Analysis of the 2008-09 Budget Bill: Resources

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 CALFED has been the subject of a number of recent performance assessments and Delta–related planning processes, the recommendations of which, if adopted, will fundamentally define the future for CALFED programmatically. We evaluate the Governor’s budget proposals for CALFED in the context of the lessons learned from the performance assessments and the status of various planning processes. We make recommendations on the budget proposals and provide our assessment of the role of the Legislature in guiding the future of the Bay–Delta and CALFED.

Background. 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. 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, and reduce the risks from deteriorating levees.

The program’s implementation—which is anticipated to last 30 years—is guided by the “Record of Decision” (ROD) approved by the lead CALFED agencies in 2000. Among other things, the ROD lays out the roles and responsibilities of each participating agency, sets goals for the program and the types of projects to be pursued, and sets milestones for achieving program outcomes. The ROD also provides that program costs, to the extent possible, be paid by the beneficiaries of the program actions.

Although the ROD envisioned CALFED being financed over time by roughly equal contributions of federal, state, and local/user funding, the state has been the major funding source for the program’s first eight years, providing over $3 billion, or around 50 percent, of funding since 2000–01. Almost all of the state funds supporting CALFED have been taxpayer–supported “general–purpose” funds, namely monies from the General Fund and bond funds. Apart from a relatively small contribution from the State Water Project (SWP) and Central Valley Project contractor revenues, no user fees have supported the program.

As a result of a program reorganization initiated in the 2006–07 budget process, the Secretary for Resources is the single main “point of accountability” for CALFED, with clear responsibility for the overall program planning, performance, and tracking. The Secretary is also responsible for the centralized CALFED science function.

What Has Been Learned From the Delta–Related Planning Efforts and the CALFED Program Reviews?

While CALFED has had its successes, such as efforts to increase water supply reliability through increased water recycling and groundwater storage, there is common agreement from the Delta–related planning efforts and CALFED program reviews that the “business as usual” CALFED is not well positioned to meet its objectives. In particular, the current approach to conveyance whereby water moves through the Delta is not working, and alternative methods of conveyance should be evaluated. The CALFED program reviews and performance assessments also found that while much money has been spent on projects, the spending has sometimes been made without any sense of priorities or clear objectives.

Multiple Planning Efforts and Program Reviews. CALFED is currently involved in a number of planning efforts that fundamentally will define its future, including its financing requirements and its program beneficiaries over the long term. In addition, CALFED has been the subject of a number of recent program reviews and performance assessments, following its completion of what is referred to as “stage one”—the program’s first seven years from 2000–01 through 2006–07. A brief description of these planning efforts and program reviews, and their status, is found in Figure 1.

Bottom–Line Findings and Recommendations of These Efforts. Our review of the various work products produced by the Delta planning efforts and CALFED program reviews found a relatively high level of agreement on the following four key points:

• Alternatives to Current Conveyance System Must Be Evaluated. Reliance on the current approach of conveying (moving) water through the Delta will prohibit the state from achieving its environmental and economic–related goals for Delta water use. There
• are a number of potential alternatives to the current conveyance system—including the creation of so–called “isolated” conveyance facilities that would take water around the Delta, rather than through the Delta as is the case currently. However, the Delta Vision task force concluded that the outcomes of the various conveyance alternatives are far from being understood in terms of their impact on water quality, water supply reliability, cost, seismic risk, endangered species protection, among other impacts. Therefore, the task force concluded that further assessment of the various conveyance alternatives must be made, with the performance of each measured clearly against specified criteria.
• CALFED’s Progress Has Been Limited Inside the Delta. While the CALFED program has made significant progress in areas outside of the Delta, progress has been more limited inside the Delta. For example, spending on water recycling and groundwater storage projects outside of the Delta have successfully reduced pressures on the Delta to provide water, and spending on fish screens upstream of the Delta has resulted in improved populations of certain fish species, such as salmon. In contrast, populations of native Delta species, most notably the Delta smelt, have declined significantly over the life of CALFED.
• Past Spending Has Often Lacked a Sense of Priorities. Overall spending in a number of CALFED programs has lacked focus. A clarification of program objectives is needed to guide future activity. For example, according to one of the program assessments, the CALFED ecosystem restoration program has taken “hundreds of non–prioritized actions with no quantified intermediary objectives to help guide those investments.” Similarly, a lack of an overall strategy or priorities to guide CALFED’s competitive grant program to control pollution at drinking water sources resulted in “scattered program implementation” with “unclear” improvements in drinking water quality resulting from specific project expenditures.
• Recommended “No Regrets” Actions for the Near Term. As for next steps for CALFED agencies, the planning efforts and program reviews agreed that actions by these agencies should be neutral in terms of the outcome of the Delta Vision, Bay Delta Conservation Plan (BDCP), Delta Risk Management Strategy (DRMS), and other processes that will ultimately set the course for the next stage of CALFED. Examples of such no regrets actions include continued levee maintenance and improvements, water use efficiency
projects, and implementation of water quality best management practices. The CALFED science program should conduct focused research on priority Delta issues that serve to reduce uncertainty and help state policymakers make informed decisions about the future direction of CALFED and the Delta.

