BILL ANALYSIS                                                                                                                                                                                                    



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          SENATE THIRD READING
          SB 866 (Wolk and Steinberg)
          As Amended  August 11, 2014
          2/3 vote.  Urgency

           SENATE VOTE  :  Vote not relevant
            
           SUMMARY  :  Repeals the $11.14 billion bond for water-related  
          projects and programs that was drafted in 2009 (2009 Water Bond)  
          and replaces it with the Water Quality, Supply, and  
          Infrastructure Improvement Act of 2014 (2014 Water Bond), which  
          provides $7.195 billion in bond funding for water-related  
          projects and programs including $6.995 billion in new bond  
          funding and a reversion of $200 million in existing bond  
          funding.  Specifically,  this bill  :  

          1)Repeals the 2009 Water Bond, which is currently on the ballot  
            for November 4, 2014.

          2)Allocates $6.995 billion in new bond funding; reverts $105  
            million of unspent bond funds from the Safe Drinking Water,  
            Security, Clean Drinking Water, Coastal and Beach Protection  
            Act of 2002 (Proposition 84) to this Act; reverts $95 million  
            in unspent bond funds from the Safe Drinking Water, Security,  
            Clean Drinking Water, Coastal and Beach Protection Act of 2002  
            (Proposition 50) to this Act, for a total, by chapter, of  
            $7.195 billion for the following purposes (in billions):

            $0.500    Chapter 5 Clean Drinking Water
            $1.470    Chapter 6 Protecting Rivers, Lakes, Streams, Coastal  
            Waters & Watersheds
            $0.780    Chapter 7 Regional Water Security, Climate, &  
            Drought Preparedness
            $2.500    Chapter 8 Statewide Water System Operational  
            Improvement (Storage)
            $0.700    Chapter 9 Water Recycling
            $0.850    Chapter 10Groundwater Sustainability
            $0.395    Chapter 11               Flood Management

          3)Retains the administrative and other provisions from the 2009  
            Water Bond that relate to water storage including, but not  
            limited to:

             a)   Continuously appropriating water storage funding to the  
               California Water Commission (CWC), a governor-appointed  








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               body, and requiring the CWC to select projects through a  
               competitive public process; 

             b)   Empowering the CWC to fund the public benefits of  
               storage projects related to ecosystem and water quality  
               improvements, flood control, emergency response, and  
               recreation; and,

             c)   Prohibiting expending bond funds on environmental  
               mitigation, except environmental mitigation associated with  
               providing public benefits. 

           EXISTING LAW  :

          1)Enacts the 2009 Water Bond which, if approved by the voters on  
            November 4, 2014, authorizes $11.14 billion in bonds for the  
            following purposes (in billions):
            $0.455    Chapter 5 Drought Relief
            $1.400    Chapter 6 Water Supply Reliability
            $2.250    Chapter 7 Delta Sustainability
            $3.000    Chapter 8 Statewide Water System Operational  
            Improvement (Storage)
            $1.785    Chapter 9 Conservation and Watershed Protection
            $1.000    Chapter 10Groundwater Protection and Water Quality

            $11.140   TOTAL
             
           2)Creates a nine-member CWC within the Department of Water  
            Resources with each member appointed by the Governor, subject  
            to confirmation by the Senate, and serving four-year staggered  
            terms.

           FISCAL EFFECT  :  Unknown.  The state pays principal and interest  
          during the repayment period and cost will depend on factors such  
          as the actual interest rate paid, the timing of the bond sales  
          (bonds are often sold over a number of years), and the time  
          period over which the bonds are repaid.  Fiscal analyses of  
          recent bond measures assumes a 5% flat interest rate with a  
          30-year repayment period, yielding about $65 million annually in  
          principal and interest costs to the state for each $1 billion  
          borrowed.  Under that formula annual General Fund principal and  
          interest payments would equate to about $455 million.  In  
          addition, there is a one-time General Fund costs to the  
          Secretary of State for preparation of a statewide ballot  
          pamphlet.  That cost was previously estimated at around  








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          $200,000. 

           COMMENTS  :  The prior language of this bill, which related to a  
          tax on the distribution of fireworks, was deleted and it was  
          amended with language that would repeal the 2009 Water Bond and  
          place a new revised 2014 Water Bond on the ballot that is  
          structured to reduce its overall size and General Fund impact as  
          well as address many pressing policy issues that have emerged  
          since the 2009 Water Bond was negotiated.

          For a full history on the 2009 Water Bond that has been carried  
          over and, unless repealed or moved, is currently slated for the  
          November 2014 General Election, please see the Assembly Water,  
          Parks and Wildlife Committee's April 29, 2013 analysis of AB  
          1331 (Rendon) of the current legislative session.  

