BILL ANALYSIS Ó AB 2480 Page 1 Date of Hearing: April 12, 2016 ASSEMBLY COMMITTEE ON WATER, PARKS, AND WILDLIFE Marc Levine, Chair AB 2480 (Bloom) - As Amended April 5, 2016 SUBJECT: Source watersheds: financing SUMMARY: Declares a state policy that source watersheds be recognized and defined as integral components of California's water system, and eligible for financing on an equivalent basis with other water infrastructure. Specifically, this bill: 1)Declares it to be established policy of the state that source watersheds are recognized and defined as an integral component of California's water system, and that the maintenance and repair of source watersheds are eligible for financing on an equivalent basis with other water collection and treatment infrastructure. 2)Defines eligible maintenance and repair activities to include the following forest ecosystem management activities: a) Upland vegetation management to restore watershed productivity and resilience. b) Wet and dry meadow restoration. AB 2480 Page 2 c) Road removal and repair. d) Stream channel restoration. e) Conservation of private forests to preserve watershed integrity through permanent prevention of conversion and degradation, achieved through conservation easements. f) Other projects with a demonstrated likelihood of increasing conditions for water and snow attraction, retention, and release under changing climate conditions. 3)Requires the State Water Resources Control Board (Water Board), in consultation with the Department of Water Resources (DWR), to develop investment plans that prioritize actions for restoration and conservation to improve watershed function in the watersheds that flow into the Shasta and Oroville Reservoirs. EXISTING LAW: 1)Authorizes DWR to operate and maintain the State Water Project (SWP) that provides water supplies for urban and some agricultural uses in the state. Funds from the sale of general obligation and revenue bonds have provided about 78 percent of the financing for construction of the SWP, repayment of which is made by SWP beneficiaries. The contractors repay water supply related costs of the SWP that include about 94 percent of the annual costs for operation and maintenance of SWP facilities. 2)Authorizes the issuance of bonds and loans to finance expenditures of the SWP, and authorizes DWR to enter into AB 2480 Page 3 contracts and establish prices, rates, and charges to produce the revenues needed to pay for the costs of operation and maintenance of the SWP. 3)Authorizes the Central Valley Project (CVP), a federal water project operated by the U.S. Bureau of Reclamation that provides water primarily for agricultural purposes but also supplies water for some urban uses in the state. 4)Requires DWR, in fixing and establishing prices, rates, and charges for water and power, to include as a reimbursable cost of any state water project an amount sufficient to repay all costs incurred for the preservation of fish and wildlife and determined to be allocable to the costs of the project constructed for the development of that water and power. Costs incurred for enhancement of fish and wildlife or for the development of public recreation are not included as reimbursable costs. 5)Authorizes DWR to use revenue bonds or other funds available for the purposes of the SWP to finance, in whole or in part, water conservation programs and facilities that reduce demands by the sponsoring contractor for project water from the system and increase the supply of project water available in the Delta for distribution. 6)Includes a state policy that the Legislature consider other works as may be necessary to develop water to satisfy the requirements of the watershed in which water originates whenever the Legislature authorizes the construction or acquisition of a project that will develop water for use AB 2480 Page 4 outside that watershed. FISCAL EFFECT: Unknown COMMENTS: This bill establishes a state policy that source watersheds are recognized as essential components of the state's water systems and that their maintenance and repair may be financed similarly to the ways in which other water collection and treatment infrastructure is financed. This bill also directs the Water Board to develop plans to maintain watersheds in the Klamath-Cascade Region that feed the Shasta and Oroville reservoirs, which, in turn, supply the SWP and CVP. 1) Author's Statement: California's complex water system, which includes the built infrastructure of dams, reservoirs, canals, pumps and pipes that deliver water throughout the state rely on a suite of financing options that provide the funding for necessary infrastructure costs. However, these projects rely on more than the built infrastructure to function. They also rely on the five watersheds above the dams to collect, treat and deliver that water to the dams. These watersheds include the