LAO 2003 Budget Analysis: Resources

Legislative Analyst's Office

Analysis of the 2003-04 Budget Bill

CALFED Bay-Delta Program

The CALFED Bay-Delta Program (CALFED), a consortium of 11 state and 13 federal agencies, was created to address a number of interrelated water problems in the state's Bay-Delta region. Program implementation began in September 2000. Over a seven-year period, the program is estimated to cost $8.5 billion.

The 2003-04 budget proposes $497 million in state funds for CALFED. We raise a number of policy, fiscal, and programmatic issues for the Legislature to consider.

CALFED Created to Address Bay-Delta Water Problems

The CALFED Bay-Delta Program. Pursuant to a federal-state accord signed in 1994, the CALFED Bay-Delta Program (CALFED) was administratively created as a consortium of state and federal agencies that have regulatory authority over water and resource management responsibilities in the Bay-Delta region. CALFED now encompasses 11 state and 13 federal agencies. The objectives of the program are to: 

After five years of planning, CALFED began to implement programs and construct projects in 2000. The program's implementation—which is anticipated to last 30 years—is guided by the "Record of Decision" (ROD). The ROD represents the approval by the lead CALFED agencies of the final environmental review documents for the CALFED "plan." Among other things, the ROD lays out the roles and responsibilities of each participating agency, sets goals for the program and types of projects to be pursued, and includes an estimate of the program's costs for its first seven years. In the ROD, these costs are projected to total $8.5 billion for the program's first seven years (2000-01 through 2006-07).

The ROD also includes a schedule that allocates responsibility for paying the $8.5 billion of projected costs among federal ($2.4 billion), state ($2.5 billion), and local/private ($2.6 billion) sources. (About $930 million of program costs have yet to be allocated among funding sources.) The proposed cost sharing is rather arbitrary, and in most cases reflects simply a 50-50 split between state and federal sources or a 33-33-33 split among federal, state, and local/private sources.

CALFED Governance Legislation Enacted Last Year

Chapter 812, Statutes of 2002 (SB 1653, Costa), established a governance structure for CALFED and created a new state agency—the California Bay-Delta Authority—to oversee and implement specified components of the program.

Governance Before 2002 Legislation. Before the enactment of legislation last year establishing a governance structure for CALFED (discussed in detail below), there was no statutorily authorized organizational structure for the program. Rather, a loosely configured organizational structure had developed administratively, with unclear lines of accountability among the program's director and the heads of the various state agencies involved in the program. The role of overseeing and coordinating the various elements of the program was undertaken by staff located within the Department of Water Resources (DWR). There was not, however, a legal entity of "CALFED" that had the authority under statute to hire staff, enter into contracts, adopt regulations, hold regulatory permits, receive and disburse funds, and the like. Rather, these functions could only be carried out legally by the various state agencies involved in implementing CALFED.

Governance Legislation Enacted Last Year. Chapter 812, Statutes of 2002 (SB 1653, Costa), established a governance structure for CALFED. One of the most important elements of this legislation was the creation of a new state agency in the Resources Agency—the California Bay-Delta Authority (CBDA)—to oversee and implement specified elements of CALFED. The CBDA's membership is to consist of 24 members as follows: (1) representatives from six specified state agencies; (2) representatives from six specified federal agencies (if authorized in federal legislation to participate); (3) seven public members (five members to be appointed by the Governor and two by the Legislature); (4) one member of the Bay-Delta Public Advisory Committee; and (5) four nonvoting Members of the Legislature (the chair and vice-chair of the water policy committees in each house). The major responsibilities and authority of CBDA are set out in Figure 1 below.

Figure 1

California Bay-Delta Authority Major Roles and Authority


üOversee coordinated implementation of the CALFED Bay-Delta Program in a manner consistent with the August 28, 2000 Record of Decision.

üDevelop policies, track progress, modify program timelines.

üReport annually to Legislature and other specified parties on status of program implementation.

üManage the science element of the CALFED Bay-Delta Program; establish Independent Science Board.

üAnnually review and approve multiyear program plans and long-term expenditure plans of the implementing agencies; submit comprehensive budget proposal to Secretary for Resources.

üAdminister program by hiring staff, entering into contracts, receiving and disbursing funds, and adopting regulations.

In addition to establishing the membership and responsibilities of CBDA, Chapter 812 designates certain state agencies to be the implementing agencies for the various elements of CALFED. For example, DWR and the State Water Resources Control Board (SWRCB) are designated as the implementing agencies for the water use efficiency and water transfer program elements. The CBDA is designated as an implementing agency for only one program element—the science program. (This role is in addition to its main role of oversight and coordination.)

