulations, and criteria are pertinent to the uses of water.”

The IUP provides specific details on key aspects of the DWSRF program, including short and long-term goals, the priority setting process used to rank projects, and a list of projects considered eligible to receive available DWSRF funding. The 2017-18 DWSRF Intended Use Plan (IUP) provides specific details on key aspects of the DWSRF program, including short and long-term goals, the priority setting process used to rank projects, and the types of projects considered eligible to receive available DWSRF funding. The IUP states that subject to certain affordability criteria, SWRCB intends to provide the maximum amount allowed from the 2017 Capitalization Grant as principal forgiveness to eligible public water systems that serve disadvantaged communities (DACs) and SDACs for projects that represent California’s highest public health priorities and that are ready to proceed to a financing agreement. (Capitalization grants are federal grants from the US EPA awarded to states to create and maintain DWSRF programs; California uses those grant funds for the state revolving fund to assist public water systems finance the costs of infrastructure needed to comply with the SDWA.)

The IUP additionally states that it is the intent of the State Water Board to provide for the effective and equitable use of the limited amount of DWSRF and Water Quality, Supply, and Infrastructure Improvement Act of 2014 (Proposition 1) Drinking Water funds for principal forgiveness/grant funds, and the eligible grant and/or principal forgiveness funding amount for any project may be reduced for good cause.

This bill states in statute that SWRCB may provide principal forgiveness, grant funding, and zero percent financing to a water system serving a severely disadvantaged community, regardless of size, if the water system demonstrates that repaying a DWSRF loan would result in unaffordable water rates. This is consistent with the 2017-2018 IUP.

Comments

1. Purpose of Bill. According to the author,

"AB 560 (Salas, Chapter 552, Statutes of 2017) authorized the State Water Board to provide grants and principal forgiveness, rather than loans, to SDACs accessing funding under the DWSRF.

AB 560 required that, in order for the funding to be provided as a grant, the applicant must show that repaying a loan would result in unaffordable water rates, or that their water rates already exceeded the affordability threshold of 1.5 percent of median household income. However, before the bill became law, the State Water Board published the 2017-18 DWSRF Intended Use Plan, which provides grants to SDACs without evaluation of current water rates. The DWSRF Intended Use Plan is revised and released annually.

AB 2541 would clarify the law and ensure continuing authority for the State Water Board to provide grants and principal forgiveness to SDACs without showing that water rates exceed the affordability threshold.

This measure enables water systems serving SDACs to keep their water rates as low as possible, and ensures that they do not need to artificially raise water rates in order to qualify for grant funding. This will ensure that all SDACs are eligible for grants to provide badly needed drinking water improvements."

1. Would increasing the community population size for eligibility for grants and principal forgiveness or zero percent financing on loans potentially mean less grants for small disadvantaged communities? Unlike loans that provide a return to the DWSRF in the form of interest repayment, grants and principal forgiveness and zero percent financing on loans from the DWSRF reduce the balance of the fund without contributing to it in the future. While expanding eligibility for grants and principal forgiveness and zero percent financing on loans through the DWSRF to larger communities will surely help those communities that receive the funding, expanding eligibility will reduce the overall balance of the fund and could prevent smaller communities, which may have additional challenges to affording infrastructure improvements, from receiving needed funding.

Related/Prior Legislation

AB 560 (Salas, Chapter 552, Statutes of 2017). Authorized the State Water Board to provide grants and principal forgiveness, rather than loans, to SDACs accessing funding under the DWSRF.

SOURCE:

Self-Help Enterprises

SUPPORT:

California Municipal Utilities Association

OPPOSITION:

None received

-- END --

Date of Hearing: April 25, 2018

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

ABPCA Bill Id:AB 2541

Author:(Salas) – As Amended Ver:March 15, 2018

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill modifies the conditions in statute under which the State Water Resources Control Board (State Water Board) may provide funding for projects to low-income communities. Specifically, this bill:

1. Authorizes the State Water Board to provide up to 100% grant funding, in addition to providing principal forgiveness and zero-percent financing on loans, from the Safe Drinking Water State Revolving Fund (DWSRF) to a project for a water system that serves a severely disadvantaged community.
2. Deletes the requirement that a water system must demonstrate that repaying a Safe Drinking Water State Revolving Fund loan with interest would result in unaffordable water rates.
3. Deletes the definition of unaffordable water rates.

FISCAL EFFECT:

Negligible fiscal impact. According to the State Water Board, this bill aligns statue with what is in the board’s Intended Use Plan for the fund. The State Water Board has broad authority to give the kind of discounted funding this bill allows.

COMMENTS:

1. Purpose. AB 560 (Salas), Chapter 552, Statutes of 2017, expanded the eligibility for the Drinking Water State Revolving Fund (DWSRF) to allow larger, but still disadvantaged communities to access funds for water projects. AB 560 allowed the State Water Board to provide grants, principle forgiveness, and zero-percent financing to severely disadvantaged communities.

According to the author, “This bill clarifies the law to ensure continuing authority for the State Water Board to provide grants and principal forgiveness for severely disadvantaged communities without showing that water rates exceed the affordability threshold.”

