Analysis of the 2007-08 Budget Bill: Resources

Resources Bonds

The state uses a number of bond funds to support the departments, conservancies, boards, and programs under the Resources and California Environmental Protection Agencies that regulate and manage the state’s natural resources. Of the $7 billion in state-funded expenditures for resources and environmental protection programs proposed for 2007-08, about $2.4 billion (34 percent) is proposed to come from bond funds. This amount is about $341 million more than estimated bond expenditures in the current year, reflecting the influx of a total of $9.5 billion of available funds from the Propositions 1E and 84 resources bond measures approved by the voters in November 2006. These two bonds provide a major one-time infusion of state funds for flood management; safe drinking water, water quality, and water supply; natural resource protection; and park improvements. The Governor has also proposed a $4 billion water management general obligation (GO) bond measure to be submitted for voter approval in 2008.

In the sections that follow, we provide a brief status report on the fund condition of various pre-2006 resources bond funds, highlight key programs funded by Propositions 1E and 84 and summarize the Governor’s budget proposals for these two bonds, identify issues and offer recommendations that the Legislature should consider to ensure the effective and efficient implementation of Propositions 1E and 84, and describe the Governor’s proposed 2008 bond measure.

Pre-2006 Resources Bonds

The budget proposes expenditures in 2007-08 of around $600 million from the five resources bonds approved by the voters since 1996. The proposed expenditures would leave a balance of about $700 million for new projects beyond the budget year. Most bond funds for park projects, land acquisition, and restoration have been appropriated, with the funds remaining being mainly for water quality and safe drinking water projects, integrated regional water management, and ecosystem restoration and other water-related projects under the CALFED Bay-Delta Program.

Five Resources Bonds Approved Between 1996 and 2002. Between 1996 and 2002 (the last year, prior to November 2006, that voters approved resources-related GO bonds), voters had authorized $11.1 billion in five GO bonds for various resources purposes. Funding from these bonds was allocated as follows:

• $3.2 billion for a broad array of land acquisition and restoration projects, including ecosystem restoration, agricultural land preservation, urban forestry, and river parkway projects.

• $2.7 billion for state and local park projects and for historical and cultural resources preservation.

• $2 billion for various water quality purposes, including wastewater treatment, watershed protection, clean beaches, and safe drinking water infrastructure upgrades.

• $1.7 billion for various water management purposes, including water supply, flood control, desalination, water recycling, water conservation, and water system security. Of this total amount, about $400 million is allocated specifically for flood control.

• $1.5 billion for CALFED, a federal-state consortium of over 20 agencies created to address interrelated water quality, water supply, fish and wildlife habitat, and flood protection issues in the Delta region of the state.

• $50 million for grants to improve air quality in state and local parks.

Budget Proposal. The budget proposes expenditures totaling about $530 million in 2007-08 from the five, 1996 through 2002, resources bonds. The budget projects a balance of at least $700 million from the five bonds for new projects beyond the budget year. Of this remaining balance, most of the funding is available for water quality, safe drinking water, integrated regional water management, and ecosystem and other water-related projects under CALFED. Virtually no funding remains for state and local parks and little funding remains for land acquisition and restoration projects.

Major Provisions of Propositions 1E and 84

Proposition 1E. Proposition 1E authorizes the state to sell about $4.1 billion in GO bonds for various flood management purposes. Figure 1 summarizes the purposes for which the bond money would be available for expenditure by the Department of Water Resources (DWR) and for grants to local agencies. In order to spend these bond funds, the measure requires the Legislature to appropriate them in the annual budget act or other legislation.

Proposition 1E also requires the Secretary for Resources to (1) provide for an independent audit of bond fund expenditures to ensure that all moneys are expended in accordance with the measure and (2) publish annually a list of all program and project expenditures funded from the bond.

Companion legislation to the flood control bond measure—Chapter 31, Statutes of 2006 (AB 1039, Nuñez)—was enacted to streamline the environmental review and permitting process for flood control projects funded from the bond in order to facilitate timely project delivery. Specifically, Chapter 31 includes an exemption from the California Environmental Quality Act for the repair of specified critical levees of the Sacramento River Flood Control Project. Chapter 31 also requires a consolidated environmental permitting process for levee repair projects funded from the bond, to reduce or eliminate unnecessary duplication, overlap, and paperwork associated with the multiple permits required.

