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SB-589 Municipal separate storm sewer systems: financial capability analysis: pilot project.(2017-2018)

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Date Published: 04/07/2017 04:00 AM
SB589:v98#DOCUMENT

Amended  IN  Senate  April 06, 2017

CALIFORNIA LEGISLATURE— 2017–2018 REGULAR SESSION

Senate Bill No. 589


Introduced by Senator Hernandez

February 17, 2017


An act to add Section 13263.8 13185 to the Water Code, relating to water quality.


LEGISLATIVE COUNSEL'S DIGEST


SB 589, as amended, Hernandez. Municipal separate storm sewer systems: financial capability analysis. analysis: pilot project.
Under existing law, the State Water Resources Control Board and the California regional water quality control boards prescribe waste discharge requirements for the discharge of stormwater in accordance with the federal national pollutant discharge elimination system permit program. Existing law requires the state board or the regional boards to issue waste discharge requirements that apply and ensure compliance with the federal Clean Water Act and any more stringent effluent standards or limitations necessary to implement water quality control plans, or for the protection of beneficial uses, or to prevent nuisance.
This bill would require a regional board or the state board, when approving a municipal separate storm sewer system permit, to establish schedules for compliance with water quality objectives in water quality control plans after consideration of a financial capability analysis, that includes, among other things, a consideration of the financial burden to individual customers and the permittee’s financial strength, as prescribed. The bill would require a regional board or the state board to renegotiate a schedule for compliance, alternative compliance pathways, or both if the financial burden to individual customers is high, as prescribed. The bill would require the regional board or state board to consider if the permittee’s financial strength is weak in negotiating schedules for compliance and consideration of alternative compliance pathways. The bill would authorize the regional board or state board to revise an existing schedule for compliance if the board finds certain extraordinary stressors. the state board to establish financial capability assessment guidelines by an unspecified date. The bill would require the California Regional Water Quality Control Board, Los Angeles region to use the guidelines in a pilot project conducted by an independent or educational entity for assessing the financial capability of municipalities to implement a municipal separate storm sewer system permit. The bill would require the state board to oversee the use of the guidelines and to make statewide recommendations upon the completion of the financial capability analysis.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 (a) The Legislature finds and declares as follows:

(a)

(1) On November 24, 2014, the federal Environmental Protection Agency, Office of Enforcement and Compliance Assurance, announced it had adopted a refined financial capability assessment framework to aid in negotiating schedules for compliance with the municipal federal Clean Water Act requirements and in developing integrated management plans.

(b)

(2) The financial capability assessment framework does not alter or waive water quality standards, but offers alternative compliance pathways to municipal separate storm sewer system permittees and achievable schedules for compliance for disadvantaged communities.

(c)

(3) A financial capability assessment is necessary to set achievable schedules for water quality objectives in water quality control plans under the Porter-Cologne Water Quality Control Act (Division 7 (commencing with Section 13000) of the Water Code) and to develop integrated regional water management plans.
(b) It is the intent of the Legislature in enacting this measure to do all of the following:
(1) Comply with the federal Clean Water Act (33 U.S.C. Sec. 1251 et seq.).
(2) Help local governments that are making a good faith effort to be stewards of the environment but lack a dedicated revenue source for stormwater.
(3) Find solutions and share the cost of compliance for local governments that are participating in a watershed management program or an enhanced watershed management program.
(4) Not weaken environmental protections for lower income communities but rather to provide funding to achieve the same protections for all communities.
(5) Help the State Water Resources Control Board, the California regional water quality control boards, and local governments to prioritize the many competing requirements faced by communities as dealing with funding drinking water, groundwater, sanitary sewer, flood protection, and stormwater improvements.
(6) Give communities time to apply for grants to overcome the financial constraints of local government without fear of fines and third-party litigation.
SEC. 2.Section 13263.8 is added to the Water Code, to read:
13263.8.

(a)When approving a municipal separate storm sewer system permit, a regional board and the state board shall establish schedules for compliance with water quality objectives in water quality control plans after consideration of a financial capability analysis.

(b)As used in this section:

(1)“Financial strength indicator” means the municipal separate storm sewer system permittee’s financial strength, taking into consideration metrics in the categories of debt indicators, socioeconomic indicators, and financial management indicators as described in paragraph (3) of subdivision (c).

(2)“Residential indicator” means the financial burden to individual customers as described in paragraph (1) of subdivision (c). Two percent to 3.24 percent, inclusive, is a low burden, 3.25 percent to 4.4 percent, inclusive, is a midrange burden, and 4.5 percent or higher is a high burden.

(c)A financial capability analysis shall consider the residential indicator, residential impacts, and the financial strength indicator as follows:

(1)The residential indicator shall assess the annual costs that would be borne by residential households for water, flood control, wastewater, compliance with this division, and municipal separate storm sewer system permit-related expenses by dividing these annual costs by the number of households. The residential share of the annual costs of these obligations shall then be compared to the mean household income of the service area. The mean household income shall be calculated using current census data and may be adjusted based on the current Consumer Price Index. The compliance costs per household shall then be divided by the adjusted mean household income to calculate the residential indicator.