1. Background. Congress established the 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. The 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 the DWSRF through SB 1307, Chapter 734, Statutes of 1997 to help fund the state's drinking water needs. In California, The State Water Board’s Division of Financial Assistance administers the DWSRF Program.

According to the State Water Board’s report, "Communities that Rely on Contaminated Groundwater," released in January 2013, 682 community public water systems, which serve nearly 21 million people, rely on contaminated groundwater as a primary source of drinking water. The report points out that an additional two million Californians rely on groundwater from either a private domestic well or a smaller groundwater-reliant system that is not regulated by the state, the water quality of which is uncertain.

Analysis Prepared by: Jennifer Galehouse / APPR. / (916) 319-2081

Date of Hearing: April 10, 2018

ASSEMBLY COMMITTEE ON ENVIRONMENTAL SAFETY AND TOXIC MATERIALS

Bill Quirk, Chair

ABPCA Bill Id:AB 2541 (

Author:Salas) – As Amended Ver:March 15, 2018

SUBJECT: Safe Drinking Water State Revolving Fund: project financing: severely disadvantaged communities

SUMMARY: Revises the conditions under which the State Water Resources Control Board (State Water Board) may provide funding for projects to low-income communities. Specifically, this bill:

1. Authorizes the State Water Board to provide up to 100% grant funding, in addition to providing principal forgiveness and 0-percent financing on loans, from the Safe Drinking Water State Revolving Fund (DWSRF) to a project for a water system that serves a severely disadvantaged community (SDAC).
2. Deletes the requirement that a water system must demonstrate that repaying a Safe Drinking Water State Revolving Fund loan with interest would result in unaffordable water rates.
3. Deletes the definition of unaffordable water rates.

EXISTING LAW:

1. Establishes, as the policy of the state, that every human being has the right to safe, clean, affordable, and accessible water adequate for human consumption, cooking, and sanitary purposes. (Water Code (WC) § 106.3 (a))
2. Requires all relevant state agencies, including the Department of Water Resources, the State Water Board, and the State Department of Public Health, to consider the above "human right to water" state policy when revising, adopting, or establishing policies, regulations, and grant criteria when those policies, regulations, and criteria are pertinent to the uses of water, as defined. (WC § 106.3 (b))
3. Provides that because the federal Safe Drinking Water Act (42 U.S.C. Sec. 300j et seq.) provides for the establishment of a perpetual drinking water revolving fund, which will be partially capitalized by federal contributions, it is in the interest of the people of the state, in order to ensure full participation by the state under the federal Safe Drinking Water Act, to enact DWSRF law to authorize the state to establish and implement a state drinking water revolving fund that will meet federal conditions for receipt of federal funds. (Health and Safety Code (HSC) § 116760.10 (a))
4. Creates in the State Treasury the DWSRF, and provides that moneys in the fund are continuously appropriated, without regard to fiscal years, to the State Water Board for expenditure in accordance with DWSRF law. (HSC § 116760.30 (a))
5. Defines SDAC as a community with a median household income (MHI) of less than 60 percent of the statewide average. (HSC § 116760.20 (n))
6. Requires, under the DWSRF law, the State Water Board to determine what portion of the full costs the water system is capable of repaying and authorizes funding in the form of a loan or other repayable financing for that amount. Authorizes the State Water Board to authorize a grant or principal forgiveness to a system, as defined, that serves a disadvantaged community only to the extent that the State Water Board finds the water system is unable to repay the full costs of the financing. (HSC § 116761.20 (b)(1))

FISCAL EFFECT: Unknown.

COMMENTS:

Need for the bill: According to the author:

"AB 560 (Salas, Chapter 552, Statutes of 2017) authorized the State Water Board to provide grants and principal forgiveness, rather than loans, to SDACs accessing funding under the DWSRF.

AB 560 required that, in order for the funding to be provided as a grant, the applicant must show that repaying a loan would result in unaffordable water rates, or that their water rates already exceeded the affordability threshold of 1.5 percent of median household income. However, before the bill became law, the State Water Board published the 2017-18 DWSRF Intended Use Plan, which provides grants to SDACs without evaluation of current water rates. The DWSRF Intended Use Plan is revised and released annually.

AB 2541 would clarify the law and ensure continuing authority for the State Water Board to provide grants and principal forgiveness to SDACs without showing that water rates exceed the affordability threshold.

This measure enables water systems serving SDACs to keep their water rates as low as possible, and ensures that they do not need to artificially raise water rates in order to qualify for grant funding. This will ensure that all SDACs are eligible for grants to provide badly needed drinking water improvements."

Drinking water needs: According to the State Water Board, 98% of Californians are served by public water systems' drinking water that meets federal and state drinking water standards, which leaves 2% of Californians with drinking water that fails to meet state and federal drinking water standards.