Proposition 84. Proposition 84 authorizes the state to sell about $5.4 billion in GO bonds for safe drinking water, water quality, and water supply; flood control; natural resource protection; and park improvements. Figure 2 summarizes the purposes for which the bond money would be available for expenditure by various state agencies and for loans and grants, primarily to local agencies and nonprofit organizations. In order to spend most of these bond funds, the measure requires the Legislature to appropriate them in the annual budget act or other legislation. Specifically, only $620 million in funding ($315 million allocated to the Wildlife Conservation Board [WCB] for forest conservation and wildlife habitat projects and $305 million allocated to DWR for floodplain mapping and flood control projects) is “continuously appropriated,” meaning that a legislative appropriation is not required before funds can be spent.

Proposition 84 also requires the Secretary for Resources to (1) provide for an independent audit of bond fund expenditures to ensure that all moneys are expended in accordance with the measure and (2) publish annually a list of all program and project expenditures funded from the bond.

Governor’s Budget Proposal for Propositions 1E and 84

Proposition 1E. The Governor’s budget proposes $624 million in expenditures from Proposition 1E in 2007-08, about 15 percent of total funding authorized in the measure. (No expenditures are proposed for 2006-07.) All of the funding for 2007-08 is proposed for appropriation in the budget bill. The Governor’s budget document was not accompanied by any proposed statutory language to implement the measure. The Governor’s budget proposal is summarized in Figure 3.

Proposition 84. From Proposition 84, the Governor’s budget proposes $60 million in expenditures in 2006-07 ($25 million for wildlife habitat protection and $35 million for forest conservation) and about $1.1 billion in expenditures in 2007-08, representing about 22 percent of total funding authorized in the measure. Most of the funding is proposed for appropriation in the budget bill, with the exception of $121 million of expenditures in WCB for forest conservation and wildlife habitat projects (in 2006-07 and 2007-08 combined) and $93 million of expenditures in DWR for floodplain mapping and flood control projects (in 2007-08). No statutory language has been proposed by the Governor to implement the measure. The Governor’s budget proposal for 2007-08 is summarized in Figure 4.

Flood Control Expenditures Have a Local Assistance Focus. It is important to note that of the roughly $600 million total of proposed flood control expenditures from Propositions 1E and 84 in 2007-08 (excluding the $200 million transfer to the General Fund from Proposition 1E), about two-thirds ($401 million) is proposed for local assistance. This local assistance includes flood control subventions (payment of the state share of costs of locally sponsored, federally authorized projects), grants for projects to improve flood protection in urban Central Valley areas, support for local maintenance and improvements of Delta levees, grants for new flood control feasibility studies and levee evaluations, and programs to improve floodway corridors. According to DWR, this local assistance (as opposed to state capital outlay) focus of the expenditures reflects the relatively greater resource capacity at this time of local flood control agencies, particularly urban ones, to deliver projects.

Propositions 1E and 84 Implementation: Issues for Legislative Consideration

In order to realize the full benefits of the infusion of bond funding provided by Propositions 1E and 84, it is important that the projects and programs funded are cost-effective in achieving the desired results of the measures. In this section, we highlight a number of issues for the Legislature to consider as it evaluates the Governor’s budget proposals for these bond funds. We further recommend a number of legislative actions to provide for the effective and timely implementation of bond programs, consistent with legislative priorities. Our recommendations are summarized in Figure 5.

