Funding water services in California

By Ellen Hanak, Brian Gray, Jay Lund, David Mitchell, Caitrin Chappelle, Andrew Fahlund, Katrina Jessoe, Josué Medellín-Azuara, Dean Misczynski, James Nachbaur and Robyn Suddeth

The current drought has brought renewed calls for more conservation, reservoirs, recycled water use, stormwater capture and desalination plants. But more than calls to action are needed to make these things happen.

As we document in a Public Policy Institute of California report released today, the state’s rigid legal constraints on public funding jeopardize local agencies’ ability to maintain reliable water supply service in the face of increasing water scarcity, climate change and population growth.

We find even more debilitating structural funding gaps, totaling $2 billion to $3 billion annually, in five other areas:

  • Flood protection. With state revenue from general obligation bonds nearly exhausted, California could be facing a flood funding shortfall of $800 million to $1 billion a year to protect floodplain residents, businesses and infrastructure.
  • Stormwater pollution. Federal standards for urban drainage have become increasingly stringent. Local agencies have no more than half of the estimated $1 billion to $1.5 billion needed to pay for the new obligations, leaving a gap of $500 million to $800 million a year.
  • Aquatic ecosystem management. We estimate a shortfall of $400 million to $700 million annually to support federally mandated recovery and restoration measures for California’s imperiled fish and other aquatic life. About half of this cost is for work on the Delta and the greater Sacramento-San Joaquin watershed, and about half is for coastal and estuarine ecosystems.
  • Integrated water management. California needs $200 million to $300 million a year to support more integration among local agencies – combining activities related to water supply, water quality, flood protection and ecosystem health. Although integrated approaches are more cost-effective and better for the environment, they have relied on soon-depleted state bonds and need a more stable funding source.
  • Small rural water systems. Roughly 80,000 to 160,000 Californians live in small, disadvantaged communities that have difficulties providing safe drinking water. Funding these systems is hard because of the high cost per capita, the ratepayers’ low incomes and limited organizational capacity. Statewide, providing safe drinking water to these communities cost-effectively would likely require an additional $30 million to $160 million a year.
A $10.6 million modernization of Morris Dam in Los Angeles County allowed 1,500 additional acre-feet of water to be delivered annually down the San Gabriel River, to replenish aquifers. The project was paid for in part with funds from Proposition 50 (2002), which the sale of $3.4 billion in general obligation bonds  for a variety of projects. Photo by Chris Austin

Proposition 50 (2002) general obligation bonds funded part of the cost of modernizing  Morris Dam in Los Angeles County. The project allowed 1,500 additional acre-feet of water to be delivered annually down the San Gabriel River, to replenish aquifers.  Photo by Chris Austin

A primary impediment to locally funding many of these vital services is Proposition 218, a constitutional amendment passed in 1996 that requires voter approval for “property-related” flood protection and stormwater management fees.

Local stormwater agencies face extreme challenges paying for their mandated obligations. Imposing cleanup fees on property owners for runoff is appropriate where their properties contribute significantly to pollution.

Prop. 218 requires elections in which property owners willingly impose stormwater cleanup fees on themselves, even though the benefits accrue mostly to downstream residents. This is a hard sell for something not very visible to individual property owners. As one public works manager told us, “It’s too bad that stormwater doesn’t smell.”

In addition, Proposition 26, a constitutional reform passed in 2010, limits the definition of other, non-property-related fees, potentially further hampering fundraising for stormwater cleanup and ecosystem improvement.

Moreover, anything not qualifying as a new fee would be a new tax. Any new earmarked “special” taxes – arguably the most transparent type of tax – require a two-thirds majority of local voters for approval since the passage of Proposition 13 in 1978.

To fill critical funding gaps, Californians will need to raise an additional 7 to 10 percent of the $30 billion they now spend annually on their full suite of water services – water supply and quality, flood protection, stormwater management and safeguarding the heath and habitat of fish and other aquatic life. Overall, that amounts to an additional $150 to $230 per household a year.

Drinking water treatment plant, Las Virgenes Municipal Water District, Calabasas, Calif. Photo by Chris Austin

Plumbing inside the Las Virgenes Municipal Water District drinking water treatment plant in Calabasas, Calif. Photo by Chris Austin

To close these gaps, California will need to think beyond new state bonds. The bonds approved since 2000 – large by historical standards – have helped temporarily, but they have at most provided $1 billion a year in new funds. Even if a new bond passes, it cannot be expected to fill more than half of the gap, and likely even less.

For robust solutions, California will have to better align its funding laws with the goals of modern water management. The Legislature will need to pass new special taxes and regulatory fees. And California voters will need to approve a package of small adjustments to Propositions 218, 26 and 13 to bring our water management system into the 21st century.

These voter-approved laws made some important changes to improve the transparency and accountability of government agencies, but they need to be changed because they are now having unintended consequences on water supply reliability and public and environmental health.

A more flexible definition of “fees” would help, as would removing local voter approval requirements for flood protection and stormwater management fees and assessments. Reducing the pass rate for local special taxes from two-thirds to 50 percent – the rate required for local general taxes and statewide ballot measures – would be especially useful for supporting watershed health.

California’s water finance problems are fixable. But this won’t happen unless state and local leaders make a bold and concerted effort. Not surprisingly, Californians will need some convincing to support the needed changes with their votes and pocketbooks.

Ellen Hanak and Caitrin Chappelle are with the Public Policy Institute of California; Brian Gray is at UC Hastings College of Law; Jay Lund, Katrina Jessoe, Josué Medellín-Azuara and Robyn Suddeth are with UC Davis; David Mitchell is with M.Cubed; Andrew Fahlund is with the California Water Foundation; Dean Misczynski is an adjunct fellow at PPIC; and James Nachbaur is a Policy Fellow in a program of the American Association for the Advancement of Science.

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One Response to Funding water services in California

  1. Pingback: Blog round-up: Sagacity, kvetching, groundwater, smelt, drought-flavored lemonade and more … » MAVEN'S NOTEBOOK | MAVEN'S NOTEBOOK

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