Analysis of the 2005-06 Budget Bill Legislative Analyst's Office February 2005

Financing the CALFED Bay-Delta Program

The CALFED Bay-Delta Program (CALFED), a consortium of 12 state and 13 federal agencies, was created to address a number of interrelated water problems in the state's Bay-Delta region. The program's oversight agency—the California Bay-Delta Authority (CBDA)—has recently approved an $8.1 billion ten-year finance plan for the program, which will be incorporated in the Governor's May Revision proposal. We discuss the Governor's budget proposal and analyze the CALFED finance plan in our writeup on "Water Policy Issues Facing the State" in our companion document, The 2005-06 Budget: Perspectives and Issues.

What Is CALFED? Pursuant to a federal-state accord signed in 1994, 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. The CALFED program now encompasses 12 state and 13 federal agencies, overseen by a new state agency—CBDA—created by statute in 2002. The objectives of the program are to:

• Provide good water quality for all uses.
• Improve fish and wildlife habitat.
• Reduce the gap between water supplies and projected demand.
• Reduce the risks from deteriorating levees.

CALFED Is at a Funding Crossroads. The CALFED program is clearly at a funding crossroads. This is for a number of reasons. First, funding sources that the program has traditionally relied on—such as the General Fund and state bond funds—are either essentially unavailable or have been substantially depleted. There will be a significant drop in available funding beginning in 2006-07, particularly due to the depletion of available bond funds. Second, the program's funding requirements are likely to increase as major projects that have been in the study stage for a number of years move toward funding. Third, the program projects a substantial funding gap between its ten-year funding targets and currently available funding. The funding shortfall absent new revenue sources—$6.3 billion—is close to 80 percent of the funding targets.

$8.1 Billion Ten-Year Finance Plan. The Governor's January budget document indicates that elements of a ten-year CALFED finance plan recently approved by CBDA will be incorporated in the Governor's May Revision, along with a package of legislation necessary to implement the plan. The finance plan, as currently developed, is a framework to guide the financing of CALFED through 2013-14, with a total funding target of $8.1 billion. As noted in the budget document, the plan calls for new revenue sources, including water user fees.

Analysis of Finance Plan in Companion Document, Perspectives and Issues. We provide an analysis of CALFED's ten-year finance plan in the "Water Policy Issues Facing the State"writeup in our companion document, The 2005-06 Budget: Perspectives and Issues (P&I). In that analysis, we find that the finance plan anticipates substantial new revenues, including greatly increased federal funds and undefined new sources of state funds. Some of the funding targets in the plan may be unrealistic given the uncertainty surrounding the underlying revenue assumptions. We make a number of recommendations in the P&I to address this issue.