LAO 2006-07 Budget Analysis: Resources

Analysis of the 2006-07 Budget Bill

Legislative Analyst's Office
February 2006

State Water Resources Control Board (3940)

The State Water Resources Control Board (state board), in conjunction with nine semiautonomous regional boards, regulates water quality in the state. The regional boards-which are funded by the state board and are under the state board’s oversight-implement water quality programs in accordance with policies, plans, and standards developed by the state board.

The state board carries out its water quality responsibilities by (1) establishing wastewater discharge policies and standards; (2) implementing programs to ensure that the waters of the state are not contaminated by underground or aboveground tanks; and (3) administering state and federal loans and grants to local governments for the construction of wastewater treatment, water reclamation, and storm drainage facilities. Waste discharge permits are issued and enforced mainly by the regional boards, although the state board issues some permits and initiates enforcement actions when deemed necessary.

The state board also administers water rights in the state. It does this by issuing and reviewing permits and licenses to applicants who wish to take water from the state’s streams, rivers, and lakes.

Proposed Funding. The budget proposes expenditures of $632 million from various funds for support of the state and regional boards in 2006-07. This amount is a decrease of $408 million, or about 40 percent, below estimated current-year expenditures. Most of this decrease reflects a reduction in bond-funded expenditures, mainly for loans and grants for local water quality and water recycling projects. Despite this overall spending reduction, the budget does propose some increases in program funding. These proposals include $10 million for the cleanup of leaking underground storage tanks, $8.5 million for statewide water quality monitoring ($4 million in one-time funds and $4.5 million in ongoing federal funds shifted from another program), and $2.9 million to improve tracking of water rights permits.

Low Compliance in Agricultural Regulatory Program

Low compliance with state regulatory requirements by growers has limited the agricultural program’s effectiveness. In order to increase compliance, we recommend the enactment of legislation requiring grower coalitions to provide specific information. We also recommend that the board report at budget hearings on its plans to make the program self-supporting, consistent with legislative intent.

Regulation of Water Pollution From Agriculture. In areas where polluted wastewater is discharged into surface waters (for example, rivers or streams), the regional boards establish waste discharge permit requirements, which put restrictions on the kinds of waste and the amounts that may be discharged. State law allows regional boards to waive the waste discharge requirements if it is in the public interest, typically because the amount of discharge is insignificant. The regional boards typically make the grant of a “waiver” to the discharger subject to some conditions, such as requiring the discharger to monitor its discharges. While still a form of regulation, “conditional waivers” provide a less stringent method of regulation for minor discharges than would be required under a waste discharge permit.

Historically, the regional boards have regulated runoff from agriculture under conditional waivers. Early on, these waivers had few conditions and were largely unenforced. To address this issue, Chapter 686, Statutes of 1999 (SB 390, Alpert), required the regional boards to review and renew their conditional waivers or replace them with the more stringent waste discharge requirements if appropriate, given water quality impacts.

In order to comply with Chapter 686, the regional boards have adopted new conditional waivers for agricultural dischargers, under what is known as the Irrigated Agricultural Waivers Program. Under the program, individual growers or coalitions of growers are required to monitor water quality in the water bodies around their fields. If monitoring reveals that discharges from agricultural lands are contributing to water quality levels that exceed specified standards, the regional board may require the individual grower or coalition to implement a plan to reduce the impacts on water quality.

Grower Coalitions as a Regulated Entity. In the Central Valley, there are an estimated 80,000 individual growers and 9.6 million acres of land in agricultural production. The state board has determined that it would be impractical to enforce the conditional waiver requirements on each individual grower. Therefore, the state board has adopted a system under which individual growers can voluntarily join coalitions of growers, who would be the entity granted the waiver, rather than the individual grower. These coalitions are required to educate growers on water quality issues, instruct them in best management practices to prevent pollution, and undertake water quality monitoring programs. The coalitions provide annual water quality monitoring reports to the regional boards. Over time, these monitoring data will allow the regional boards to target their enforcement efforts to problem areas and to evaluate the effectiveness of pollution control efforts.