Funding Eligibility

Defining Funding Eligibility for New Proposition 84 Programs. Proposition 84 contains provisions that create substantially new programs, with very general guidance as to the types of projects eligible for funding. The Legislature should provide direction for these programs in order to ensure that these expenditures are consistent with legislative priorities. (We discuss the need for implementing legislation for a number of bond crosscutting issues—such as administrative costs and cost-sharing requirements—later in this section.) The relevant bond provisions for new programs for which the Legislature should provide direction are as follows:

• $90 Million for Urban Greening Projects; $90 Million for Conservation Planning Incentives. In both cases, the measure does not specify an implementing agency and provides only very general guidance as to the eligible uses of the funds. The Legislature should enact legislation to designate implementing agencies and establish program goals and criteria for awarding grants and funding specific projects under these two new programs. We recommend that the Legislature designate the Secretary for Resources as the lead agency for these two programs. This is because the funds, depending on the nature of the conservation project to be funded—such as water conservation, energy conservation, and urban forestry projects—would be potentially administered by one of several different resources departments within the agency. While the Secretary for Resources would be the lead agency, we recommend that the budget bill place the expenditure authority for the funds in the department most closely related to the particular area of conservation addressed by the funding.

We note that as regards the funding for conservation planning incentives, the Governor’s budget proposal includes $6.4 million to the Department of Conservation (DOC) for the development and implementation of the “Green Cities Partnership Initiative.” Of this amount, $400,000 is for DOC staff and $6 million is for grants to local agencies for the development of planning documents that incorporate the characteristics of a “sustainable California community.” The concept of a sustainable California community is not defined in the budget proposal, apart from the very broad definition of “environmental and economic soundness.” As it is unclear what criteria DOC will use in awarding the grants, we recommend that the Legislature withhold action on this particular budget request, pending a report at budget hearings from DOC on its policy interpretation of sustainable California community and the criteria upon which it anticipates basing its selection of grants. This will give the Legislature an opportunity to provide any policy direction it deems appropriate in implementing legislation.

• $90 Million for Matching Grants to Local Agencies for Stormwater Pollution Prevention. The Legislature should enact legislation to define the matching requirements and establish criteria for awarding grants. While Proposition 84 requires that there be a local match, it does not specify what it should be. We think that a nonstate cost share of 50 percent of the cost of projects funded from these grants would be in keeping with matching requirements for similar grant programs.

• $60 Million for Loans and Grants for Groundwater Contamination Prevention. The measure directs the Department of Health Services—now the Department of Public Health (DPH)—to require repayment of grant-funded costs that are subsequently recovered from parties responsible for the contamination. The Legislature should enact legislation to establish criteria for awarding the loans and grants for the groundwater contamination prevention program. Similarly, the Legislature should provide guidance on how the provision concerning payments from responsible parties would be enforced. Regarding the latter, the legislation should define responsible parties (for example, are any polluters exempt from the definition?). The legislation should also clarify the respective roles of DPH and the environmental regulatory agencies (including the Department of Toxic Substances Control and the State Water Resources Control Board) in taking enforcement action against responsible parties to recover costs resulting from their contamination.

Addressing Funding Eligibility of Private Water Companies. Proposition 84 does not specify whether or not private water companies (which serve a significant portion of the state’s residents) are eligible for grants and loans for water quality and water supply projects. We recommend that the Legislature declare its policy position on this issue in legislation to implement Proposition 84. We think that the public purpose stated in Proposition 84 of providing a safe and reliable supply of water to all of the state’s residents and businesses would be furthered by including private entities as eligible recipients of bond funds for this purpose. (For more discussion of this issue please see our report, Proposition 50 Resources Bond: Funding Eligibility of Private Water Companies, May 2004.)

Defining Project Funding Eligibility for Flood Control Programs. Propositions 1E and 84 together provide $4.9 billion for flood control projects and programs. Both of these measures provide funding for a very broad array of projects and programs, leaving considerable discretion to the administration as to the particular flood management activities funded from the bonds. For example, Proposition 1E provides $3 billion for repairs and improvements to the state Central Valley flood control system and for Delta levee repairs and maintenance, without specifying the funding allocation between these two broad purposes. As another example, Proposition 84 provides $275 million for a broad array of flood control activities, without specifying whether the flood control projects eligible for funding must be part of the state Central Valley system or whether funding is available for any project in the state. In view of the above, we recommend the enactment of legislation for each of the bonds establishing the Legislature’s priorities for allocating funds for flood management activities.

