State Mandates—Regional Water Quality Control Boards

Constitution Requires the State to Reimburse Local Governments for Mandated Activities. The California Constitution requires the state to reimburse local governments when (1) new state laws or regulations mandate that they implement a new program or higher level of service and (2) the local government does not have offsetting revenues—such as fees or federal funds—available to cover the associated costs. Activities required by federal law are not considered mandates for which the state must reimburse costs. State law tasks the Commission on State Mandates (CSM) with determining whether new state laws or regulations affecting local governments create state-reimbursable mandates. Typically, the process for determining whether a law or regulation is a state-reimbursable mandate takes several years. State law further requires our office to analyze any new mandates identified by CSM as a part of our annual analysis of the state budget. In particular, state law directs our office to report on the annual state costs for new mandates and make recommendations to the Legislature as to whether the new mandate should be repealed (permanently eliminating it or making it optional), suspended (rendering it inoperative for one year), modified, or funded in the annual Budget Act.

Four Mandates Addressed in Proposed 2025-26 Budget, Including Three in May Revision. CSM has identified four new state-reimbursable mandates since enactment of the 2024-25 Budget Act. All four concern municipal stormwater permits issued by regional water quality control boards and costs incurred by local governments prior to 2018. The Governor’s January budget proposal addressed the first mandate, proposing to retroactively suspend the mandate and not fund local governments’ past costs. In our assessment of that proposal, we recommended the Legislature reject the Governor’s proposed suspension and instead fund past costs. In May, the Governor’s revised budget proposal addressed the remaining three mandates, again proposing to retroactively suspend the mandates and not fund local governments’ past costs. Below, we discuss these three mandates and again recommend that the Legislature reject the Governor’s proposed suspension and instead fund past costs as part of the 2025-26 budget.

Background

For background information on municipal stormwater permits; why CSM considers some requirements to be state-reimbursable mandates; and the role of Proposition 218 (1996), Chapter 536 of 2017 (SB 231, Hertzberg), and court decisions in determining whether local governments had sufficient authority to raise fees to pay for their costs to comply with stormwater permit requirements, please see our May 5, 2025 post assessing the mandate addressed in the Governor’s January budget proposal.

Below we describe the three mandates addressed in the Governor’s May Revision.

Santa Ana Regional Water Quality Control Board’s Order in Riverside County. CSM determined that several of the requirements in the permit issued by the regional board in 2010 constitute state-reimbursable mandates for Riverside County and the cities of Riverside County that are within the Santa Ana region (some cities in Riverside County fall within the jurisdiction of the Santa Ana Regional Board and some within the jurisdiction of the San Diego Regional Board). (Although the commission also found certain activities to be mandates for the Riverside County Flood Control and Water Conservation District, it determined that the district’s associated costs were not reimbursable by the state because the district had offsetting revenues to pay for them.) For example, CSM determined that requirements to develop and implement certain plans (such as a watershed action plan), provide formal training to relevant employees, and develop a proposal for assessing effectiveness of the urban runoff management program to be state-reimbursable mandates. Additional details about the mandate are as follows:

Time Period in Question: January 29, 2010 to December 31, 2017.
CSM’s Total Estimated Statewide Cost to Reimburse Local Governments: Between $1.8 million and $2.8 million.

San Diego Regional Water Quality Control Board’s Order in Riverside County. CSM determined that several of the requirements in the permit issued by the regional board in 2010 constitute state-reimbursable mandates for Riverside County and the cities of Riverside County that are within the San Diego region. (Although the commission also found certain activities to be mandates for the Riverside County Flood Control and Water Conservation District, it determined that the district’s associated costs were not reimbursable by the state because the district had offsetting revenues to pay for them.) For example, CSM determined that requirements to develop certain monitoring and work plans; provide specific information in annual reports; and develop plans for various studies, such as investigations of sediment toxicity in streams, to be state-reimbursable mandates. Additional details about the mandate are as follows:

Time Period in Question: November 10, 2010 to December 31, 2017.
CSM’s Estimated Statewide Cost to Reimburse Local Governments: Between $238,301 and $334,104.

San Diego Regional Water Quality Control Board’s Order in South Orange County. CSM determined that several of the requirements in the permit issued by the regional board in 2009 constitute state-reimbursable mandates for Orange County, Orange County Flood Control District, and the cities of South Orange County that are within the San Diego region. For example, CSM determined that requirements to develop a particular monitoring plan, update various maps in Geographic Information System format, and assess and report on effectiveness of runoff programs in meeting certain objectives, to be state-reimbursable mandates. Additional details about the mandate are as follows:

Time Period in Question: December 16, 2009 to December 31, 2017.
CSM’s Estimated Statewide Cost to Reimburse Local Governments: Between $351,870 and $557,715.