Feather, Pit, McCloud, Upper Sacramento and Trinity River watersheds. While there is recognition that watersheds serve these functions, there is no policy of system of support for this natural infrastructure which is integral to, and supplies and complements, the built infrastructure. These watersheds are essential to ensuring the future of a well-functioning water system. There is also substantial scientific recognition that watershed condition affects the quality and quantity of water delivered by watersheds to dams. Enhancing the conditions of the watersheds would increase water quality by reducing sediment, lowering temperatures, and can also increase water quantity by as much as 5 to 20% depending on conditions. The current condition of these watersheds is suboptimal. Restoration and conservation of these watersheds has been sporadic and inadequate, and there is no comprehensive plan for their restoration and conservation to AB 2480 Page 5 support water security. The goal of this bill is to recognize the fundamental water system infrastructure role of source watersheds, and set the foundation for a comprehensive plan of restoration and conservation, with the potential of future financing such as revenue bonds and other financing mechanisms similar to those available for the built infrastructure. 2)Background: California's two largest water projects are the SWP and the CVP. The SWP is a water storage and delivery system of reservoirs, aqueducts, power plants and pumping plants that store and distribute water to urban and agricultural water suppliers in Northern, Central, and Southern California, parts of the Bay Area and Central Coast. Of the contracted water supply, 70 percent goes to urban users and 30 percent to agricultural users. The Project makes deliveries to two-thirds of California's population. The CVP is a federal water project operated by the U.S. Bureau of Reclamation. The CVP includes 22 reservoirs with a combined storage of 11 million acre-feet, of which 7 million acre-feet is delivered in an average year. In comparison, the SWP's 20 major reservoirs can hold 5.8 million acre-feet, with annual deliveries averaging up to 3 million acre-feet. CVP water irrigates more than 3 million acres of farmland and provides drinking water to nearly 2 million consumers. SWP deliveries are 70 percent urban and 30 percent agriculture, meeting the needs of 20 million Californians and more than 600,000 irrigated acres, respectively. The CVP has long-term contracts with more than 250 contractors in 29 out of 58 counties; while 29 agencies have 50-year contracts with the SWP. Background information provided by the author notes that watersheds are an essential part of the state's water systems, constituting the natural infrastructure that functions to collect, treat and transport water to reservoirs. The AB 2480 Page 6 Klamath-Cascade watershed in particular spans 10 million acres and serves as the headwaters of the Sacramento River and the source of much of the water that flows into the Delta. As the original source of the water for 25 million people and much of California's agricultural economy, the author and sponsors assert it is imperative that this watershed remain healthy. However, watersheds are impacted by numerous stressors, including drought, climate change, forest conversion, invasive species, fire risks and fire suppression, neglect, and inadequate forest management. Outside the Klamath-Cascade region, in other parts of the state the snowpack has been decreasing with that trend expected to continue into the next century. The Klamath-Cascade watershed receives 75% of the state's precipitation. According to the Pacific Forest Trust, ensuring continued healthy watershed function requires that 85% of the watershed remain intact as relatively natural forest. The Trust is working with private landowners in the region to conserve forests, and asserts that watershed protection through maintenance of healthy forests is the least costly and most effective approach to guaranteeing flows in the Sacramento River. Examples of productive watershed investments in other states include New York City, where investments in watershed protection through forest conservation reportedly saved the City between $6 and $8 billion over 10 years. In 1989 New York City faced the requirement that all surface drinking water sources undergo filtration unless human activities could be controlled within source watersheds. The City faced the choice of constructing new filtration facilities at an estimated cost of $8 billion for construction and $300 million in annual operating costs, or protecting upstate watersheds for a cost of $1 to $1.5 billion. Another example is the city of Denver which partnered with the U.S. Forest Service to invest in forest restoration and AB 2480 Page 7 watershed improvements after devastating fires and associated