Legislative Analyst's Office
Presented to: Senate Budget and Fiscal Review Committee Hon. Mark Leno, Chair
Summary of Administration’s Major Water-Related Proposals for 2015-16
Drought Proposals
Recent Expenditures on Drought. The Legislature appropriated a total of $839 million (mostly bond funds) for various drought-related activities in 2013-14 and 2014-15. As of January 2015, the administration had expended $234 million (27 percent) of that amount.
Governor’s Proposal. The Governor’s 2015-16 budget requests $115 million ($93.5 million General Fund) in one-time funds across five departments for similar drought-related activities.
LAO Comments on Drought Proposals
Generally Reasonable Response to Problems Caused By Drought. The Governor’s proposals generally address significant problems that have arisen during the drought and incorporate some lessons learned from previous drought-related activities.
Funding Required Will Depend on Future Hydrologic Conditions. Water conditions—and therefore resource needs for drought activities—for 2015-16 will be determined by the amount of precipitation that falls in the next few months.
Responding to Drought as an Emergency Creates Problems. Droughts recur periodically in California. However, many state agencies and some local agencies do not have programs and procedures in place to plan for droughts, unlike for other disasters.
Consider Actions Needed to Improve Resilience to Future Droughts. The Legislature may want to consider changes to California’s water system that would improve the state’s resilience to dry conditions. For example, the Legislature could consider enhancing ongoing monitoring and enforcement of the water rights system so that the state does not have to take emergency actions to rapidly ramp up those efforts during droughts.
LAO Comments on Implementing Proposition 1
Key Principles for Implementing Proposition 1. Three guiding principles to inform how money is allocated to projects in order to promote transparency and ensure better outcomes are to focus on (1) furthering state priorities, (2) funding cost-effective projects, and (3) ensuring accountability and oversight.
LAO Recommendations. While the Governor’s proposals are generally consistent with the intent of the bond, we recommend steps to better ensure that the most cost-effective projects are selected for funding and that sufficient oversight and evaluation is provided. Some of our key recommendations include:
Ensure Funding Targeted to State-Level Public Benefits. Since bonds will be repaid with state tax revenues, funds should be directed to projects that provide benefits to the state as a whole, not private beneficiaries. We recommend the Legislature specify what portion and type of activities should be considered as providing state-level public benefits.
Require Robust Cost-Effectiveness Criteria for Project Selection. We recommend that administering departments follow certain practices to evaluate cost-effectiveness, such as requiring grantees to use consistent evaluation methods.
Require Departments to Submit Staffing Plans for All Bond-Related Activities. Only some of the administration’s proposals for positions to support Proposition 1 activities specify whether they took declining workload from other bonds into account when determining how many positions to request.
Facilitate Oversight of Projects, Programs, and Outcomes. We recommend that the Legislature require departments, prior to finalizing program guidelines, to identify how the data they are collecting will allow the Legislature and the public to hold departments accountable for their outcomes.
Background on Proposition 1E. In November 2006, voters passed Proposition 1E, which made $4.1 billion in general obligation bonds available for flood protection activities. The measure requires all funds to be appropriated by July 1, 2016. The Legislature has appropriated all but $1.1 billion of this funding, but based on the latest data available, only $1.9 billion of Proposition 1E funds had been expended or encumbered (committed to projects) as of June 2013. The Department of Water Resources (DWR) estimates that the total need for flood control funding in the Central Valley is between $14 billion and $17 billion.
Governor’s Proposal. The Governor proposes $1.1 billion (nearly all from Proposition 1E) for DWR to support various flood control activities. Unlike with prior appropriations, the proposal does not identify specific projects that would be funded. The DWR would have ten years to encumber the funds (commit to projects) and an additional two years to expend them. The department would also be able to transfer funds between state operations, local assistance, and capital outlay projects as it deems necessary.
LAO Comments on Proposition 1E Proposal
Significantly Reduces Legislative Involvement and Oversight. Under the proposal, the administration would be able to direct funding to currently unknown projects and shift funding away from currently planned projects without justification and legislative approval. Compared to current budgeting practice, this would significantly limit the Legislature’s ability to direct funding to its priorities and oversee how those funds are spent.
Establishing Legislative Priorities Is Key Given Large Demand. Prioritizing among flood projects inherently involves weighing the reduction in flood risk with various other factors, including (1) how much to rely on local and federal contributions, (2) how quickly projects can be initiated, (3) how to value environmental and other state-level benefits, (4) reducing state financial liabilities related to levee failures, and (5) how much funding should support shorter-term planning activities versus projects.
Does Not Address Problems That Led to Delay. According to DWR, the state has faced challenges to initiating and completing Proposition 1E projects, including (1) securing local and federal cost shares, (2) identifying suitable projects, and (3) securing permits needed to complete projects. While lengthening the appropriation as proposed might allow the state to fully expend the bond funds, it does not fundamentally address the problems that led to the current situation.
Options for Funding Flood Protection Projects
Legislature Has Several Options. The Legislature has various options when considering how to fund flood protection projects. These options balance legislative oversight and impacts to the General Fund in different ways.
Fund Flood Protection on a Pay-As-You-Go Basis
Funding flood protection projects on a pay-as-you-go basis would entail paying for projects upfront, instead of borrowing. This would allow the Legislature to exercise its traditional project approval and oversight roles through the budget process. While this could increase costs somewhat in the near term—compared to relying on bonds—it would avoid the long-term General Fund costs of paying interest on bonds.
Funding sources could include (1) General Fund (same source as debt service payments on bonds) or (2) a new charge on beneficiaries, such as communities that are protected by the levees.
Modify Governor’s Proposal to Provide Greater Control and Accountability
Legislature could modify the Governor’s proposal to (1) require annual reporting on projects and expenditures, (2) require legislative review of projects prior to encumbering funds, and (3) prohibit transfers to state operations (except levee maintenance). This would provide greater accountability than the Governor’s proposal, but would still be less than under current budget practice.
While this option would allow for the use of the remaining Proposition 1E funds, it would be more costly than pay-asyou-go in the long run.
Combination of Above
The Legislature could appropriate Proposition 1E funds for specific projects in 2015-16 and 2016-17, prior to the deadline. For 2017-18 and beyond, the Legislature could appropriate funding on a pay-as-you-go basis.
This would allow the Legislature to fully maintain its traditional oversight role and allow the use of some Proposition 1E funds. It could be more expensive when the state begins relying on pay-as-you-go, but less expensive in the long run.