We also recommend that the Legislature include as a priority, expenditures that serve to reduce the state’s potential fiscal liability stemming from flood events. As we noted in The 2005-06 Budget: Perspectives and Issues (P&I) (page 223), a number of recent court decisions, including the decision in Paterno v. State of California, expose the state to major liability for flood-related damages.

We think there are a number of ways to address the state’s potential fiscal exposure from flood events. First, the Legislature could improve the connection between local land use planning and flood risk. This could be done, for example, by conditioning bond funding to local agencies on improved flood control planning at the local level. In this regard, we have previously recommended that the Legislature tie flood control subvention funding to flood risk, so that local agencies that approve risky development would be ineligible for flood control subventions funding. (Please see our 2005-06 P&I [page 231] .)

Second, in light of the Paterno decision, expenditures that correct design deficiencies in the state Central Valley flood control system would also serve to reduce the state’s fiscal exposure from flood events. Addressing such design deficiencies should be a priority when considering the allocation of bond funds.

Finally, the court in Paterno found the state liable for flood-related damages partly on the basis that the state lacked a reasonable flood control “plan” for the state flood control system. Accordingly, developing such a plan would be another key way to reduce the state’s fiscal exposure. Plan development is an authorized use of the flood control bond funds.

Identifying Administration’s Selection Criteria for Initial Flood Control Proposals. As we discussed in The 2005-06 P&I (page 220), there is much evidence that the state’s aging flood control infrastructure contains sections that have lost substantial capacity to carry the flow of water for which they were designed. However, the state lacks comprehensive information on the structural integrity and the channel carrying capacity of the projects making up the state Central Valley flood control system. The state is only now embarking on a comprehensive systemwide evaluation, given the availability of bond funds allocated for this purpose. The evaluation involves exploration, lab testing, and technical analysis for each of the 1,600 miles of levees in the state flood control system. Once complete—DWR anticipates the evaluation will take about four years—the evaluation will provide information essential for setting priorities for the state’s flood management expenditures in future years.

Pending completion of the comprehensive evaluation, the department proposes moving forward with substantial funding of various flood control projects in the budget year. In order to assist the Legislature in its evaluation of these proposals, we recommend that the administration advise the Legislature during the budget process on the criteria it used to select the flood control projects and programs proposed for funding in 2007-08. This will give the Legislature a basis for evaluating whether the proposed flood control expenditures are a reasonable use of funds and consistent with legislative priorities for the interim while the comprehensive evaluation is in progress.

Please see our “Department of Water Resources” write-up in this chapter for a more detailed discussion of the Governor’s flood management-related budget proposals, including bond-funded proposals. In this write-up, we discuss an overall need for legislative oversight of the proposed flood-related capital projects.

State-Local Cost Sharing

Establishing State-Local Cost Sharing for Flood Control Projects. As previously noted, Propositions 1E and 84 together provide $4.9 billion for flood control projects and programs. Funds will be allocated as grants directly to local agencies for local flood control projects, as well as for the state share of expenditures for projects that have a direct local benefit. However, with specified exceptions, there is no local matching requirement for these bond funds. (The exceptions are: [1] federally authorized flood control projects, [2] the Delta levees subventions program, and [3] the $300 million stormwater flood management grant program.)

The Governor’s budget proposes close to $250 million of flood control expenditures in 2007-08 without a mandatory local matching requirement. While DWR has indicated that it will seek a voluntary local match for these expenditures, it does not plan on requiring it.

As a general rule, we think local matching requirements are appropriate for state bond-funded flood control projects for two reasons. First, as these projects provide direct benefits to local communities, including public safety and economic benefits, it is appropriate for these communities to share in the costs of these projects on the basis of the “beneficiary pays” principle. Second, because the funding requirements to address flood control issues statewide far exceed the funding allocated in the bonds for this purpose, a requirement for local matching funds would allow the state funds to go further and facilitate a greater number of projects.

We recognize that the appropriate matching requirement may vary by flood control program, and that there may be policy reasons for exempting certain local agencies from a matching requirement (for example, on the basis of economic hardship). We therefore recommend the enactment of legislation that establishes a local matching requirement, along with any exemptions, for all flood control programs funded from the two bonds. In so doing, the Legislature should also consider whether any existing cost-sharing requirements in law that would otherwise apply to projects from these two measures continue to be appropriate.