sedimentation cost the city $160 million in fire suppression, recovery and cleanup costs. The city is investing $16.5 million over five years on 38,000 acres of priority watershed lands critical to Denver's water supply. The restoration actions include forest thinning, removing roads, re-contouring land, and controlled burns. In another example closer to home, the San Francisco Public Utilities Commission indicates that it saves considerable costs that would otherwise be required for filtration of the City's water supply, by protecting the Hetch Hetchy watershed which is the source of much of the city's drinking water. The Pacific Forest Trust also asserts that conserving and restoring wet meadows in the Klamath-Cascade watershed could increase groundwater storage by hundreds of thousands of acre-feet annually. Mountain meadows act as natural sponges, soaking up water during the wet season and releasing it slowly in the dry season when demand is highest. By filtering sediment, storing water and regulating stream flow, wet meadows help ensure high quality supplies of water, and help relieve drought and flood risks. A February 2015 report by the Association of California Water Agencies (ACWA) entitled "Improving the Resiliency of California's Headwaters - A Framework" acknowledges that forests, meadows and source waters play a critical role in the state's water supply, including water supply reliability and improved water quality. With these areas at increasing risk of wildfires and other threats, ACWA stresses the pressing need for actions to help safeguard California's future water supply reliability and water quality. The report's recommendations include: 1) improving headwaters management as a high priority, 2) prioritizing funding for proactive headwaters improvements and substantially increasing restoration efforts, 3) better realignment and water resource management expertise among the Board of Forestry and CalFire, 4) incorporating headwaters management strategies into land use planning, 5) updating and optimizing multiple benefits of AB 2480 Page 8 tools such as forest thinning, vegetation management and controlled burns, 6) investments in landscape-level research on water and forests, and 7) promotion of biomass as a potential source of revenue for headwaters protection. 3)Prior and Related Legislation: AJR 24 (Dahle), Chapter 112, Resolutions of 2013, encouraged state and federal agencies with jurisdiction over forest resource management to collaborate across jurisdictions with regard to landscape-scale efforts to maintain and restore California's forests to protect the state's natural resources and water supply, including watersheds, for future generations. AB 1471 (Rendon), Chapter 188, Statutes of 2014, authorized over $7 billion in General Obligation bond funds for various water needs, including $1.45 billion for multi-benefit ecosystem and watershed protection and restoration projects. The purposes of these expenditure authorizations include: 1) to protect and increase the economic benefits arising from healthy watersheds; and2) to implement fuel treatment projects to reduce wildfire risks, protect watersheds tributary to water storage facilities, and promote watershed health. 4)Support Arguments: Supporters assert this legislation is critical to supporting natural infrastructure improvements for source watersheds in the state. Watersheds are an essential part of the state's water systems, constituting the natural infrastructure that collects, treats, and transports water to reservoirs. Supporters emphasize that watersheds in California are in sub-optimal condition, threatening water security. This is especially true with the increased stresses of on-going drought and climate change. Watershed restoration and conservation will help prevent degradation, maintain and enhance reliability, improve water quality, and, in some cases, increase the quantity of water flowing into the state's reservoirs. Healthier watersheds also help regulate the timing of flows into reservoirs, extending flows later into AB 2480 Page 9 the year. California does not currently have a comprehensive plan for financing or improving watershed function to support its water systems, yet the state does provide for comprehensive financing of the built infrastructure of water systems. This bill will lay the foundation for development of a comprehensive watershed investment plan that will provide environmental and social co-benefits. 5)Opposition Arguments: None received. REGISTERED SUPPORT / OPPOSITION: Support Audubon California Bear-Yuba Land Trust California League of Conservation Voters Defenders of Wildlife Mono Lake Committee Pacific Forest Trust (sponsor) Sequoia Riverlands Trust AB 2480 Page 10 Trust for Public Lands Wholly H2O Opposition None on file. Analysis Prepared by:Diane Colborn / W., P., & W. / (916) 319-2096