Governor’s Proposal

Suspends Mandates for Time Period in Question, Does Not Reimburse Local Governments for Their Past Costs. The Governor’s revised 2025-26 budget proposes to suspend the three mandates discussed above, which CSM determined were reimbursable by the state for the
pre-2018 time periods noted. The suspension would mean the state would not reimburse claims by local governments for costs already incurred to implement the permit requirements for those time periods. The commission estimated these costs cumulatively total between $2.4 million and $3.7 million for all three mandates. (Since the current proposal is only for 2025-26, to keep the requirements of the three mandates suspended for the historic periods and avoid any future state obligation to pay for past claims, subsequent budget acts also would have to include language continuing their suspension.)

Maintains Mandates From January 1, 2018 Forward. Because the Governor’s proposed suspensions would only concern the historic time periods in question, the permit requirements mandated by the state would remain in effect as of January 1, 2018 and until each regional board adopts a new permit. This is because from 2018 onward, local governments have had sufficient authority to raise fees to pay for the costs of compliance due to the statutory changes that took effect at that time—thereby making it so the state is not required to reimburse local governments for their costs.

LAO Comments

The crux of the administration’s argument for retroactively suspending the three mandates (and not funding local governments’ past costs) is its perspective that local governments always had sufficient authority to raise fees to cover the costs they incurred for complying with the stormwater permit requirements. For a more detailed discussion of the administration’s rationale—which also applied to the mandate addressed in the Governor’s January budget proposal—and our corresponding assessment, please see our recent post.

Based on Our Assessment, the Administration’s Proposal Lacks a Strong Rationale. We find that the Governor’s position conflicts with both an appellate court decision and CSM’s determination that local governments did not have sufficient authority to raise fees prior to 2018. (In 2018, a new state law took effect that made raising fees for stormwater-related costs more straightforward for local governments.) Unless and until a different appellate court or the California Supreme Court were to reach an alternative conclusion in a future similar case, we cannot find a strong analytical reason for the Legislature to disregard the current court decision. We also find that suspending the mandates would not actually remove the past requirements, meaning that the local governments could not go back in time and cease required activities to avoid incurring costs.

No Future Costs Anticipated for These Particular Mandates… The three municipal stormwater mandates discussed in this post are not anticipated to result in ongoing costs for the state. This is because beginning January 1, 2018, local governments have had sufficient fee authority to cover their costs. As such, the state should not expect future costs to materialize for these mandates beyond those included in CSM’s statewide cost estimate. (In addition, some of the required activities were one time in nature and thus local governments have already completed them without cause to incur further costs.)

…However, Multiple Additional Stormwater-Related Test Claims Pending at CSM. While not directly linked to these mandates, CSM has significant pending workload related to other stormwater permits issued by the state water boards dating back to 2007. This includes 32 pending test claims and 4 additional claims for which CSM has already identified state-reimbursable mandated activities but has not yet developed cost estimates. Each test claim submitted to CSM is different and has to be considered individually. However, if CSM was to determine that each of the currently pending stormwater-related test claims constituted state-reimbursable mandates for costs incurred before 2018, the state could face—at most—costs in the hundreds of millions of dollars. Because CSM typically does not find all requirements to be state-reimbursable mandates, the ultimate costs to the state very likely will be less than the amounts local governments are requesting. In addition, the likelihood the state will have to reimburse costs incurred since 2018 is lower due to the statutory changes that took effect that year that made raising fees more straightforward.

Recommendation

Reject Governor’s Proposal and Reimburse Local Governments’ Past Costs. Consistent with our recommendation on the stormwater-related mandate identified in the January budget, we recommend the Legislature reject the Governor’s May Revision proposal and instead fund the three mandates for three key reasons: (1) the appellate court found that local governments lacked sufficient authority to raise stormwater-related fees prior to 2018, (2) CSM determined these were state-reimbursable mandates, and (3) local governments already incurred the costs to comply with the permit requirements and cannot go back in time and choose to avoid these costs. Final costs will total around $3 million (between $2.4 million and $3.7 million). Funding these mandates does not have direct out-year fiscal implications for the state.