Federal Funding

Being Advised of Federal Funding Uncertainty. There is considerable uncertainty about the amount and the timing of federal funding potentially available to supplement bond expenditures proposed in the Governor’s budget. This uncertainty primarily involves federal funds for (1) federally authorized flood control projects and (2) the San Joaquin River restoration project. As discussed below, we think that it is important for the Legislature to be advised by the administration of the likelihood of federal funding in both of these areas.

For federally authorized flood control projects with a federal-state-local cost share, the state has traditionally secured the federal funding contribution before making state expenditures. Because of the not-before-seen magnitude of state bonds for flood control projects, it is unlikely that the state will have secured a federal funding commitment in all cases before a project expenditure triggers a federal cost share. Proposition 1E appears to recognize this, in that the measure requires the Governor to “secure the maximum feasible amount of federal matching funds…to the extent that this does not prohibit timely implementation of (the bond-funded program).” To assist the Legislature in its evaluation of the Governor’s flood-related bond expenditure proposals, we recommend that the Legislature be advised by DWR during the course of budget hearings of the potential for federal matching funds, the administration’s efforts to seek these funds, and the reasonable likely amount and timing of the federal funding.

Regarding the San Joaquin River restoration, there is a recent lawsuit settlement that provides for a funding contribution from the federal government and specified water agencies for various restoration activities on the San Joaquin River. (While the state was not a party to the lawsuit, the state has signed a memorandum of understanding with the federal government pledging cooperation and financial assistance in implementing the settlement agreement.) The total cost of the restoration effort has been projected to be upwards of $600 million to $700 million. Proposition 84 provides $100 million toward implementing the San Joaquin River restoration settlement, and the Governor’s budget proposes $13.9 million from this allocation for expenditure in 2007-08. However, federal funding for the restoration effort (which requires Congressional action) remains highly uncertain. A bill providing a $250 million federal appropriation for the restoration effort failed to pass this past Congressional session. We recommend that the appropriate administration agencies (DWR, the Department of Fish and Game, and the Secretary for Resources) advise the Legislature at budget hearings on the merits of proceeding with the proposed state expenditures in the context of such federal funding uncertainty. On the basis of such information, the Legislature can evaluate the budget proposal.

Please see our “Funding the San Joaquin River Restoration Settlement” write-up in the Crosscutting Issues section of this chapter for a more detailed discussion of this issue.

Streamlining Measures

Considering Streamlining Measures to Improve Project Delivery. As previously noted, the Legislature enacted Chapter 31—companion legislation to the flood bond measure—to streamline the environmental review and permitting processes for levee repair projects in order to improve delivery of these projects. We recommend that the various implementing agencies, identified in the two bond measures, advise the Legislature of other statutory action that might be taken to significantly improve the timeliness of project delivery.

Coordination

Coordinating Similar Local Parks Programs Across Bonds. We think there are actions that the Legislature should take to ensure that the implementation of similar programs found in different bond measures is coordinated in order to avoid duplication of administrative effort, unnecessary costs, and a potential loss of program effectiveness. In this regard, it is important that the local parks programs funded from Proposition 84 and those funded from Proposition 1C (the housing bond) be coordinated.

Proposition 84 includes $400 million for grants for local and regional parks. These funds will be administered by DPR which, for many years, has had an established process to implement bond-funded grants and loan programs for local and regional parks. Proposition 1C includes up to $400 million for local parks. Of this total, $200 million is broadly available for housing-related parks grants in urban, suburban, and rural areas, and up to an additional $200 million is for grants for park creation, development, or rehabilitation to encourage infill development. In contrast to Proposition 84, Proposition 1C does not designate an agency to administer the park-related funding. The Governor’s budget proposes that the Proposition 1C park-related funding be administered by the Department of Housing and Community Development (HCD), and all of the local assistance bond funding for this purpose is placed under HCD’s budget. However, the budget also proposes three new positions in DPR to help implement the Proposition 1C park programs.