The Budget Proposal

The budget proposes $497 million in state funds for CALFED-related programs in 2002-03, of which $18 million is from the General Fund and the balance mainly from bond funds. The largest expenditures are for ecosystem restoration and water use efficiency. Of these expenditures, $171 million is proposed for the new California Bay-Delta Authority.

Figure 2 shows the breakdown of CALFED expenditures in the current year and as proposed for 2003-04, among the program's 12 elements.

Current-Year Expenditures. As shown in the figure, the budget estimates CALFED-related expenditures from state funds of about $496 million in 2002-03. Of this amount, about $30 million is from the General Fund, with the balance mainly from Proposition 13 ($200 million) and Proposition 204 ($165 million) bond funds.

For the current year, the largest state expenditures are in the ecosystem restoration ($147 million) and water storage ($100 million) programs. A majority of the ecosystem restoration expenditures is funded by Proposition 204 funds that became available with the signing of the ROD. A majority of the water storage expenditures is for local groundwater projects funded by various bond funds.

Budget Proposes $497 Million of State Funds for 2003-04. As shown in Figure 2, the budget proposes $497 million of state funds for various departments to carry out CALFED in 2003-04, virtually unchanged from the current year. Of this amount, $18 million is proposed from the General Fund, with the balance mainly from three bond funds—Proposition 50 ($329 million), Proposition 13 ($63 million), and Proposition 204 ($50 million).

As Figure 2 indicates, CALFED expenditures are spread among seven agencies. The largest expenditures are found in DWR ($276 million) and CBDA ($171 million). As in the current year, the largest state expenditures are proposed for ecosystem restoration ($136 million) and substantial expenditures are proposed for water use efficiency projects, such as water recycling and water conservation ($95 million). Although the budget appears to propose substantially lower expenditures for water storage projects in 2003-04, this is not necessarily the case. This is because the "water supply reliability" category includes funds for water storage projects.

In the sections that follow, we raise a number of issues for the Legislature to consider in its review of the Governor's budget proposal for CALFED. As discussed below, we think that the Legislature's policy direction to, and oversight of, CALFED is enhanced by having the relevant policy and budget committees, in each house, jointly consider CALFED budget proposals at oversight hearings. 

Figure 2

CALFED Expendituresa

(In Millions)

Expenditures by Program Elements



Ecosystem restoration



Environmental Water Account



Water use efficiency



Water transfers



Watershed management



Drinking water quality






Water storage



Water conveyance






Water supply reliabilityb



CALFED program management






Expenditures by Department



Water Resources



California Bay-Delta Authority



State Water Resources Control Board



Fish and Game



Forestry and Fire Protection






San Francisco Bay Conservation
And Development Commission



Secretary for Resources





Expenditures by Fund Source



Proposition 50



Proposition 13



Proposition 204



General Fund



Other state funds






a   State funds only.

b   Could include conveyance, water storage, water use efficiency, water transfers, and Environmental Water Account expenditures.


Recommend Holding Joint Hearings

In order for the Legislature to effectively evaluate CALFED-related budget proposals—which are spread through several state departments—and provide appropriate policy direction to CALFED, we recommend that the water and natural resources policy committees and budget subcommittee, in each house, jointly consider CALFED budget proposals as was done in past years.

CALFED's Budget Encompasses Policy Choices. As was discussed in our Analysis of the 2001-02 Budget Bill (please see page B-23), there are trade-offs inherent in CALFED's plan (the ROD) and in its budget proposals that require policy choices to be made. This is because all elements of CALFED are interrelated and interdependent. For example, construction of a water storage or flood control facility could negatively affect fish habitat. Increasing the reliability of water supplies could reduce the incentive to conserve water.

We think that it is important for the Legislature to be apprised of the policy choices and funding priorities that are inherent in the Governor's budget proposal for CALFED. The Legislature will need this information to evaluate whether these choices and priorities are consistent with those of the Legislature, determine what policy direction should be given to CALFED, and determine the state's funding contribution.

Recommend Joint Policy/Budget Hearings. We think that the Legislature's evaluation of the many individual CALFED-related budget proposals in past years was significantly enhanced by holding joint policy and budget subcommittee hearings on CALFED. This gave the Legislature a "big picture" view of CALFED that could be missing if the budget proposals had been evaluated on a department-by-department basis (seven departments have CALFED budget proposals this budget year). We therefore recommend that the Legislature hold joint hearings of the water and natural resources policy committees and budget subcommittee, in each house, on CALFED. In the sections that follow, we raise a number of issues for the Legislature to consider at these hearings.

