Legislative Analyst's Office

Analysis of the 2000-01 Budget Bill

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Department of Water Resources (3860)

The Department of Water Resources (DWR) protects and manages California's water resources. In this capacity, the department implements the State Water Resources Development System, including the State Water Project (SWP). The department also maintains public safety and prevents damage through flood control operations, supervision of dams, and safe drinking water projects.

Currently, the department houses, and participates along with 14 other state and federal agencies, in the CALFED Bay-Delta Program. This program is developing a long-term solution to water supply reliability, water quality, flood control, and fish and wildlife problems in the San Francisco Bay/Sacramento-San Joaquin Delta Estuary (the "Bay-Delta"). (Please see discussion on the CALFED Bay-Delta Program in the Crosscutting Issues section of this chapter.)

The budget proposes total expenditures of $1.03 billion in 2000-01, an increase of $27.6 million, or about 3 percent, from estimated current-year expenditures. Of the proposed total expenditures, $731 million is for planning, construction, and operation of the SWP, financed with SWP funds (revenues from water contractors). The budget also includes
(1) about $58 million (bond funds) for loans and grants to local agencies for safe drinking water, water conservation, and water supply management and development; and (2) about $171 million from the General Fund, mainly for water planning, flood control/management, and the lining of the All-American Canal (Imperial County).

Major budget proposals include (1) $20 million to investigate the feasibility of water storage alternatives; and (2) $42.3 million for the CALFED Bay-Delta Program, of which $20 million is for ecosystem restoration projects, $10 million for local water management projects, and the balance is for planning and administration.

Water Storage Investigations: Need for Legislative Oversight

The Department of Water Resources has revised its proposal to allocate $20 million among seven types of water storage investigation activities. Projected costs in future years to complete these investigations total at least $37.6 million. To improve legislative oversight, we recommend the adoption of budget bill language requiring that any expenditures proposed for project-specific feasibility studies be scheduled in the budget act.

Water Storage: Component of CALFED's "Bay-Delta" Solution. Planning for surface water and groundwater storage is an important component of CALFED's plan to address various water-related problems in the Bay-Delta. For example, water storage operations can be used to improve the reliability of water supplies, provide water to address environmental needs and improve water quality, and provide flood protection when operated in conjunction with flood control reservoirs.

Various federal and state laws direct how water storage investigations are conducted and their time schedule. For example, the federal Clean Water Act requires a proposed reservoir project to begin with an extensive evaluation of alternatives and that the "least environmentally damaging practicable alternative be selected." Resources agencies have established protocols for carrying out such investigations. For example, the federal government has established procedures for carrying out field surveys that can take several years to satisfy.

In 1997, DWR began a multiyear program to study water storage alternatives, focused entirely on potential offstream storage projects north of the Delta. (Offstream storage could include such things as pumping water from a river through a tunnel to a surface site offstream.) In 1999, the department expanded the focus of its investigations to include various types of storage alternatives on a statewide basis and consolidated its activities into a single programthe Integrated Storage Investigations Program.

Estimated expenditures for water storage investigations through the current year total $21.4 million, including $18.4 million from the General Fund and $3 million of Proposition 204 bond funds. There is no funding for these investigations in DWR's base budget.

The DWR Revised Budget Proposal. The budget proposes $20 million from the General Fund (and 77 positions) for DWR's integrated storage investigations program in 2000-01. Based on our discussions with the department, we conclude that the department plans to allocate these funds among the program's seven components differently than its proposal before the Legislature. Figure 1 (see next page) shows the allocation of the $20 million based on the department's revised proposal.

Figure 1
Department of Water Resources Integrated Storage Investigations Program
2000-01 (In Millions)
Program Component	Proposed Expenditures
North of Delta offstream storage	$8.1
Surface and groundwater conjunctive use	4.8
In-Delta and south of Delta storage	3.0
Onstream storage enlargement	1.7
Fish barrier removal	1.5
Comprehensive storage strategy	0.6
Hydropower facilities operation	0.3
Total	$20.0

Details of the proposed allocation of funds are as follows:

