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Water Water Everywhere Four: The Bond

18 January 2010 California Progress Report
by Sheila Kuehl

Sheila Kuehl served for eight years in the State Senate and six years in the State Assembly. Senator Kuehl served as chair of the Senate Natural Resources and Water Committee from 2000-2006. Her website is  www.sheilakuehl.org

(Fourth is a series of four essays describing the five separate pieces of water legislation passed by the California legislature in late 2009 and signed by the Governor)

The Eleven Billion Dollar Question

Despite the fact that California is hocked up to its eyeballs in debt, an eleven billion, one hundred and forty thousand dollar water bond is proposed for the November ballot this year.  As set forth below, the bond would fund various projects, some of them very good for the people of the state and some benefiting only certain areas.

Most important, however, is the fact that these bonds are not to be sold as revenue bonds.  Revenue bonds are paid off by revenue streams created in the bond or those already in existence.  In the case of water, for instance, revenue for paying off bonds could come, as it has in the past, from water districts, water users, or ratepayers who benefit from the bond.  This kind of financing is generally called "user pays".

These bonds, in contrast, were adopted to be put out as general obligation bonds, which means that taxpayers would foot the bill for an interest payment of up to $600 million dollars a year, when the bonds have been fully subscribed.

This is a difference that makes a difference.  Over the last several decades, there has been a continuing effort on one side of the water wars to eliminate subsidies by taxpayers for water projects (except for flood control) so that those who benefit from water projects would actually pay for them.  This creates an incentive, in economic terms, to make rational decisions on how to balance the cost of acquiring water with the price of water to ratepayers.  When taxpayers pay for projects, however, there is really no incentive to make these decisions.

The Basic Elements, plus sweeteners and matches

The individual chapters of the bond language set out the amount which may be used for various kinds of projects and also the required non-state funding match in each category.  In addition, the bond provides that up to 5% may be used for administrative costs and up to 10% may be used for planning, both fairly standard on construction type bonds.  None of the bond money may be used to pay for environmental mitigation measures or compliance with environmental laws unless these costs are directly related to the projects being financed by the bond.  None of the bond money may be used for any aspect of planning or building an alternative conveyance measure to move water around, as opposed to through, the Delta.

Drought Relief:  450 million dollars, with a required non-state match of 190 million.  This section of the bond is one of the more interesting, given what is rather quietly tucked away under the plain language.  In plain, up-front language, the bond provides that 190 million of this particular packet of money may be spent on water conservation and efficiency projects, water recycling and groundwater cleanup.  However,  in an unexplained generality, the language provides that the money may be also used for "local and regional conveyance projects that improve water supplies....".   This is interesting because, without actually saying so, it opens the possibility of the construction of local and regional canals that should be paid by water district monies but would be paid now by public monies.  

For instance, money could be made available through this section to pay for a long-standing dream of the Friant Water District: to get taxpayers (rather than ratepayers) to pay for a cross Central Valley canal to connect the Friant Water District to the State Water Project (the California Aqueduct), a real gift to that district.

In the past, provisions such as these, buried in bonds, have allowed individual water districts to benefit even when the great majority of Californians get nothing out of it. The Westlands Water District, for instance, which is made up, as the Fresno Bee put it, of about "600 farmers" covers a region about twice the size of Los Angeles and has, according to that paper, an inordinate amount of influence in putting together any water deals.  An article in the Golden Gate University Environmental Law Journal opined that Westlands had managed to score over a billion dollars in the past in public monies for canal construction and crop subsidies.  The conveyance language in this section of the bond could lead to similar results.

Also included in the "drought relief" section of the bond is 100 million for "local and regional water projects including surface storage" which means dams, even though dams are also specifically funded in a later section.

Reliability and Conveyance:  Almost a billion and a half is allocated by hydrologic regions (north bay, central coast, Los Angeles, etc.) in this section, with an additional 350 million for "regional conveyance projects", another opportunity for canals that benefit limited regions, with no fiscal impact on the ratepayers.  This section requires a 50/50 match of non-state funds.

Delta Sustainability: 2.25 billion is set out for ecosystem restoration and local improvements, including levees.  750 million is required to match.

Dams:   There are more than 1,000 dams now in California.  Even though there is no real data to show that increased storage will actually help further insure water delivery reliability, and there is data to show that many dams have had environmentally detrimental effects, the Governor made it clear that he would refuse to sign any water legislation unless there was money for dams.  Consequently, in the proposed bond, 3 billion is set aside for the "public benefit" portion of storage projects (dams) and groundwater projects.  These dams have to be characterized as having a "public benefit" even though, again, they are constructed to help a particular water district or region.  Three dams are mentioned most often as possibilities for the new money: an expansion of Los Vaqueros Reservoir in Contra Costa County, the Temperance Flat dam on the San Joaquin River above Friant Dam, and Sites Reservoir, which would flood the Antelope Valley in Colusa County.   The most interesting part of this piece is that, historically, no dam has been built with taxpayer money in California.  These would be the first.  Requires a 50% match from non-state funds.

Watershed and Coastal Protection: 1.785 billion for ecosystem and watershed protection and restoration projects in all the defined watersheds and the same in matching funds.  250 million of these funds are to be made available to the State Coastal Conservancy for coastal projects including not less than 40 million for San Diego county and 20 million to the San Diego River Conservancy.  (see below for the projects added to get the votes in the Assembly). 215 million is appropriated to the Wildlife Conservation Board for protection or restoration of watershed lands or rivers and streams that support species listed as threatened or endangered.

Groundwater cleanup and water recycling:  One billion for groundwater cleanup and water quality improvement.  Another billion for water recycling projects.  This latter allocation includes a good deal of money for efficiency and conservation.

Middle of the Night Additions:  When the bond package left the State Senate to go to the Assembly for a vote, more or less in the middle of the night, it contained 9.98 billion of spending on water projects and 10 million for a tolerance center in Sacramento requested by President pro Temps Darrell Steinberg.  The tolerance center was removed, but, in order to get the requisite votes in the Assembly, about a billion more was added, including bike trails in Lake Tahoe, interpretive centers in Huntington Beach, agricultural research projects at California State University campuses, money to help tear down the Klamath River dams and money to help build an additional dam in San Diego County.

The Good News and The Bad News

As always, which is which depends on your world view about water.  You may favor dams or conservation, public financing or user pays, recycling or storage, groundwater cleanup or water efficiency by agriculture.  No matter your preferences, it is important to think about the many benefits and many drawbacks of this bond before you vote, and balance that with how it would add to the debt burden of the state.

Next Essay:  Beginning to look at amends to the 2009-10 budget...again

Sheila Kuehl served for eight years in the State Senate and six years in the State Assembly. Senator Kuehl served as chair of the Senate Natural Resources and Water Committee from 2000-2006. Her website is 

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