Nitrates, hexavalent chromium, perchlorate, arsenic, and other contaminants are present in water supplies across the state, and water treatment can be costly. It is estimated that more than 1 million California residents who live in mostly rural areas have unreliable access to safe drinking water. Similarly, according to the United States Environmental Protection Agency's (US EPA) Small Drinking Water Systems research, drinking water treatment challenges are likely to disproportionately affect small drinking water systems due to limited resources and treatment options, among other factors.

Drinking water funding needs: The US EPA has estimated that California will need more than $40 billion dollars in drinking water infrastructure improvements over the next 20 years. Consistent with that, based on the 2011 Drinking Water Infrastructure Needs Survey, California drinking water needs are more than $2.2 billion per year for the next 20 years.

Drinking water resources are limited, however, and cuts to drinking water programs may be forthcoming. The Trump Administration's Fiscal Year 2019 budget plan, released February 2018, is proposing to cut more than $2.5 billion from the annual budget of the US EPA. The proposed cuts include a 36% cut to the Safe and Sustainable Water Resources research program, which is dedicated to addressing contaminant problems in drinking water systems; a 33% cut to the Pollution Control Grant Program, which provides assistance to states and tribes to prevent surface and groundwater pollution; and, a 16% cut to various drinking water programs related to compliance with the Safe Drinking Water Act.

Given California's ongoing water quality challenges, and the fact state resources are limited for investment in drinking water improvements, state funds have to be spent carefully and thoughtfully on the communities that most need help achieving compliance with drinking water standards.

Safe Drinking Water State Revolving Fund (DWSRF): Congress established the 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. The 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 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, California established the DWSRF through SB 1307 (Costa-Thompson, Chapter 734, Statutes of 1997) to help fund the state's drinking water needs. In California, the State Water Board’s Division of Financial Assistance administers the DWSRF Program.

DWRSF funding prioritization: The 2017-18 DWSRF Intended Use Plan (IUP) provides specific details on key aspects of the DWSRF program, including short and long-term goals, the priority setting process used to rank projects, and the types of projects considered eligible to receive available DWSRF funding. The IUP states that subject to certain affordability criteria, the State Water Board intends to provide the maximum amount allowed from the 2017 Capitalization Grant as principal forgiveness to eligible public water systems that serve disadvantaged communities (DACs) and SDACs for projects that represent California’s highest public health priorities and that are ready to proceed to a financing agreement. (Capitalization grants are federal grants from the US EPA awarded to states to create and maintain DWSRF programs; California uses those grant funds for the state revolving fund to assist public water systems finance the costs of infrastructure needed to comply with the SDWA.)

The IUP additionally states that it is the intent of the State Water Board to provide for the effective and equitable use of the limited amount of DWSRF and Water Quality, Supply, and Infrastructure Improvement Act of 2014 (Proposition 1) Drinking Water funds for principal forgiveness/grant funds, and the eligible grant and/or principal forgiveness funding amount for any project may be reduced for good cause.

Unaffordable water rates vs. SDAC: Current law, as enacted by AB 560 (Salas, Chapter 552, Statutes of 2017), authorized the State Water Board to provide principal forgiveness, grant funding, and 0-percent financing to a project for a water system with a service area that qualifies as a SDAC if the water system demonstrates that repaying a DWSRF loan would result in unaffordable water rates. AB 560 defined "unaffordable water rates" as an average water bill that is at least 1.5-percent of the MHI of the service area or other percentage that the State Water Board determines is appropriate to reflect funding priorities.

AB 2541 is proposing to delete the requirement that the State Water Board may provide those financing options if a water system demonstrates that repaying a DWSRF loan with interest would result in unaffordable water rates, and instead authorize that funding to a water system that serves a SDAC. Current law defines SDAC as a community with an MHI of less than 60 percent of the statewide average.

According to Self-Help Enterprises, "A water rate affordability standard of 1.5% of MHI is often applied as a measure of whether a community water system can afford to accept any loan as part of a capital project funding package. By making grant funding available to SDACs only once the water system demonstrates that repaying a DWSRF loan with interest would result in unaffordable water rates, the bill effectively holds SDACs to the same affordability standard as disadvantaged communities, who are slightly better resourced at 80% of state MHI.

The current IUP for the DWSRF does not hold SDACs to any affordability standard, instead making grants available to the neediest communities regardless of how much their existing water rates are. We believe this is the better approach. AB2541 would codify this beneficial funding scenario for SDACs and preserve their access to affordable drinking water funding from the State of California."

Under current statute, the State Water Board must consider SDACs and DACs with regard to affordability, eliminating any preferential treatment for SDACs. SDACs are treated like DACs, even though they are significantly poorer than DACs. SDACs with relatively low water rates would have to raise rates artificially to reach the affordability threshold and qualify for grant. AB 2541 seeks to remedy this.

Related legislation: AB 560 (Salas, Chapter 552, Statutes of 2017). Authorized the State Water Board to provide grants and principal forgiveness, rather than loans, to SDACs accessing funding under the DWSRF.

REGISTERED SUPPORT / OPPOSITION:

Support

California Municipal Utilities Association

Self-Help Enterprises (Sponsor)

Opposition

None on file

Analysis Prepared by: Paige Brokaw / E.S. & T.M. /