Governor’s Budget Proposal

The budget proposes $242.4 million of state funds across eight state agencies for CALFED in 2008–09, a decrease of $497.8 million, or 67 percent, below estimated current–year expenditures. This decrease is primarily due to a decrease in available bond funds from pre–2006 resources bonds.

Expenditure Summary. Figure 2 shows the breakdown of CALFED expenditures in the current year and as proposed for 2008–09, among the program’s 13 elements.

Current–Year Expenditures. As shown in the figure, the budget estimates CALFED–related expenditures from state funds of $740.2 million in 2007–08. Of this amount, $16 million is from the General Fund, with the balance mainly from various bond funds ($666.2 million, largely from Proposition 50) and State Water Project funds ($55.7 million).

For the current year, the largest state expenditures are for the ecosystem restoration ($276.7 million), water quality ($96.7 million), and conveyance ($94.9 million) programs.

Budget Proposes Substantially Lower Spending in 2008–09. As shown in Figure 2, the budget proposes $242.4 million of state funds for various departments to carry out CALFED in 2008–09, a decrease of $497.8 million, or 67 percent, below estimated current–year expenditures. Of the proposed expenditures, $15.5 million is proposed from the General Fund, with the balance mainly from various bond funds ($174.4 million, largely from Proposition 84) and SWP funds ($50.2 million).

As Figure 2 indicates, CALFED expenditures are spread among eight agencies. The largest expenditures are found in the Department of Water Resources (DWR) ($168.2 million), Department of Fish and Game (DFG) ($32.1 million), and the Secretary for Resources ($26.3 million). The largest state expenditures are proposed for the levee system integrity ($65.9 million), ecosystem restoration ($50.7 million), and science programs ($36.6 million).

Issues for Legislative Consideration

In the sections that follow, we provide a framework for the Legislature to apply in evaluating the Governor’s budget proposals for CALFED, taking into account the findings and recommendations of the various Delta–related planning efforts and the lessons learned from the CALFED program reviews. We follow this with our recommendations regarding specific budget proposals.

Recommended Approach for Evaluating CALFED Budget Proposals

We recommend that the Legislature evaluate CALFED budget proposals based on a number of criteria, including clear objectives, established funding priorities, and use of the beneficiary pays funding principle. We further recommend that the Legislature approve grant and contract funding for the whole CALFED budget on a one–time basis, and that supplemental report language be adopted requiring a zero–based CALFED budget be submitted with the Governor’s 2009–10 budget. Finally, we recommend that the Legislature adopt its policy for the future of the Delta in legislation.

Approach for Evaluating CALFED Budget Proposals. In evaluating the merits of CALFED budget proposals, we recommend that the Legislature apply the following criteria. Specifically, budget proposals should:

• Not prejudge or bias the outcome of the various ongoing Delta–related planning efforts, including the Delta Vision, BDCP, and DRMS processes.
• Be focused so as to provide timely scientific information that serves to inform the various Delta–related planning efforts.
• Tie to clear objectives and established funding priorities for the program area.
• Reflect the application of the “beneficiary pays” funding principle, as adopted by both the CALFED ROD and the Delta Vision task force.