          Bond dollars represent tradeoffs.  The types of bonds that would  
          be sold under both the 2009 Water Bond and 2014 Water Bond are  
          general obligation bonds (G.O. bonds).  G.O. bonds are secured  
          on the full faith and credit of the State of California.  A bond  
          act represents authority for the state to go into the  
          marketplace and sell bonds, which are in essence a loan between  
          the state and the bond holder which must be repaid from the  
          State General Fund with interest.  The Public Policy Institute  
          of California (PPIC) in its March 2014 report, Paying for Water  
          in California, estimates that the current debt service on  
          water-related G.O. bonds is around $700 million per year and  
          "approaching the level of recent bond spending."  The  
          Legislative Analyst's Office, in a February 26, 2013 Overview of  
          State Infrastructure Bonds concluded that the state's average  
          annual cost for paying off the $11.14 billion 2009 Water Bond  
          currently on the ballot would be an additional $565 million per  
          year of General Fund debt service over the 40-year repayment  
          period.  

          Currently, over 90% of General Fund dollars are spent on K-16  
          education, health and human services, and corrections programs.   
          In addition, most of the taxes the State collects and spends are  
          transferred to local governments.  This "local assistance" is  
          used to pay for schools and for state health and welfare  
          programs (such as California Work Opportunities and  
          Responsibility to Kids, In-Home Supportive Services, and  
          Medi-Cal) that are administered at the local level.

          Support for a Water Bond on the Rise, Critical Funding Gaps  








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          Identified.  An April 17, 2014 release of a public poll by the  
          non-partisan PPIC advises that support for a water bond is on  
          the rise but the greatest support is for a slimmed down version  
          of a bond.  The PPIC notes that "Californians today are also  
          more likely than they were a year ago to favor an $11.1 billion  
          bond for state water projects.  As the legislature continues to  
          discuss the measure - now on the November ballot - 60% of adults  
          (up 16% from last year) and 50% of likely voters (up 8% from  
          last year) say they would vote yes.  Today, when those who  
          oppose the bond are asked how they would vote if the amount were  
          lower, support rises (69% adults, 59% likely voters).  A slim  
          majority of adults (52%) and 44% of likely voters say it is very  
          important that voters pass the bond."

          In a separate report the PPIC found that state faces critical  
          funding gaps in five key areas of water management. These areas  
          include safe drinking water in small, disadvantaged communities;  
          flood protection; management of stormwater and other polluted  
          runoff; aquatic ecosystem management; and integrated water  
          management.

          Major Issues with Differing Approaches in the Bond Proposals.   
          There have been many different water bond proposals in the  
          Legislature this legislative session including, but not limited  
          to AB 1331, AB 2686 (Perea) of the current legislative session,  
          and SB 848 (Wolk) of the current legislative session.  Those  
          bills varied in terms of the amounts of overall bond funding  
          being proposed and have ranged from a low of about $5.8 billion  
          to over $10 billion, including a recent proposal from Governor  
          Brown's Administration of $6 billion. The existence of so many  
          different bond proposals, including in both houses of the  
          Legislature and under the Administration, has allowed for a  
          robust and exhaustive discussion of current relevant funding  
          issues for water-related projects and programs.  As a result, it  
          is widely acknowledged that any successful bond proposal will  
          need to maintain a broad appeal with respect to the core issues  
          being funded while minimizing areas of contention that could  
          fuel opposition.  

          The areas of broad agreement in all of the bond proposals  
          include the need for:  adequate funds to help provide  
          communities with safe drinking water; continued investments in  
          Integrated Regional Water Management; expanded opportunities for  
          local water supply reliability through increased agricultural  
          and urban conservation, stormwater capture, water recycling and  








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          groundwater sustainability; and, additional investment in Delta  
          levees.  Unlike the other bond bills, this bill also recognizes  
          and funds additional investments in statewide flood management.

          Besides the overall size of any bond, the major areas of policy  
          disagreement have been:  1) the level of funding that will be  
          directed towards water storage and whether it should be  
          continuously appropriated; and, 2) the level of funding that  
          should be applied to projects and programs in the Sacramento-San  
          Joaquin Delta (Delta) and how any Delta funding relates, or does  
          not relate, to the Bay Delta Conservation Plan (BDCP) process.  

          Water Storage and Continuous Appropriation.  With California  
          currently experiencing a continuing drought, many stakeholders  
          have identified increased water storage as a key strategy to  
          combatting future water uncertainties.  Under many of the  
          current bond proposals both surface water and groundwater  
          storage projects would be eligible for funding.  However, new  
          water storage projects can be very costly, particularly surface  
          storage projects.  This has caused proponents of those projects  
          to seek to have money for storage continuously appropriated to  
          the CWC. 

          A continuous appropriation means bond funds are not subject to  
          the Legislative budget process and go directly to the entity  
          identified to receive them.  Proponents of continuous  
          appropriation for storage state this is necessary in order to  
          provide a level of certainty commensurate with the likely high  
          level of local investment.  However, opponents of large  
          allocations to surface storage feel those allocations could come  
          at the expense of investments in water quality and local water  
          supply reliability, such as increased water use efficiency and  
          water recycling.  Opponents of continuous appropriations also  
          maintain that the Legislature's role in the budget is an  
          appropriate check on the Administration and by extension the  
          CWC, who are all gubernatorial appointees.

