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LAO Report
June 19, 2015

Other Issues

Water-Related Issues

The budget includes several significant expenditures for water-related activities. As described in more detail below, this includes funding for drought-related activities, watershed protection and restoration, and flood protection. This funding is in addition to $1.1 billion in accelerated drought and flood protection funding approved by the Legislature and signed into law in March 2015.

Drought

Budget Funds Various Projects. The 2015‑16 budget includes $1.8 billion for various drought-related activities. As shown in Figure 1, the budget funds projects designed to improve water conservation and develop local infrastructure related to groundwater cleanup, safe drinking water, wastewater treatment, and water recycling among others. In addition, the budget includes funding for emergency drought-response activities, such as fire protection and drinking water deliveries. Of the total $1.8 billion provided for drought-related activities, over 90 percent of it is from Proposition 1, the water bond measure passed by voters in November 2014. About $120 million is supported by the General Fund.

Figure 1

Drought Funding

(In Millions)

Department

Purpose

Amount

Fund Source

Water Conservation

DWR

Urban water conservation

$56

Proposition 1

DWR

Agricultural water conservation

42

Proposition 1

DGS

Water conservation in state buildings

15

GF/SF

DWR

Save Our Water campaign

4

GF

Subtotal

$117

Other Infrastructure Programs

SWRCB

Groundwater cleanup

$783

Proposition 1

SWRCB

Water recycling

211

Proposition 1

SWRCB

Safe drinking water

175

Proposition 1

SWRCB

Wastewater treatment projects

158

Proposition 1

SWRCB

Stormwater projects

101

Proposition 1

DWR

Groundwater sustainability grants

60

Proposition 1

DWR

Desalination grants

50

Proposition 1

Subtotal

$1,538

Emergency Drought Response

CalFire

Enhanced fire protection

$62

GF/SF

OES

Drinking water delivery

22

GF

DWR

Removal of emergency rock barriers

22

GF/SF

CSD

General assistance to migrant farm workers

8

GF

HCD

Move households without potable water

6

GF

SWRCB

Implement executive order

1

GF

Subtotal

$121

Total

$1,776

DWR=Department of Water Resources; DGS=Department of General Services; GF=General Fund; SF=special fund; SWRCB = State Water Resources Control Board; CalFire = California Department of Forestry and Fire Protection; OES = Office of Emergency Services; CSD = Department of Community Services and Development; and HCD = Department of Housing and Community Development.

Statutory Changes to Address Effects of Drought. The budget plan also includes several changes to state law in response to the drought. In general, these changes are intended to improve access to clean drinking water, accelerate completion of certain projects, increase water conservation, increase monitoring of water diversions, and improve accountability. Specific changes include:

  • Drought Water System Consolidation. Authorizes the State Water Resources Control Board to require water systems serving disadvantaged communities with unsafe or unreliable water supplies to merge with or receive water from other public water systems.
  • California Environmental Quality Act (CEQA) Exemptions. Provides exemptions from CEQA for certain types of projects, subject to certain conditions. Project types that could be exempted are recycled water pipelines, development of state building codes for dual plumbing, and local groundwater protection ordinances.
  • Local Enforcement. Allows local water agencies to issue penalties for violations of local and state water conservation regulations with penalties up to $10,000 for first violation (increasing for continuing violations). Penalties for residential water users is generally limited to $1,000.
  • Monitoring and Reporting. Generally requires water diversions of greater than ten acre-feet per year to have a measuring device to accurately identify amount diverted, and increases the frequency of water diversion reporting to be at least annually.
  • Accountability. Implements additional reporting requirements on Proposition 1 project outcomes, costs, and timeframes.