(2)Where available, the following residential impact information shall be considered:

(A)Income distribution.

(B)Poverty rates.

(C)Sewer and stormwater fees.

(D)Flood control costs.

(E)Water rates as a percentage of household income.

(F)Flood control.

(G)Sewer and water usage for classes of ratepayers or by type of dwelling unit.

(H)The percent of households that own versus rent.

(I)The housing cost burden of the population.

(J)Average utility costs.

(K)Mortgage and insurance costs.

(L)The cost of living in the community.

(3)The financial strength indicator shall rate a municipal separate storm sewer system permittee as weak, midrange, or strong after consideration of the following factors:

(A)Bond ratings, except that bond ratings shall not be the sole basis for evaluating financial capability.

(B)Service area unemployment data and trends, or other labor market indicators, including unemployment on an absolute basis.

(C)Median household income, except that median household income shall not be the sole consideration.

(D)Property tax revenue collection rates and the revenue collection rate of the permittee’s system.

(4)Consideration of the following factors, as applicable:

(A)Rate or revenue models, including, but not limited to, dynamic financial planning models showing the projections of impacts over the program period. All revenue sources tied to the permit obligations may be included as appropriate.

(B)Rate determination studies used to develop and support rate increases.

(C)Historical population trends or population projections.

(D)State or local legal restrictions or limitations on property taxes, other revenue streams, or debt levels.

(E)If available, anonymized data and trends on late payments, disconnection notices, service terminations, uncollectible accounts, or revenue collection rates.

(F)Historical increases in rates or other dedicated revenue streams.

(G)Other costs or financial obligations, including, but not limited to, those that relate to drinking water or other infrastructure that significantly affect a municipal separate storm sewer system permittee’s ability to raise revenue.

(H)Circumstances that may affect a municipal separate storm sewer system permittee’s bond rating.

(I)Financial plans that show the implications of incurring additional debt for a municipal separate storm sewer system permittee’s ability to secure financing, including projections of metrics such as debt ratios, debt service coverage, debt per customer, days of cash on hand, days of working capital, and other metrics used by rating agencies. This data should be benchmarked to metrics such as rating agency medians and relative to similar entities. This will be especially relevant where the municipal separate storm sewer system permittee does not have a bond rating.

(J)Extraordinary stressors such as those from natural disasters, municipal bankruptcies, unusual capital market conditions, or other situations that impact a municipal separate storm sewer system permittee’s ability to raise revenue or acquire needed financing.

(5)The cost to the community of compliance, including, but not limited to, the residential impact, with the municipal separate storm sewer system permit, watershed management plan, integrated or enhanced watershed management plan, the federal Clean Water Act (33 U.S.C. Sec. 1251 et seq.), the California Safe Drinking Water Act (Chapter 4 (commencing with Section 116270) of Part 12 of Division 104 of the Health and Safety Code), and this division.

(6)The relative effectiveness and benefits of water quality improvements.

(7)The reasonableness of the schedule for compliance and time within which the municipal separate storm sewer system permittee is required to achieve water quality objectives and comply with permit requirements.

(8)A municipal separate storm sewer system permittee’s current municipal separate storm sewer system infrastructure, its function, and its condition.

(9)Studies a city, a municipal separate storm sewer system permittee, or a municipal separate storm sewer system permit applicant would like to submit for consideration, including, but not limited to, rate studies in support of the residential indicator or financial strength indicator. The cost, if any, associated with the development of any study submitted pursuant to this paragraph shall be borne by the city, permittee, or applicant.

(d)(1)If the residential indicator finds a high burden, the regional board or state board shall renegotiate a schedule for compliance, alternative compliance pathways, or both, so that the residential indicator shall result in a low burden or midrange burden.

(2)If the financial strength indicator finds a weak condition, the regional board or state board shall consider this condition in negotiating schedules for compliance and consideration of alternative compliance pathways.

(3)If an extraordinary stressor as described in subparagraph (J) of paragraph (4) of subdivision (c) is found, the regional board or state board may revise an existing schedule for compliance.

SEC. 2.

 Section 13185 is added to the Water Code, to read:

13185.
 (a) The state board shall establish financial capability assessment guidelines by ____. The state board shall consider both of the following United States Environmental Protection Agency policies in drafting the financial capability assessment guidelines:
(1) Combined Sewer Overflows—Guidance for Financial Capability Assessment and Schedule Development, dated February 1997.
(2) Affordability Criteria for Small Drinking Water Systems: An EPA Science Advisory Board Report, dated December 2002.
(b) The regional board for the Los Angeles region shall use the guidelines developed by the state board in a pilot project conducted by an independent or educational entity for assessing the financial capability of municipalities to implement a municipal separate storm sewer system permit. The state board shall oversee the use of the guidelines and shall make statewide recommendations upon the completion of the financial capability analysis.