Both Propositions 84 and 1C explicitly provide that the Legislature may establish conditions and criteria governing the allocation of the park funds. As the Legislature further defines the two park-related programs under Proposition 1C in implementing legislation, it should consider which state entity is best suited to administer these funds. As we also note in the section of this report on the housing bond, we think that designating DPR as the primary administrator of all bond funding for local parks (including Proposition 1C and 84 money) would likely result in lower overall state administrative costs, more consistent project evaluation, and better coordinated project selection, than if two agencies (DPR and HCD) administer separate grant programs for substantially similar purposes. In addition, we would expect there to be substantial overlap in the universe of potential grantees of the two bond funds. Running separate programs in different agencies for each of the two bond funds would serve to complicate the grant process for grantees and likely add to the time and costs incurred by them in the application process.

For a more detailed discussion of this issue, please see our “Department of Parks and Recreation” write-up in this chapter, and our “Housing and Community Development” write-up in the General Government chapter of this Analysis.

Appropriations

Appropriating Bond Funds. As noted above, all funds in Proposition 1E and most funds in Proposition 84—except for $620 million—are required by these measures to be appropriated by the Legislature. We note, however, that a continuous appropriation in a bond measure does not preclude the Legislature from appropriating these funds in the annual budget act in lieu of the continuous appropriation, as a way of increasing its legislative oversight of the expenditure of these funds. We therefore recommend that the Legislature include the Governor’s proposed expenditures from the continuously appropriated funds in the annual budget bill, enabling review of these expenditures through the legislative budget process.

Oversight Measures

Ensuring That the Bond Funds Are Used for Capital Outlay Purposes. Current law (Section 16727 of the Government Code) essentially provides that GO bonds are to be used for capital purposes. Without this control, the door would be opened to debt financing of noncapital expenditures, such as the costs of day-to-day program operations. This is in contrast to the legitimate use of bond proceeds to fund the reasonable administrative costs connected with a bond-related capital project or program. (We discuss the issue of bond-funded program administrative costs more generally in the next section.) In order to ensure that bond funds are not proposed for purposes that are clearly not related to capital outlay, we recommend that the Legislature review the Governor’s budget proposals with the Government Code provision in mind.

Ensuring Oversight of Program Administrative Costs. Generally, administrative costs related to bond-funded programs are for general administrative purposes, such as accounting and processing grant applications. These costs include staff salaries, benefits, equipment, and other operating expenses. To the extent that various administrative costs are charged to bond proceeds, there will be less funding available for specific capital projects and local assistance grants.

Both Propositions 1E and 84 leave considerable room for budgetary discretion in defining administrative costs. While Proposition 84 addresses the issue of administrative costs, it does so simply by capping administrative costs at 5 percent of funds allocated to any “program.” The measure does not provide either a definition of program or a definition of what is included in administrative costs. As regards Proposition 1E, it does not impose any limits on administrative costs.

Given the potentially substantial impact of program administrative costs on the amount of bond funds ultimately available for projects, we think it is important that the Legislature exercise effective oversight of these costs. For Proposition 84, we recommend that the Legislature enact legislation to define program for purposes of the 5 percent administrative cost cap and provide a definition of what is included in administrative costs. As a general guideline, we believe that only departmental costs directly attributable to bond-related projects (for example, costs to administratively track bond fund expenditures) should be borne by bond funds. For Proposition 1E, we also recommend legislation be enacted to provide parameters for charging administrative costs against bond proceeds. For example, as we have previously recommended in the context of the Proposition 40 resources bond (please see our report, Enhancing Implementation and Oversight: Proposition 40 Resources Bond, May 7, 2002), we suggest a cap of up to 5 percent of an appropriation for administrative costs related to Proposition 1E grant programs.

Our recommendations to control bond-funded administrative costs are consistent with recent legislative policy on this issue. Specifically, Chapter 831, Statutes of 2006 (AB 3003, La Malfa), limits DWR’s administrative expenses to 5 percent of GO bonds approved after January 2007.