Recommend Approval of Grant and Contract Funding on One–Time Basis. We also recommend that the Legislature approve all grant and contract funding proposed in the CALFED budget (both baseline expenditures and new funding proposals) on a one–time basis. As discussed below, the administration should submit a “zero–based budget” for CALFED as part of the Governor’s 2009–10 budget submittal.

Recommend Zero–Based Budget Be Submitted for 2009–10. As is evident from the discussion thus far, CALFED is at a major crossroads

in terms of its future programmatic direction, as the administration and the Legislature await the outcomes of the various Delta–related planning efforts. The outcomes of these efforts (much of which will be determined a year from now), and the legislative policy–setting that will follow, will help guide the future course of CALFED. Therefore, it appears appropriate for the CALFED budget to start with a “clean slate” next year. To assist the Legislature in its evaluation of the total CALFED budget next year, we recommend the adoption of the following supplemental report language requiring the submittal of a zero–based budget:

Item 0540–001–0001. Zero–Based Budget for CALFED Bay–Delta Program (CALFED). It is the intent of the Legislature that the Governor, as part of the 2009–10 Governor’s Budget, submit a zero–based, cross–cut 2009–10 budget for CALFED, developed in conjunction with the Secretary for Resources and the constituent agencies of the CALFED program. It is the intent of the Legislature that this direction for a zero–based budget would require the administration to justify all expenditures proposed to support CALFED, thereby enabling better legislative understanding of the overall size of CALFED and how funds are being expended as well as how proposed expenditures will further the goals and objectives of CALFED. It is also the intent of the Legislature that the budget change proposals submitted in support of the zero–based budget would inform the Legislature of (1) the administration’s objectives and funding priorities for each of the CALFED program areas and (2) how the proposal ties to the findings and recommendations of the various Delta–related planning efforts and CALFED program reviews and performance assessments.

Recommend Legislature Adopt Its Policy for the Delta. Finally, we recognize that the outcomes of the various Delta–related planning efforts—Delta Vision, DRMS, and BDCP—will have major policy implications for the state. Once the Legislature has reviewed the various work products stemming from these efforts—the Delta Vision strategic plan (the plan to implement the recently adopted vision), the final DRMS work product, and the BDCP to be adopted in regulation—we recommend that the Legislature enact legislation establishing its Delta policy. This legislation should establish the Legislature’s policies for the future of the Delta and its objectives and funding priorities for CALFED as a key component in implementing the Legislature’s Delta policy. This will enable evaluation of future CALFED budget proposals for consistency with legislative policy priorities.

Surface Storage Proposals Still Lack Funding Partners

The budget proposes $9.8 million in bond funds for the Department of Water Resources, under CALFED, to continue feasibility studies for surface water storage projects. As we found in last year’s 2007–08 Analysis, the CALFED surface storage program has reached a point where these feasibility studies cannot practically move forward un

less nonstate entities—parties who would benefit from the projects being studied—step up to the plate and share the costs of studying and developing these projects. (Reduce Item 3860–001–6031 by $3.8 million and Item 3860–001–6051 by $6 million.)

Surface Water Storage Feasibility Studies. Over $62 million in state funds has been spent by DWR under the CALFED program on surface water storage studies through June 2007. Some of these studies relate to a project at a specific location (such as Los Vaqueros Reservoir Expansion), while others relate to potential projects throughout a region (In–Delta Storage Investigations). Federal expenditures for the studies total $55.4 million in the same period.

Budget Proposal. The budget proposes a total of $9.8 million in bond funds ($3.8 million from Proposition 50 and $6 million from Proposition 84) to continue various surface storage studies, including the North–of–Delta Offstream Storage (Sites Reservoir), Los Vaqueros Reservoir, and Upper San Joaquin River Storage Investigations (Temperance Flat).

