October 2, 2019 -- Client Alert
On September 5, 2019, the Governor signed Assembly Bill 305 (“AB-305”), which amends the Government Code for the purpose of issuing rate reduction bonds for specified water projects. Assembly Bill 1298 (“AB-1298”) and Senate Bill 45 (“SB-45”) are both still pending before the California legislature but, if adopted, would enact bond acts to be voted on in the upcoming 2020 statewide primary or general elections. Individually and collectively, all three bills aim to provide additional funding through the issuance of bonds for water and conservation projects.
Under existing law, two or more public agencies may enter into a joint powers agreement to issue rate reduction bonds for publicly-owned utilities to finance water conservation or utility projects. In the context of AB-305, rate reduction bonds refers to “bonds that are issued by an authority, the proceeds of which are used directly or indirectly to pay or reimburse a local agency or its publicly owned utility for the payment of the costs of a utility project, to refund rate reduction bonds, or to refinance water or wastewater revenue bonds of a local agency or publicly owned utility issued to finance a utility project, and that are secured by a pledge of, and are payable from, utility project property.” The agencies must determine that the rates of the publicly owned utility, with the financing from the rate reductions bond, will be lower than the rates of the utility if the project were financed differently.
Effective January 1, 2020, AB-305 expands the types of publicly-owned utilities that may issue rate reduction bonds to include those that provide wastewater services. In doing so, the bill provides more publicly-owned utilities the ability to fund groundwater clean-up projects. AB-305 also expands the types of projects that may be financed to include utility projects that facilitate the use of wastewater for conservation purposes and recycling.
Moreover, local agencies with a public utility that has 500,000 or more retail customers need only to make a determination that the use of rate reduction bonds to finance utility projects will provide substantial benefits to the public utility. For example, such benefits might include “lower interest rates on rate reduction bonds and more favorable capitalization and debt service coverage ratio treatment that results in gross or present value lifetime savings for the public utility.” In its application for funding, the local agency must specify the utility project to be financed by the rate reduction bonds, the maximum principal amount, the maximum interest rate, and the maximum stated terms of the rate reduction bonds.
This bill was sponsored by the Los Angeles Department of Water and Power (“LADWP”).
If adopted, AB-1298 establishes the Climate Resiliency, Fire Risk Reduction, Recycling, Groundwater and Drinking Water Supply, Clean Beaches, and Jobs Infrastructure Bond Act of 2020 (“Act”). If enacted, the Act would be submitted to California voters at the November 3, 2020, statewide general election. Upon approval by the voters, this Act would authorize the issuance of bonds to finance a climate resiliency, fire risk reduction, recycling, groundwater and drinking water supply, clean beaches, and jobs infrastructure program.
AB-1298 would provide funds through grants to local agencies for the removal of groundwater pollution, improvements to drinking water, and expansion of flood control. Examples of eligible projects are those that implement a storm water resource plan or projects that implement an integrated regional water management plan. In addition, AB-1298 would also allocate funds for the protection of river-ways and coastal economies.
SB-45 would seek to establish the Wildfire Prevention, Safe Drinking Water, Drought Preparation, and Flood Protection Bond Act of 2020. If approved by California voters in the March 3, 2020 statewide primary election, the State may sell $4.3 billion in general obligation bonds to be allocated towards various conservation projects with the allocation of $1 billion to reduce wildfire risk, $600 million to protect water supply and quality, and $200 million to the Office of Emergency Services to restore areas impacted by wildfire, flood, and other natural disasters. Before a grant is approved, the state must find the expenditure will positively impact the environment. For example, such findings might include a showing that the expenditure will lead to a reduction of the risk of wildfire, flood, sea level rise, unhealthy exposure to heat or air pollution, or that the expenditure will help improve the resilience of a community’s water supplies or provide safe drinking water or clean water benefits.
Eligible applicants are public agencies, nonprofit organizations, park and open-space districts and authorities, resource conservation districts, joint powers authorities, tribes, entities responsible for implementing natural community conservation plans or regional habitat conservation plans, and regional collaborations for climate adaptation.
Senator Allen – Santa Monica, introduced SB-45 as a “necessary investment” that will help to provide funding to reduce the impact of climate-related natural disasters and to restore damaged coastal resources and other impacted areas. If approved, the act will cap administrative costs of grant programs to no more than 5% of the total fund allocation or 10% for approved disadvantaged community projects.
For further information, please contact Christine Carson from Aleshire & Wynder, LLP’s Water Law Practice Group at (949) 223-1170.
Disclaimer: Aleshire & Wynder, LLP legal alerts are not intended as legal advice. Additional facts or future developments may affect subjects contained herein. Please seek legal advice before acting or relying upon any information in this communication.