Federal Funding Highly Uncertain

The budget proposal assumes a certain level of federal reimbursements for CALFED in both the current and budget years, even though virtually no federal reimbursements have been forthcoming to date. In addition, although the CALFED seven-year implementation plan is based on an equal sharing of state and federal funding, direct federal spending for CALFED has greatly lagged the state's contribution. We recommend that the California Bay-Delta Authority advise the Legislature on the programmatic implications and the administration's plans if federal reimbursements do not materialize and if federal direct spending for CALFED continues at its relatively modest level.

The Federal Government Has Lagged Behind State in Funding CALFED. As discussed above, CALFED has allocated $2.5 billion and $2.4 billion of program costs over a seven-year period to the state and federal governments, respectively. In providing its funding support, the federal government could either spend directly on projects or provide funding to the state as federal reimbursements.

While recognizing that CALFED has never anticipated that the state and federal contributions would be roughly equal on a year-to-year basis, our review nonetheless finds that the state has been contributing far more to CALFED than the federal government. As Figure 3 shows, from 2000-01 (the first year of program implementation) through the budget year, the state support for CALFED will total almost $1.8 billion. This contrasts with federal support of $280.8 million. For the most part, the federal contribution has been in the form of direct federal spending for CALFED, as opposed to federal reimbursements that are passed through the state budget. Although the federal total does not include funding that may become available in the 2004 federal fiscal year (covering the period October 2003 through September 2004), experience would indicate that this amount is highly uncertain.

Figure 3

State Versus Federal Funding

(In Millions)



















a   Federal contribution includes (1) direct spending and (2) federal reimbursements passed through the state budget.

b  To date in the current year, almost all federal expenditures reflect direct spending as opposed to federal reimbursements passed through the state budget.

c   As proposed by Governor's budget.

d   Actual amount will depend on Congressional action on the 2004 federal budget.

Receipt of Federal Reimbursements Uncertain. The budget proposes the receipt of $33.6 million of federal reimbursements by the state in 2003-04. The likelihood of the state receiving this amount of federal funding in the budget year is highly uncertain, given the state's history of receiving federal reimbursements. For example, while $55 million of federal reimbursements were included in the 2002-03 Budget Act, it appears that only about $900,000 will actually be received. (The balance of the $67.9 million of federal funding shown in Figure 3 reflects direct spending.)

The impact of reduced or no federal funds would vary by program element. For elements that assume a large amount of federal reimbursements in the current and/or budget year, a lack of federal funds would have an impact on the state's ability to complete planned activities. For example, for the budget year, federal reimbursements are budgeted mainly for program oversight and coordination. According to the administration, if federal reimbursements do not materialize, oversight and coordination activities such as the development of a water management strategy and a financing plan would be delayed. In addition, while the lack of federal reimbursements would not significantly impact most of the other program elements in the near term given the current availability of state bond funds for these elements, the administration anticipates that the state bond funds would be expended sooner than otherwise if federal funding does not become available.

Legislature Should Evaluate State's Options If Federal Funds Do Not Materialize. It is important for the Legislature to be informed of the programmatic implications if federal funds do not materialize. The Legislature should also be informed of CALFED's expenditure priorities if reduced or no federal funds necessitate a redistribution of state funds among the program elements. To the extent that those priorities do not coincide with the Legislature's priorities, the Legislature should provide clear direction to guide the redistribution of funds.

Budget Proposes Greater Role for Bay-Delta Authority Than Envisioned in Governance Legislation

The budget proposes that the new California Bay-Delta Authority implement CALFED's watershed management and ecosystem restoration programs in 2003-04, even though statute directs other state agencies to perform this role. We recommend the adoption of budget bill language to ensure that legislative direction is followed. 

Budget Proposal for CBDA. The budget proposes expenditures of $170.6 million of state funds and 73 personnel-years for CBDA in 2003-04—the first full fiscal year of its operation. Of this amount, $158 million would come from bond funds and $12.6 million from the General Fund. In addition, the budget proposes expenditures of $45.8 million from federal funds ($29.3 million) and other reimbursements ($16.5 million), mainly for program oversight and coordination. The staffing level for CBDA does not reflect an increase in overall state personnel; rather, these positions were transferred from DWR to CBDA. (Previously, the oversight role for CALFED—now a statutory responsibility of CBDA—was performed by staff in DWR.)

