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, as determined by the most recent 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 the DEP will assess whether any environmental protections are necessary to maintain the health of these water sources.

Additionally, the bill stipulates that all designations and environmental protection determinations will undergo a public comment period of at least 30 days. The DEP is also authorized to create a program to recognize municipalities demonstrating exemplary stewardship of their watersheds and may provide grants or technical assistance to support these efforts. Furthermore, the DEP must submit an annual report to the Governor and Legislature detailing headwater guardian designations, required environmental protections, and recommendations for improving the designation process, among other outcomes. The bill aims to enhance municipal resilience and reduce long-term infrastructure costs without imposing new mandates, thereby promoting the protection of critical water resources.