Analysis of the 2007-08 Budget Bill: Resources

Funding the San Joaquin River Restoration Settlement

The budget proposes about $14 million in bond funds to support the implementation of a lawsuit settlement to restore portions of the San Joaquin River. We recommend the Legislature delete funding for restoration activities in the budget year and await secure funding commitments from the responsible parties before committing state funds. If the administration wishes to move forward with restoration activities, it should sponsor a policy bill to ratify the agreement it has made with the responsible parties, thereby allowing the Legislature the opportunity to fully consider the appropriate role for the state in the restoration. (Reduce Item 0540-001-6051 by $13,869,000, reduce Department of Fish and Game reimbursements by $1,185,000, reduce Department of Water Resources reimbursements by $12,684,000, reduce Item 3860-001-6027 by $265,000.)

San Joaquin River Lawsuit Settlement. Friant Dam is located on the San Joaquin River in Fresno County and is used to store water—primarily for agriculture. In 1988 the Natural Resources Defense Council sued the federal Bureau of Reclamation (the operator of Friant Dam) and the Friant Water Users Association (FUWA), alleging that the operation of Friant Dam violates the state’s Fish and Game Code with respect to historic fish populations in the river. In August 2006, the parties reached a settlement agreement, the goal of which is to “restore and maintain fish populations” in the San Joaquin River below Friant Dam. The settlement specifies actions that will be taken to restore the San Joaquin River over the next 20 years. Under the agreement, the federal government will provide funds to restore the river, while FUWA agreed to actions that will increase flows in the river. While the total cost of the restoration is unknown, early estimates indicate that the total cost could be over $700 million over the next 20 years. The settlement agreement recognizes that Congressional action is necessary to authorize the federal funding contribution.

State’s Role in the Restoration. Proposition 84, passed by the voters in November 2006, includes $100 million allocated to the Secretary for Resources for the restoration of the San Joaquin River, for the purpose of implementing a court settlement to restore flows and the salmon population to the river. While the state is not a party to the lawsuit, the Department of Fish and Game (DFG), the Department of Water Resources (DWR), the Resources Agency, and the California Environmental Protection Agency have entered into a memorandum of understanding (MOU) with the settling parties regarding the state’s role in the restoration. The MOU has been incorporated into the settlement agreement.

Pursuant to the MOU, the administration is proposing to spend $100 million of Proposition 84 funds over the next five years on restoration activities. Proposition 84 funds are proposed for land and easement purchases, channel improvements, and research projects. Two specific priority areas identified by the administration are the creation of a bypass around Mendota Pool (which would prevent fish from passing through Mendota Dam) and isolating an existing gravel pit located along the San Joaquin River in Fresno (to prevent migrating salmon from becoming trapped in the gravel pit during high river flows).

Budget Proposal. The budget proposes about $13.9 million of Proposition 84 bond funds to the Secretary for Resources for purposes of implementing the lawsuit settlement. (These funds would be used by the secretary to reimburse DFG [$1.2 million] and DWR [$12.7 million] for carrying out the actual restoration activities.) In addition, the budget proposes $265,000 of Proposition 13 bond funds in DWR for San Joaquin River restoration activities. The funds proposed in the budget will begin the restoration activities described above.

Legislative Prerogative to Ensure Proposition 84 Funds Are Spent Wisely. Proposition 84 provides that before funds can be spent for the San Joaquin River restoration settlement, they must be appropriated by Legislature. While the administration’s MOU references the availability of Proposition 84 funds for purposes of the settlement, the MOU cannot obligate the Legislature to take a particular action in exercising its appropriation authority. In exercising its authority, the Legislature should ensure not only that the proposed expenditures are consistent with the bond measure, but also that funds are spent wisely and effectively.

Need Stronger Assurances That Responsible Parties Will Pay. While there is a state interest in restoring the San Joaquin River and also preserving the use of river water for agriculture, it is important to note that the state is not directly responsible for the condition of the San Joaquin River that led to the lawsuit. Under the “polluter pays” principle, the responsible parties—in this case the federal government and the water users—should bear the primary responsibility for the restoration of the river. The state should not take actions that potentially diminish the legal obligations of the responsible parties to restore the damage they have caused.

Based on our review, we conclude that the funding contribution from the responsible parties is subject to significant uncertainty. The settlement agreement, for example, provides that any party to the lawsuit can void the settlement if federal legislation to implement the settlement is not enacted by December 31, 2006. While such federal legislation (authorizing $250 million in appropriations) was introduced this past fall, it failed to pass. This brings into question whether either the federal government or the water users will meet their obligations under the settlement agreement. While such legislation may be forthcoming in the new session of Congress, we recommend that the state wait until the required federal appropriations are made before appropriating state funds. If the state were to appropriate funds to begin the restoration process in advance of federal funding being secured, it may reduce the urgency for the federal government to provide funding as required in the settlement. For example, while the CALFED Bay-Delta program was intended to be an equal partnership among the state, the federal government, and local water users, the federal government has substantially lagged the state in its funding contribution, as the state has provided more than its share of costs.

We therefore recommend that the Legislature delete the requested state funding for restoration activities in the budget year. This will allow the Legislature to ensure that these Proposition 84 funds (which can only be used for the San Joaquin restoration), when appropriated, are targeted effectively and that the responsible parties have provided their required contributions.

Legislature Should Have an Opportunity to Evaluate the State’s Role in the Restoration. While Proposition 84 allocates funds for the restoration of the San Joaquin River and the administration has signed an MOU with the responsible parties, the Legislature has never been given an opportunity to evaluate the state’s appropriate role in the restoration. Because the restoration effort is likely to require significant state contributions over the next several decades, we think the Legislature should have the opportunity to deliberate on the appropriate role for the state in the restoration. If the administration wishes to move forward with restoration activities, it should sponsor a policy bill to ratify the MOU. This would allow the Legislature to fully evaluate the commitment the administration is proposing, as well as allowing the Legislature to determine the overall parameters of state involvement in the restoration.

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