BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
SB 848 (Wolk) - Safe Drinking Water, Water Quality, and Water
Supply Act of 2014
Amended: February 20, 2014 Policy Vote:NR&W 6-0, EQ 6-2,
Gov&F 5-2
Urgency: Yes Mandate: No
Hearing Date: May 19, 2014 Consultant: Marie Liu
This bill meets the criteria for referral to the Suspense File.
Bill Summary: SB 848 would replace the current $11.1 B water
bond on the November 2014 ballot with a $6.825 B water bond
titled the Safe Drinking Water, Water Quality, and Water Supply
Act of 2014.
Fiscal Impact:
Annual debt service payments of $440 million (General Fund)
for 30 years.
Unknown cost pressures of at least $1.1 million (General
Fund) for necessary administering agency activities that
cannot be paid for by its administrative portion of bond
monies or exceeds the 5% cap.
Background: In November 2009, the Legislature passed and the
Governor signed SBx7 2 (Cogdill). This bill, which was titled
the Safe, Clean, and Reliable Drinking Water Supply Act of 2010,
placed an $11.14 B general obligation bond on the November 2010
ballot to fund drought relief, water supply reliability, Delta
sustainability, statewide water system operational improvement,
conservation and watershed protection, groundwater protection
and water quality, and water recycling. This bond proposal has
been amended three times, including twice delaying the placement
of the bond before the voters. The proposal is currently slated
to appear on the November 2014 ballot.
The voters have approved a number of water bonds over the past
three decades, specifically the California Safe Drinking Water
Bond Law of 1986; the California Safe Drinking Water Bond Law of
1986; the Safe, Clean, Reliable Water Supply Act of 1996; and
the Safe Drinking Water, Water Quality and Supply, Flood
Control, River and Coastal Protection Bond Act of 2000. However,
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not all of the approved bond monies have been issued or
expended.
Proposed Law: This bill would repeal SBx7 2, and instead enact
the Safe Drinking Water, Water Quality, and Water Supply Act of
2014 (act), which allows the Treasurer to issue $6.825 billion
in bonds to fund the act's purposes, upon voter approval. These
funds are distributed as follows: (only provisions discussed in
staff comments are noted)
Chapter 4 : $900 million for safe drinking water and water
quality projects
a.Would require the State Water Resources Control Board (SWRCB)
to develop criteria to enable the use of $2.5 million of the
funds available to the Drinking Water Capitol Reserve Fund
that may be used as matching funds for small, disadvantaged
communities (�79720(e)).
Chapter 5: $2 billion for water supply enhancement projects
b.Would allow for competitive grants to be issued for the
development, improvement, or implementation of an integrated
regional water management plan (IRWMP) (�79731). Would require
the that an urban and agricultural water supplier have an
urban or agricultural water management plan (UWMPs, AWMPs)
that is certified by the Department of Water Resources (DWR)
as having met the requirements of the Urban Water Management
Planning Act or the Agricultural Water Management Planning Act
in order to be eligible for the IRWMP grants. A similar
requirement would be established for groundwater management
plans (GWMPs) (�79731(c)(2) and (3)).
c.Would require eligible applicants for IRWMP grants to have a
water budget that describes local and imported water supplies.
DWR would be required to develop guidelines for compliance
with this provision.
d.Would make available $500 million to the SWRCB for competitive
grants for projects that develop, implement, or improve a
stormwater capture and reuse plan. (�79735)
Chapter 6: $1.2 billion for the Sacramento San Joaquin Delta
e.Would make available funds for scientific studies and
assessments that support the Delta Science Program.
(�79742(a)(5))
Chapter 7: $1.7 billion in watershed and ecosystem improvements
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Chapter 8: $1.025 billion in water storage projects
f.Would require the California Water Commission, in consultation
with the Department of Fish and Wildlife (DFW), the SWRCB, and
DWR to adopt regulations that establish methods for
quantification and management of public benefits. The
regulations would be required to include the priorities and
relative environmental value of ecosystem benefits provided by
DFW and of water quality benefits as provided by the SWRCB.
General Provisions:
g.Administrative costs are limited to 5% of the bond. Up to 10%
of funds allocated for each program may be used to finance
planning and monitoring necessary for the successful design,
selection, and implementation of the programs authorized under
that program.
h.All funds made available by this bond are upon appropriation
by the Legislature.
i.The Delta Conservancy would be authorized to develop and
implement a "competitive habitat credit exchange" mechanism in
order to maximize voluntary landowner participation in
projects that provide measurable habitat or species
improvements in the Delta."
j.Directs agencies to develop project solicitation and
evaluation guidelines prior to disbursing grants or loans,
although agencies may use previously developed guidelines.
aa. Requires agencies to conduct three public meetings
to consider public comment prior to disbursing funds.
bb. Prohibits funds from being used to reduce any
party's mitigation responsibilities.
cc. Requires the State Auditor to conduct an annual
programmatic review and expenditure audit.
dd. Allows the Legislature to appropriate funds from
bonds passed in 2000 and earlier.
