Legislative Analyst's Office

Analysis of the 2002-03 Budget Bill

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 with 23 other state and federal agencies in the CALFED Bay-Delta Program. This program is implementing 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 the discussion on the "CALFED Bay-Delta Program" in the "Crosscutting Issues" section of this chapter.)

Additionally, the department includes a new division--California Energy Resources Scheduling (CERS)--that was created in 2001. This division purchases electricity on the wholesale market and sells it to customers of the state's major private investor-owned utilities (IOUs). (Please see the discussion on "CERS" in the "General Government" chapter of this Analysis.)

The budget proposes total expenditures of about $6.5 billion in 2002-03, a decrease of about $2.6 billion, or 29 percent, below estimated expenditures in the current year. Most of this decrease reflects a reduction of about $2.5 billion for energy purchases on behalf of IOUs. Of the proposed total expenditures, about $5.2 billion is for energy purchases on behalf of IOUs and about $760 million is for planning, construction, and operation of SWP, financed with SWP funds (revenues from water contractors).

Major budget proposals include (1) $51.5 million from Proposition 40 (the resources bond on the March 2002 ballot) for various CALFED program activities and (2) a decrease of $19.7 million from the General Fund for various CALFED activities. The budget proposes no funding to pay the state share of costs of federally authorized, locally sponsored flood control projects in 2002-03. (Please see the discussion of flood control subventions in the "Fund Conditions for Resources Programs" write-up in the "Crosscutting Issues" section of this chapter.)

General Fund Savings Potential in Water Shortage Preparation Program

The budget proposes about $9.4 million from the General Fund to implement recommendations of the Governor's Drought Advisory Panel. We recommend that $4.7 million of this amount be deferred, given that ongoing planning activities of local water agencies to prepare for drought conditions could continue at the reduced level of state assistance. This would leave $4.7 million in the budget year to assist local water agencies and rural homeowners in planning to address potential water shortages. (Reduce Item 3860-001-0001 by $1.3 million and Item 3860-101-0001 by $3.4 million.)

Governor's Drought Advisory Panel Recommendations. In 2000, the Governor convened an advisory panel to develop a plan to reduce the impacts of critical water shortages in the near-term due to drought and other causes. (The panel was convened on the heels of what was initially anticipated to be a "dry" year.) The panel made a number of recommendations for state assistance to be provided to local and private water purveyors to help them better prepare to respond to water shortages. Specifically, the panel recommended that state funds be provided:

For 2001-02, the Legislature approved $10.5 million from the General Fund to implement the panel's recommendations. Of this amount, $9.5 million was ongoing funding for financial and technical assistance and $1 million was one-time funding for the review of a drought water bank proposal.

Budget Proposal. The budget proposes about $9.4 million from the General Fund to implement the drought panel's recommendations in the budget year. This is a decrease of $1.1 million from the current year, mainly reflecting the elimination of a one-time expenditure. Of the proposed amount, about $2.6 million is for state support and $6.8 million for local assistance.

General Fund Savings Potential. While the activities proposed to be funded by the budget proposal--which are largely for local assistance--are not without merit, we think that they should be funded at a reduced level. In light of the state's General Fund condition, we believe a portion of the financial assistance to local water agencies for long-term planning purposes can be deferred. This is because the proposed funding reflects a state augmentation to ongoing planning activities that local water agencies are carrying out. These local agencies have a funding source (ratepayer revenues) to support these planning functions.

We do, however, think that it is cost-effective to sustain some funding for this program. This is because by facilitating local planning to prepare for water shortages, the state might reduce its costs down the road to respond to a drought.

Recommend Reduction in Funding. We therefore recommend a reduction of $4.7 million from the General Fund, which would leave $4.7 million for the department to continue to provide technical and financial assistance to local water agencies and rural homeowners to help them better prepare for the possibility of drought conditions.

Return to Resources Table of Contents, 2002-03 Budget Analysis