Requiring Reporting of Bond Fund Information in Governor’s Budget. As noted above, both Propositions 1E and 84 require independent audits and an annual reporting of bond expenditures. In order to exercise oversight of bond programs, the Legislature needs both clear and accurate information about expenditures and periodic updates on the fund balances remaining for the various programs and projects funded by bond measures. Therefore, we recommend the enactment of legislation that requires the balances of each of the funding “pots” of the two bond measures be displayed annually in the Governor’s budget document. This will promote accountability and will facilitate the monitoring of fund balances for use in current and future budget appropriations.

Holding Joint Legislative Hearings. Finally, we recommend that the policy and budget subcommittees of the Legislature hold periodic joint hearings in which DWR and the other key implementing entities of Propositions 1E and 84 bond funds report on the use of bond funds and the timeliness of project delivery and program implementation. This would provide the Legislature with an opportunity to monitor the progress of the bond programs in the aggregate, and assess whether the programs are being carried out effectively to meet the measures’ objectives. This approach would also give the Legislature an opportunity to assess the extent to which bond expenditures are coordinated both among the various implementing departments and with similar programs funded from other fund sources. Finally, this would allow the Legislature to be apprised of the Governor’s overall expenditure priorities from each of these bond measures.

Conclusion

The passage of Propositions 1E and 84 provides the state with the opportunity to tackle major flood management issues, provide the state’s residents and businesses with safe and reliable water supplies, protect the state’s natural resources, and make needed park improvements. However, it is important that the bond funds are used to promote the bond programs’ objectives in an efficient and cost-effective manner. In this section, we have recommended actions that will help the state meet these goals.

$4 Billion Water Management Bond Proposed for 2008

As part of his ten-year Strategic Growth Plan, the Governor has proposed a $4 billion water-related general obligation bond to be submitted for voter approval in 2008.

As part of his ten-year Strategic Growth Plan to address the state’s infrastructure needs, the Governor has proposed a $4 billion water management GO bond to be submitted to the voters in 2008. Senate Bill 59 (Cogdill) contains this bond measure. The allocation of the $4 billion among projects and programs to be funded by the measure is as follows:

• Surface Water Storage—$2 Billion. This funding is for the “state’s cost share” in the design, acquisition, and construction of two surface water projects currently being studied by DWR under CALFED—Sites Reservoir (Colusa and Glenn Counties) and Temperance Flat Reservoir (Fresno and Madera Counties). If these specified surface water projects are deemed infeasible by DWR, then the funding is available for alternate surface water projects that are included in the CALFED “Record of Decision.” The proposed measure also provides that the state’s cost share is not to exceed 50 percent of total project costs. The nonstate share of costs would be funded from up to $2 billion in DWR-issued revenue bonds that would be secured by contract payments from water suppliers benefiting from the new storage.

• Groundwater Storage—$500 Million. This funding is for grants for the planning, design, and construction of locally managed groundwater storage and “conjunctive use” (combined use of surface and groundwater systems) projects.

• Delta Resource Conservation—$500 Million. This funding is to develop and implement a conservation plan for the Bay-Delta region, including projects that enhance and sustain fish populations.

• Delta Sustainability—$300 Million. This funding is to implement a strategic plan currently under development for sustainable management of the Delta’s multiple uses, resources, and ecosystem.

• Resource Stewardship and Ecosystem Restoration—$250 Million. This funding is for various restoration projects, including restoration of the San Joaquin River system, the Sacramento River corridor, and the Salton Sea.

• Delta Water Quality—$200 Million. This funding is to implement the water quality component of CALFED.

• Water Use Efficiency—$200 Million. This funding is for competitive grants for agricultural and urban water use efficiency projects.

Policy Issues for Legislative Consideration. The Governor’s bond proposal raises important policy issues for the Legislature to consider. Foremost among these is the issue of the appropriate ratio for a sharing of costs between the state and the nonstate entities who benefit directly from surface storage water projects that are proposed for bond funding. Such projects have traditionally been funded mostly by the water user beneficiaries. The Governor’s proposal, while still including a significant funding contribution from the direct project beneficiaries, incorporates a relatively greater role for public funding of these projects.

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