Funding the Agricultural Regulatory Program. Chapter 801, Statutes of 2003 (SB 923, Sher), authorized the state board to include the payment of a fee as a condition of granting a waiver under the Irrigated Agricultural Waivers Program. The Legislature has since directed that the waivers regulatory program be fee-supported. In the 2005-06 budget, the Legislature authorized the state board to collect $1.9 million in fees to support the program. In June 2005, the state board adopted a fee schedule for the program that is designed to encourage participation in coalitions by providing for a discounted fee for coalition participants. In the state board’s estimation, the activities of the coalitions reduce the level of outreach and enforcement by regional board staff, and hence it is worth generating lower fee revenues if it results in increased enrollment in the coalitions.

Compliance Problems. In the Central Valley region, there are ten coalitions whose enrolled membership collectively covers about 4.1 million acres of farmland. In addition, a very limited number of growers have enrolled as individuals in the program (covering approximately 4,600 acres). While the total acreage enrolled individually or through coalitions is significant, it represents only 43 percent of the farmland acreage in the Central Valley. This level of compliance is much lower than anticipated by the regional board. To date, the coalitions have not shared their membership lists with the regional board. This has made it very difficult for the regional board to determine which growers have enrolled in a coalition and which growers are simply not complying with the conditional waiver.

Low Compliance Reduces Program Effectiveness and Negatively Impacts Program Budget. The low compliance rate has two major impacts. First, there is a programmatic impact. Growers who have not enrolled individually or through a coalition may not be getting information on the waiver’s conditions and may not have information on ways to minimize polluted runoff. Additionally, because the level of compliance is low, more than one-half of the acreage in the Central Valley is probably not being effectively monitored.

Second, the low compliance rate has a budgetary impact. Because the program is fee funded, the low compliance rate has a direct impact on the generation of revenues necessary to support the program. When the state board adopted its fee schedule for the agricultural waivers program in June 2005, it anticipated raising $1.9 million in fee revenues annually, beginning in 2005-06, to support $2.1 million in program expenditures. However, the state board currently estimates that the fees will only generate $548,000 in the current year. As a consequence, the board advises that in the current year, the shortfall will be covered by a positive balance in the Waste Discharge Permit Fund, and in the budget year it anticipates addressing a projected shortfall by increasing fee rates.

Recommend Measures to Increase Compliance and Meet Legislative Intent. In order to fulfill the Legislature’s intent in Chapter 686 that more stringent permit requirements be waived only when it is in the public interest to do so, it will be necessary to increase growers’ compliance with the agricultural regulatory program.

First, as was mentioned above, the Central Valley regional board is not able to determine which growers are complying with the conditional waiver by enrolling in coalitions and therefore, by method of elimination, which growers are not. If the coalition membership lists were available to the regional board, it could then identify noncompliant growers in order to ensure that they comply either individually or through a coalition. Additionally, if the membership lists were publicly available, there may be peer pressure for noncompliant growers to enroll-because compliant growers are fulfilling the waiver’s requirements and paying fees that noncompliant growers are not. We therefore recommend the enactment of legislation that requires: (1) coalitions to provide their membership lists to the regional board as a condition of the regional board enrolling each coalition in the agricultural waivers program, and (2) coalitions to make their membership lists public.

Second, we are concerned that, absent corrective action, the budget significantly overestimates the fee revenues that will be collected to support the waivers regulatory program in the budget year. The board’s proposed solution is to adjust its fee schedule upward to account for the lower-than-anticipated compliance with the conditional waiver. We recommend that the board report at budget hearings on its plans to revise the fee schedule and its assumptions about compliance in the budget year. This will enable the Legislature to evaluate the reasonableness of the budget’s assumed fee revenues and to take necessary corrective action if the assumptions appear unrealistic.

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