The budget proposes state-funded expenditures in CBDA in four main areas:

Budget Proposal Gives Greater Initial Role to CBDA Than Authorized in Chapter 812. As noted earlier, Chapter 812 establishes the responsibilities and authority of CBDA, and specifies state agencies for purposes of implementing the various CALFED program elements. The CBDA is designated as an implementing agency for only one program element—the science program. However, the budget goes further, and proposes substantial CBDA expenditures to implement both the ecosystem restoration and watershed management programs. This is contrary to Chapter 812, which provides that the Department of Fish and Game (DFG) is the sole state implementing agency for the ecosystem restoration program and that the Resources Agency, State Water Resources Control Board (SWRCB), DWR, and DFG are the state implementing agencies for the watershed management program.

According to the administration, the funding for the watershed management and ecosystem programs are being budgeted "temporarily" in CBDA. The reasons given are somewhat different for each of these two programs. As regards the watershed management program, the administration has stated that the multiple state agencies that are designated as implementing agencies in Chapter 812 are in the process of negotiating a memorandum of understanding that will clarify each agency's responsibilities for managing the program. It is the administration's intent that funding will be allocated to the respective implementing agencies once agency responsibilities are clarified.

As regards the ecosystem restoration program, the administration has stated that while DFG will assume the policy role for the program right away, the program's administrative and financial functions will be placed initially in CBDA in order to avoid program delays. According to the administration, this is because CBDA will have the "infrastructure" in place to perform these functions while DFG will not, given that DFG has not traditionally processed such a large infusion of bond funds. The administration has stated that it intends DFG to be the full implementing agency of this aspect of CALFED by 2004-05.

Recommend Budget Bill Language to Ensure Chapter 812's Direction Is Followed. While the administration's approach may be reasonable on efficiency grounds, the budget proposal raises concern because it does not provide the Legislature with the assurance that the legislative direction spelled out in Chapter 812 will ultimately be followed. To provide such an assurance, we recommend the adoption of the following budget bill language:

Item 3870-001-6031. No funds appropriated by this item may be expended for purposes of the CALFED watershed management program until a memorandum of understanding that clarifies the responsibilities of the agencies specified in Section 79441 of the Water Code as the implementing agencies of this program has been executed by these agencies and submitted to the Legislature. It is the intent of the Legislature that these agencies will serve as the implementing agencies beginning in 2003-04.

Item 3870-001-0546 and Item 3870-001-6031. Notwithstanding Section 79441 of the Water Code, the California Bay-Delta Authority is authorized to administer funds appropriated by this item for the CALFED ecosystem restoration program for the 2003-04 fiscal year only. It is the intent of the Legislature that, beginning in 2004-05, the Department of Fish Game will serve as the implementing agency for this program, as required by Section 79441.

Legislative Oversight of Bond Funds for CALFED

The Proposition 50 bond measure allocates $825 million explicitly for CALFED and requires that these funds be expended consistently with the CALFED Record of Decision. We recommend the adoption of budget bill language to ensure that this requirement of Proposition 50 is followed.

Proposition 50 Allocates Funds Explicitly for CALFED. Proposition 50 allocates $825 million of bond funds explicitly to several of the program elements of CALFED. The measure provides that all of these funds must be expended consistent with the CALFED ROD. This is in contrast to several allocations in other bond measures, such as the Water Conservation Account in Proposition 13, that have been used for CALFED programs but where the bond measure is silent regarding any connection with CALFED.

Several Departments Conduct Activities That Overlap With CALFED. Our review finds that several state agencies conduct activities under their non-CALFED programs that are similar to activities that they conduct as an implementing agency under CALFED. For example, SWRCB has had a water recycling grant program for many years; more recently, SWRCB has awarded water recycling grants under CALFED as one of CALFED's member agencies. This raises the concern that Proposition 50 bond funds, although allocated explicitly for CALFED and made subject to the CALFED ROD, could lose their "CALFED" character when allocated to a department that conducts activities outside of CALFED that are similar to the ones for which the Proposition 50 funds are provided.

Recommend Adoption of Budget Bill Language to Maintain Character of CALFED Bond Funds. To ensure that bond funds allocated in Proposition 50 for CALFED do not lose their required connection to the CALFED ROD when allocated to a department, we recommend the adoption of the following budget bill language under each item in the budget bill that appropriates funds from the $825 million allocation to CALFED under Proposition 50:

No expenditures can be made from the funds appropriated by this item from the allocation of bond funds made to the CALFED Bay-Delta Program under Section 79550 of the Water Code unless those expenditures are consistent with the CALFED Programmatic Record of Decision, as required by Sections 79552 and 79553 of the Water Code.

We think that the adoption of this budget bill language will improve legislative oversight of Proposition 50 bond expenditures to ensure that the measure's requirements are followed.

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