This bill mandates the New Jersey Department of Environmental Protection (DEP) to establish a process for identifying and designating municipalities with critical headwaters as "headwater guardians" within one year of the bill's effective date. A critical headwater is defined as one that serves as a primary source of drinking water for at least 1,000,000 residents, according to the latest federal census. The DEP is required to consider various environmental factors, such as watershed significance and water quality, when designating these critical headwaters. Once designated, municipalities will be recognized for their role in providing clean drinking water and may be subject to necessary environmental protections to maintain the health of these water sources.

Additionally, the bill outlines that the DEP must publish a list of designated headwater guardians and determine any required environmental protections within six months of designation. All designations and protection determinations will undergo a public comment period of at least 30 days. The bill also allows the DEP to highlight municipalities demonstrating exemplary stewardship and requires the department to submit an annual report to the Governor and Legislature detailing headwater guardian designations, environmental protections, and recommendations for improving the designation process. Overall, the bill aims to enhance municipal recognition for protecting headwaters while promoting cost savings through improved flood resilience and reduced infrastructure costs.