          This bill allocates $2.5 billion to both surface water and  
          groundwater projects and continuously appropriates that funding  
          to the CWC utilizing eligibility provisions almost identical to  
          those in the 2009 Water Bond. 

          Delta Neutrality.  This 2014 Water Bond tries to be neutral with  
          regard to the BDCP.  The BDCP is a joint effort by Governor  
          Brown's Administration and several water agencies that receive  








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          export water supplies from the State Water Project (SWP) and  
          Federal Central Valley Project (CVP) to obtain 50-year  
          endangered species act permits for SWP/CVP Delta facilities  
          through a State Natural Community Conservation Plan and Federal  
          Habitat Conservation Plan.  

          The BDCP is a controversial project.  Supporters maintain that  
          the current proposed project will restore the Delta ecosystem  
          and secure California water supplies through the construction of  
          three new water intakes on the Sacramento River, two 40-foot  
          diameter water conveyance tunnels 30 miles long, over 150,000  
          aces of habitat restoration, and "other stressors" actions (such  
          as reducing non-native invasive species).  Opponents of the  
          current proposed project, which includes some environmental  
          groups as well as many organizations and entities located within  
          the Delta, believe it will decrease water supply and water  
          quality in the Delta, disrupt their communities, and impact  
          economic sustainability by removing agricultural land from  
          production.  In addition, they oppose the use of public bond  
          money for water purchases that would directly benefit water  
          exporters.  A similar program was previously implemented under a  
          provision of the now defunct CALFED Bay-Delta Program called the  
          Environmental Water Account (EWA). 

          This bill maintains Delta neutrality in three ways.  First, it  
          is the only water bond proposal that does not include a specific  
          "Delta Sustainability" chapter.  Instead it funds all statewide  
          ecosystem projects together in Chapter 6, Protecting Rivers,  
          Lakes, Streams, Coastal Waters, and Watersheds.  Second, it  
          gives specific policy guidance regarding Delta projects in its  
          general provisions.  Third, it specifies public processes and  
          specific parameters for instream flow purchases including  
          general requirements that flows must provide fishery or  
          ecosystem benefits that are in addition to, and not instead of,  
          existing environmental mitigation measures or compliance  
          obligations.  

          Under Protecting Rivers, Lakes, Streams, Coastal Waters, and  
          Watersheds this bill makes $1.47 billion available for  
          competitive grants for multibenefit ecosystem and watershed  
          protection and restoration projects in accordance with statewide  
          priorities.  This bill ensures a statewide distribution of funds  
          by dividing $302.5 million among all of the statewide  
          conservancies, including the Delta Conservancy, which is  
          governed by board that includes both local and State  








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          representation.  The general provisions of this bill give  
          further guidance to the Delta Conservancy, directing it to  
          achieve its conservation objectives on public lands or through  
          voluntary projects on private lands.  The general provisions  
          also direct the Delta Conservancy to coordinate, cooperate, and  
          consult with the city or county in which a grant is proposed to  
          be expended.  

          This bill also tries to address the need for some instream flow  
          purchases to benefit at-risk native fish while avoiding the  
          pitfalls of the former EWA program, which purchased most of its  
          water as short-term transfers handled internally by the State  
          Department of Water Resources in a non-public process.  In  
          contrast this bill allocates $200 million to the Wildlife  
          Conservation Board (WCB), an entity that makes its decisions  
          through a publicly-noticed process.  Those purchases are also  
          governed by general provisions in this bill addressing both  
          permanent dedications of environmental flows and long-term  
          transfers of not less than 20 years.  Both types of purchases  
          must be considered and approved by the State Water Resources  
          Control Board though its public hearing process.  

          This bill also provided $87.5 million to the Department of Fish  
          and Wildlife to benefit the Delta and requires consultation with  
          Delta cities and counties, and willing partners.

          In addition to the funds provided to the conservancies and WCB,  
          the watershed chapter of this bill provides $100 million for  
          urban creeks, $20 million to the Secretary of Resources for  
          urban watersheds, $475 million to the Secretary of Resources to  
          comply with the State's existing obligations related to:  the  
          Klamath Agreements; the Quantification Settlement Agreement,  
          including Salton Sea restoration; the San Joaquin River  
          Restoration Settlement Act; the Tahoe Planning Compact; and, the  
          State share for Central Valley Project Improvement Act refuge  
          and wildlife habitat area water supplies; and finally, $285  
          million to the Department of Fish and Wildlife for projects  
          outside the Delta.


           Analysis Prepared by  :    Tina Cannon Leahy / W., P. & W. / (916)  
          319-2096 


                                                                FN: 0004550








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