Staff Comments:
Bond indebtedness: Assuming an interest rate of 5% and the
issuance of 30-year bonds, a $6.925 billion dollar bond will
require annual debt service payments of $440 million. The total
bond cost with principle and interest would be $13.319 billion.
Administrative costs and cost pressures: This bill would allow
up to 5% of the bond funds to be used for administrative costs,
which would include annual audits by the State Auditor
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(provision m). While 5% is generally sufficient for most
programs, the limit on administrative cost inherently caps the
amount of program oversight that the administering agency can
do, including evaluating the overall program and responding to
audits. There are also situations where 5% is not sufficient for
administration - primarily smaller grant programs where there
may be many grants for small amounts of money. In these cases,
administrative monies can be exhausted before all required
project agreements are even executed, leaving no available funds
for oversight. Thus, while the administrative cap provides more
money for projects, there are some consequences to program
oversight, and sometimes basic administration.
This bond also has several provisions that require activities of
the administering agency that are outside of direct
administration of the bond, and thus will likely have to be
funded from another source. Unless a special fund can be
identified for these activities, there will be cost pressures on
the General Fund of a total of at least $1.1 million (specified
below). Staff notes that the bond language could make these
activities eligible administrative costs, but at the potential
expense of other oversight activities or available program
money.
Provision b: This bill would require that must have an UWMP,
AWMP, or GWMP that is certified by DWR in order to be
eligible. Currently, DWR only reviews UWMPs and AWMPs to check
to see if they have all the required elements. DWR does not
verify accuracy or comment on merit. To "certify" the UWMPs
and the AWMPs suggests greater review and analysis of the
plans. DWR would be pressured by applicants to complete this
activity as it is a condition of eligibility for bond funds.
There are approximately 440 plans in the state. Actual costs
are unknown because it is unknown how many of these water
suppliers will be interested in applying for bond funds and
how long each review might take. Assuming each review takes
three weeks of staff time to review, and 25% of the water
suppliers are interested in applying for funds, DWR would
likely need approximately 7 PYs to complete the review in one
year at a minimum cost of $800,000.
Provision c: DWR will have to develop guidelines for the
development of a water budget, at an estimated cost of
$50,000.
Provision f: The requirement for the development of priorities
and relative value of ecosystem benefits by DFW has already
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been developed as part of other Delta-related work. However,
the priorities and relative environmental value of water
quality benefits still need to be identified by the SWRCB.
This activity is estimated to cost at least $260,000.
Do the benefits last the length of the bond?
Existing law (�16727 of the Government Code) essentially
provides that general obligation bonds, such as the one in this
bill, are to be used for capital purposes. This provision aims
to ensure that the benefits of a project at least roughly match
the period during which the bond must be repaid. Bonds are best
used for large, discrete capital projects that would ordinarily
not be able to be supported by ongoing funding mechanisms and
that meet a need over several decades. Using bond funds to pay
for operations and maintenance or for short-lived projects in
essence dramatically increases the cost of that project compared
to using non-bond funds.
The following provisions raise questions whether bond monies are
the most beneficial source of funding:
Provisions b and d: would provide money for planning
activities. Planning projects are not capital costs, however,
they can have long-term benefits if they are followed and
implemented.
Provision e: Would make available funds for scientific studies
and assessments that support the Delta Science Program. While
such scientific studies can provide important information,
bond funds may not necessarily be the most efficient source of
funding
Provision i: would explicitly authorize "competitive habitat
credit exchange" as an appropriate use of Delta Conservancy
money (�79778(d)). Because there is no existing statutory
direction on such exchanges, it is unclear on whether these
projects have long-term benefits.
Staff notes, especially in regards to provision b and d, the
availability of state money to implement a plan often serves as
an incentive for a local entity to voluntarily create that plan.
Providing grants for the development of plans removes this
incentive and arguably punishes those entities who have taken
the early initiative to create the plans.
Other issues :
In past bonds, including Proposition 84, the Legislature
required the repayment of any state costs granted to a project
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that are subsequently recovered from parties responsible for
the contamination that necessitated the project. Staff
recommends such a provision in the general provisions or in
Chapter 4.
Provision a: The provisions in Chapter 4 that would set aside
$2.5 million for the purpose of serving as matching funds for
small, disadvantaged communities needs to be clarified. As a
requirement of receiving federal grants, recipients need to
have a capital reserve to demonstrate their technical,
managerial, and financial capacity. However, for small,
disadvantaged communities, establishing a capital reserve with
a relatively small rate base while keeping rates affordable
can be an unsurmountable barrier. The intent of this section
is to allow state bond monies to be used as seed money for a
pooled capital reserve among small water systems and state
small water systems. By pooling reserves, participating
systems can collect sufficient financial capacity from its
ratepayers over an affordable schedule. Staff recommends that
this intent be clarified and that the provisions specify that
the bond monies would only be utilized if there are
insufficient deposits from the participating systems and that
any bond monies that have not been utilized by January 1, 2024
may be used for the other purposes specified for the Drinking
Water Capitol Reserve Fund.