• North of the Delta Offstream Storage$8.1 Million. To date, the state has expended $15.6 million on this component. For 2000-01, the budget proposes to continue environmental, engineering, and economic studies to evaluate three specific sites north of the Bay-Delta for offstream storageSites Reservoir, Colusa Reservoir, and the Red Bank Projectand commence preparing a project-specific environmental impact review document for the project identified as most feasible. These three sites were among the 12 surface storage sites statewide deemed by CALFED to merit detailed investigation.
• Surface and Groundwater Conjunctive Use$4.8 Million. For 2000-01, the budget proposes to continue a statewide feasibility study to determine the optimal role of "conjunctive use" as a water storage option, and to begin project-specific feasibility studies in up to six major groundwater basins. (Conjunctive use is the coordinated use and storage of groundwater and surface water supplies to increase water supply reliability.)
• In-Delta and South of Delta Storage$3 Million. For 2000-01, the budget proposes to continue studies for a preliminary evaluation of a number of storage alternatives, including the use of Delta islands, enlargement of the Los Vaqueros Reservoir, three surface storage alternatives south of the Delta, and the Montgomery Reservoir as an offstream storage alternative in the Merced River basin. This evaluation will determine whether any of these alternatives is promising enough to move forward to a more detailed feasibility review.
• Onstream Storage Enlargement$l.7 Million. The proposed expenditures are to provide the state share of costs for the U.S. Bureau of Reclamation's investigation of the engineering and economic feasibility and the environmental impacts of enlarging two onstream reservoirsShasta Lake and Millerton Lake (Friant Dam) near Fresno.
• Fish Barrier Removal$1.5 Million. The proposed expenditures are to conduct a study of the storage and ecosystem benefits, costs, and economic impacts of removing or modifying dams and other structures in Central Valley rivers and streams that have been identified as detrimental to fish migration. Projects will be selected based on their ability to provide multiple benefits at minimum costs.
• Comprehensive Storage Strategy$600,000. The proposed expenditures are for planning activities to develop an overall water storage strategy. This would include (1) balancing the seven components of the integrated storage investigations program and
• (2) determining the role of water storage among the several options available to address water supply reliability issues.
• Hydropower Facilities Operation$300,000. The proposed expenditures are to complete a preliminary investigation of the water supply benefits, costs, and impacts of operational changes to hydroelectric power facilities, including Lake Almanor (the largest hydropower facility in the state, located in Plumas County) and a number of smaller facilities. If these initial investigations indicate substantial potential benefits from operational changes to these facilities, project-specific studies would be conducted in future years at an unknown cost.

Substantial Future-Year Costs to Complete the Investigations. The DWR projects future-year costs of at least $37.6 million from 2001-02 through 2004-05 to complete the water storage investigations. This would bring total expenditures for water storage investigations to $79 million since 1997-98, if the budget-year and projected future-year expenditures were approved. These future costs would be largely for feasibility reports, environmental documentation, and various types of permits for specific projects identified as feasible in investigations conducted in prior years.

Of these projected future costs, $18.6 million would be for a single north of the Delta offstream storage project, $9.6 million for up to six conjunctive use projects, and $5.2 million for fish barrier removal projects. The balance would be to complete the investigations of enlarging Shasta and Millerton Lake reservoirs ($2.6 million) and the comprehensive storage strategy ($1.6 million). Future costs for in-Delta and south of the Delta storage and the hydropower facilities alternatives are unclear, pending the department's preliminary evaluation of these alternatives.

Need for Legislative Oversight. The department's integrated storage investigations program was established administratively and, therefore, has not been given statutory direction. As discussed above, the department projects substantial future costs to complete investigations begun in prior years. As the department has no expenditure authority in its baseline budget for these investigations, the Legislature will be called upon in future years to approve these additional expenditures. The Legislature may also be called upon to fund the construction costs of projects.

We think that water storage investigations have important policy implications for the Legislature. For example, in setting its expenditure priorities, the Legislature will need to balance the roles of water storage and other means, such as conservation, to address water supply problems. As the department's water storage investigations move from a more global level to project-specific environmental documentation, engineering design, and permitting, we think that it is increasingly important for the Legislature to have effective oversight of the program, including the department's choice of projects for project-specific review. While it appears that the department plans to move to the project-specific phase of some of its investigations in the budget year, the total amount of proposed expenditures for this activity is not certain.

Recommend Adoption of Budget Bill Language. The Legislature has retained oversight of project-specific feasibility studies in the department's other programs, such as flood control capital projects, by scheduling these studies in the budget bill. In order to provide similar oversight of this program, we recommend that the Legislature adopt the following budget bill language requiring that expenditures for any project-specific water storage feasibility studies be scheduled in the budget act:

Item 3860-001-0001. No amount appropriated in this item for Integrated Storage Investigations is available for expenditure on project-specific feasibility studies including, but not limited to, work on feasibility reports, environmental documentation, engineering design, and permitting, unless the specific projects have been scheduled in this act.