Other Proposition 1 Funding—Watershed Protection and Restoration

The spending plan for 2015‑16 also includes $215 million from Proposition 1 for other, nondrought-related activities. Most of this funding—$178 million—is for watershed protection and restoration projects administered by state conservancies ($103 million), the Wildlife Conservation Board ($39 million), and the Department of Fish and Wildlife ($37 million). The total from Proposition 1 also includes $33 million for the Integrated Regional Water Management program administered by the Department of Water Resources (DWR), as well as $3 million for DWR staff to support the California Water Commission, which is charged with evaluating and selecting water storage projects to be funded by Proposition 1.

Flood Protection—Proposition 1E

The budget provides $463 million to DWR from Proposition 1E (2006) to support flood protection activities. This total includes $300 million for systemwide capital projects, such as building bypasses, and $163 million for state operational activities (such as planning, analysis, levee maintenance, and equipment purchases). Chapter 1, Statutes of 2015 (AB 91, Committee on Budget)—the emergency drought legislation passed in March 2015—included $660 million (primarily from Proposition 1E) for flood protection projects in urban and rural areas, as well as for grants to local governments for local flood protection activities.

Proposition 1E requires all funds to be appropriated by July 1, 2016. The budget act and Chapter 1 fully appropriate the remaining funds available from Proposition 1E. Under these bills, the department will have five years to commit Proposition 1E funds and three additional years to spend the funds, after which time the authorization to use the funds will expire.

Cap-and-Trade

Additional Cap-and-Trade Expenditures Expected to Be Part of Future Legislation. Consistent with statute that was adopted as part of the 2014‑15 budget, 60 percent of cap-and-trade auction revenue in 2015‑16 will be continuously appropriated to high-speed rail (25 percent), affordable housing and sustainable communities (20 percent), transit and intercity rail capital (10 percent), and low carbon transit operations (5 percent). These programs are expected to receive a total of about $1.2 billion in 2015‑16. In addition, the budget includes $27 million for state departments to administer cap-and-trade funds that were allocated as part of the 2014‑15 budget, including ongoing oversight of previously funded projects. However, the budget does not include funding to support new programs or projects from the 2015‑16 revenue that will not be continuously appropriated (about $800 million) or from unspent revenue generated in prior years. The Legislature and Governor report that they will decide on additional cap-and-trade funding allocations in separate legislation in the coming months.

Trial Courts

Increased Funding for Trial Courts. The budget includes various General Fund augmentations to support trial courts. Some of these augmentations include (1) $90.1 million for trial court operations (reflects a second 5 percent General Fund increase initially approved as part of the 2014‑15 budget), (2) $38.8 million for increased trial court health benefit and retirement costs, (3) $35.3 million to backfill an expected decline in fine and fee revenue that support trial court operations, and (4) $11 million to reduce dependency counsel caseload.

Employee Compensation

Through two control sections, the budget plan grants the administration significant authority to change how the state budgets employee compensation.

Administration Authorized to Change Budgetary Processes. The Department of Finance (DOF) is authorized to change state budgetary processes for tracking personnel and operating costs in every executive branch department. With a stated intent to promote greater transparency, Control Section 4.11 authorizes a "reconciliation process" to be developed by DOF beginning in 2015-16, with results to be "used to help build departments' baseline budgets" for the 2016-17 fiscal year. A budget trailer bill, in a related change, repeals the existing state law—found to be ineffective by various reviews—that required elimination of some state positions that are vacant for six consecutive months.

Administration May Begin Prefunding Retiree Health Benefits. Pursuant to existing labor contracts and administrative actions, the state annually contributes money to a trust fund to prefund retiree health and dental benefits for rank-and-file and managerial highway patrol officers. The 2015-16 budget plan includes money to continue the policy of prefunding these benefits for highway patrol officers. The budget plan contains no dollars to begin prefunding retiree health and dental benefits for other state employees. However, Control Section 3.61 allows the Governor to begin prefunding these benefits for executive branch employees excluded from the collective bargaining process. In the case of rank-and-file employees subject to collective bargaining, the Governor may not order prefunding these benefits except upon legislative approval of future labor agreements or other legislation.