EMWD Board Briefing October 18, 2017 Governance Concepts: The Challenge of Providing Safe Drinking Water to Communities Served by Chronically Non-Compliant Systems EMWD Board Briefing October 18, 2017

What is the Problem We’re Trying to Solve? Approximately 306 systems in the State of California chronically serve contaminated water or cannot provide reliable water service due to unsound infrastructure/operations The deficiencies vary: natural contaminants, man- made contaminants, failing infrastructure Many of these are very small systems in disadvantaged communities These systems and the communities they serve have limited financial, managerial and technical resources Estimated supplemental funding needs are variable and single-solution (status quo) based

What are the Root Causes of the Problem? Natural and man-made contamination, changing supply conditions and deteriorating systems Inability of system owners, managers and operators to adjust, implement solutions, or repair infrastructure Inefficient deployment of existing system financial resources and potential funding shortfalls The continued existence and proliferation of very small mutual, private and public water systems with high overhead and limited resources Inadequate statutory mechanisms (SWRCB, LAFCO, legislation etc.) to compel solutions

Finding a solution that best fits the problem and will lead to sustainable success

What are the Statistical Dimensions of the Statewide Challenge? Non-compliant systems (Population)* Number of Systems Percent 10,000 or greater 9 3% 1,000 to 9,999 41 13% 100 to 999 155 51% Under 100 101 33% Total = 306 84% of the non-compliant systems serve less than 1,000 people (~ 400 services) * SWRCB State Drinking Water Data Base, July 2017 database Approximately 70% of these non-compliant systems are privately owned or mutual water companies

Water Systems in California with Contaminant Exceedance What are the Common Issues and Challenges with These Non-Compliant Systems? Limited technical, managerial and financial capabilities Relatively high administrative overhead Small “orphan” systems - geographically dispersed Consolidation, regionalization and mutual aid too complex and daunting Public/private/mutual/JPA incompatibility No willing larger host agency Mutual and private systems receiving public money “bail-out” for failure Disincentive to maintain, invest Public funds enhancing privately held assets Water Systems in California with Contaminant Exceedance Governance is a foundational problem that must be addressed before funding needs are established

How might a “Regional Small System Water Authority” work? Could be formed by legislature under special statute: Multiple non-contiguous system boundaries under one consolidated public entity Independent Special District County or sub-county level Statutorily provide enhanced financial capabilities and access to external financial resources Out of compliance mutuals, privates or small publics receiving public funding required to dissolve and join Representative governance (directors by division or former agency)

“Regional Small System Water Authority” Concept Benefits Consolidation provides efficiencies of scale Larger staff with technical/managerial expertise Improved internal and external financial resources Public, transparent governance Not a forced consolidation between unequal parties Substantial reduction in number of small systems Example Grouping of Non-compliant Systems MWC or Private Public Agency School 17 systems 6 systems 18 systems

“Regional Small System Water Authority” Concept - Financial Benefits and Potential Enhancements Internal Rates and charges with larger rate base Levies and assessments Special benefit assessments Pollution liability assessments General Obligation (G.O.) taxing authority with reduced approval threshold Standby charges Public debt, supported by statutory State credit guaranty External Preferential/High Priority state grants from bonds SRF Principal Forgiveness Donation of underlying assets from absorbed entities General Fund short-term transfer for start-up Funding Gap?? After formation, trigger review of need for supplemental funding options: Fertilizer and Dairy assessment? Public Goods Charge? General Fund?

Contact Information Paul D. Jones II, P.E. General Manager (951) 928-6130 jonesp@emwd.org Debby Cherney Deputy General Manager (951) 928-6154 cherneyd@emwd.org Danielle Coats Senior Legislative Program Manager (951) 928-3777 coatsd@emwd.org