Legislative Analyst's Office Analysis of the 2003-04 Budget Bill

Proposition 50 Water-Related Proposals Need Better Definition

Various budget proposals to expend Proposition 50 bond funds for water-related activities lack sufficient detail to justify approval. These proposals include expenditures by the Department of Water Resources (DWR), the State Water Resources Control Board (SWRCB), and the Department of Health Services (DHS) for integrated regional water management projects and water security activities. We recommend that the funding for these proposals be deleted from the budget bill, and instead be put in legislation that defines the programs and guides their implementation. (Reduce Item 3860-101-6031 by $50.6 million, Item 3860-001-6031 by $5.9 million, Item 3940-101-6031 by $32.5 million, Item 3940-001-6031 by $641,000, Item 4260-101-6031 by $9.9 million, and Item 4260-001-6031 by $350,000.)

Budget Proposal. The budget proposes expenditure of bond funds from the recently passed Proposition 50 bond for various water-related purposes. (See the "Crosscutting Issues" section of this chapter for more information on the Proposition 50 fund condition.) While some of the bond funds proposed for expenditure augment existing programs, others are for new program areas. Figure 1 lists two new program areas proposed by the budget in the water area. As shown, the budget proposes expenditure of approximately $100 million from Proposition 50 bond funds for these new program areas at DWR, SWRCB, and DHS. Of this amount, $93 million is for grants to local agencies for activities relating to integrated regional water management and water security, and $6.9 million is for state staff to support these activities and for direct expenditures to upgrade security of the state's water system. In addition, the administration indicates that similar levels of grant expenditures are likely to be available for most of these programs over each of the next four to five years. The budget proposes to expend these funds in accordance with Proposition 50, as follows:

• Integrated Regional Water Management Projects. Proposition 50 allocated $500 million for competitive grants to fund integrated regional water management projects. Implementing legislation allocated 50 percent of these funds to DWR and 50 percent to SWRCB to administer. The budget proposes to expend these funds in accordance with the bond measure's broadly defined criteria. The bond defines integrated regional water management projects to include any projects that protect against drought, protect or improve water quality, and improve local water security by reducing dependence on imported water. For 2003-04, the budget proposes to expend about $85 million for these projects, including $6.4 million to fund the Governor's Drought Panel recommendations.
• Water Security. Proposition 50 allocated $50 million to protect drinking water systems from terrorist attack or deliberate acts of destruction. The budget proposes to allocate $43.2 million to DHS for grants that protect the state's public water systems. (The DHS is responsible for permitting and regulating the state's public water systems.) The remainder of the funds ($6.8 million) is allocated to DWR for security upgrades to the State Water Project and to improve security at high hazard state dams.

We have several concerns with the budget proposals as discussed below. Specifically, we find that the program areas proposed for funding by the budget are broad and lack definition. It is also not clear how the different agencies implementing these programs will work together to avoid inefficiencies resulting from duplication of efforts.

Proposals Sparsely Defined. As mentioned above, Proposition 50 specifically authorizes bond funds for integrated regional water management projects and water security activities. However, in doing so, it did not provide specific details regarding how these grants should be awarded, thereby relying on the Legislature and the administration to define how the funds would be spent. We have found that the administration's proposals for spending the funds are sparsely defined and in some cases provide no more detail than what is provided in the bond measure. For example, the budget does not propose criteria to evaluate grant proposals, nor does it make funding priorities clear. Other unresolved issues include whether there should be a maximum amount for individual grants and whether there should be a matching requirement for grants. Without better definition as to how the funds will be spent, the Legislature is unable to determine if the funds will be expended in a manner that is consistent with its priorities in these program areas.

Unclear How Implementing Agencies Will Coordinate Efforts. As shown in Figure 1, multiple departments are responsible for implementing these new programs. This raises issues as to how the departments will coordinate their efforts in order to avoid duplicative activities and to ensure that program expenditures are collectively made in an effective manner. However, the budget does not provide information regarding how the departments will coordinate their efforts in these program areas. This is especially the case with the integrated regional water management grant programs since both DWR and SWRCB will be allocating grants for essentially the same purposes. In addition, it is unclear how the integrated regional water management grant programs will coordinate with existing programs that administer grants for similar activities, including coordination with grant programs under the CALFED Bay-Delta Program and SWRCB's various other water quality grant programs. Similar concerns exist regarding the water security proposals given the significant activities at other state agencies to prepare for and prevent terrorist attacks.

Recommend Enactment of Legislation to Guide Program Implementation. Based on our review, we conclude that the proposal to expend Proposition 50 bond funds on integrated regional water management projects and water security activities lacks sufficient detail to justify approval. Accordingly, we recommend the deletion of the funding for these programs from the budget bill, and instead recommend it be put in legislation. The legislation should provide policy direction for allocating the grant funds, including more definition of program priorities and criteria for evaluating the grants.