Previous Legislative Action on This Item. The department previously submitted this same proposal as part of its 2007–08 budget proposal, and the Legislature denied it. At that time, we recommended against funding the proposal until nonstate entities—namely parties who would benefit from the projects being studied—stepped up to the plate to share the cost of these studies (see our Analysis of the 2007–08 Budget Bill, page B–46). We also noted last year that our recommendation was consistent with legislative direction in the 2006–07 Budget Act regarding funding for Los Vaqueros Reservoir Expansion. Specifically, the Legislature prohibited state funds from being spent for that project until regional funding sources were secured to fund the continued investigation and planning of this project.

Recommend Denying Budget Request. Given the lack of funding from nonstate funding sources to move the storage studies forward in the budget year, we therefore recommend denying the budget request.

CALFED Science Proposal Needs More Focus

The budget proposes $26.4 million in bond funds for scientific research and related staff costs under CALFED. The administration has not demonstrated that the research to be funded will assist the Legislature in making decisions about the Delta in the next few years. We recommend the Legislature reject the portion of the request for scientific research grants and that the administration submit a more narrowly focused proposal at the May Revision that meets specified criteria. (Reduce Item 0540–001–6031 by $17.3 million. Reduce reimbursements under Item 0540 by $8 million. Reduce Item 3860–001–6051 by $8 million.)

Budget Proposal. The budget requests $26.4 million in bond funds ($8 million from Proposition 84 and $18.4 million from Proposition 50) in the Secretary for Resources and DWR for the CALFED science program. These funds would be used to provide ongoing support for program staff ($1.1 million) and to fund grants for scientific research ($25.3 million). The research funds would be used both to support ongoing research projects and to fund new studies through a grant–making process.

Recommend the Legislature Reject Most of the Budget Proposal as Crafted Currently. In the past, the science program has funded research into both basic science related to the Delta and more focused work on CALFED–specific projects and plans. As discussed above, the results of the Delta Vision process—and subsequent legislative actions—may lead to fundamental changes in how the Delta operates as an ecosystem and water supply system. Given the important decisions that will be made in the next few years, it is important that the science program provide relevant, focused information on potential changes to the Delta and resulting impacts on the ecosystem, water quality, and other areas of concern.

The administration has not provided sufficient information to demonstrate that the scientific work to be funded in the budget year will provide information that is (1) available in time to inform the Delta Vision process and subsequent legislative decision–making, and (2) focused on key policy issues under consideration, as opposed to being for general scientific research. Therefore, we recommend the Legislature reject the bulk of this proposal—the portion ($25.3 million) allocated to grants for scientific research. We recommend the administration present a revised proposal at the May Revision that proposes funding only for research activities meeting the two criteria listed above.

CALFED Ecosystem Restoration Proposals Are Premature or Funded Inappropriately

The Governor’s budget proposes $21 million in bond funds for ecosystem restoration projects. We recommend the Legislature reject certain of the proposed projects on the basis that either they (1) are premature until the Delta Vision process has been completed and long–term decisions about the use of the Delta are made or (2) should be funded by beneficiaries of the project. (Reduce Item 3600–001–6051 by $18.9 million.)

Budget Proposal. The Governor’s budget requests $21 million in Proposition 84 bond funds and 17 permanent positions for the CALFED Ecosystem Restoration Program (ERP), which is implemented by DFG. These funds would support the following activities:

• Dutch Slough Tidal Marsh Restoration ($5.9 Million)—Continuing restoration of an area of tidal marsh, to improve water quality and fish habitat.
• Miens Landing Tidal Marsh Restoration ($1 Million)—Continuing restoration of an area of tidal marsh, to improve water quality and fish habitat.
• M&T/Llano Seco Fish Screen ($12 Million)—Modifications to a specific Sacramento River bank near Chico to prevent sediment buildup over an existing fish screen that prevents salmon from being pulled into water supply systems.
• Performance Measures ($824,000)—Efforts to develop performance measures that will ultimately be used to track CALFED ERP project successes and failures.
• Constant Fractional Marking for Central Valley Chinook Salmon ($1.1 Million)—Collection of data on salmon in Central Valley rivers and in the Pacific Ocean.
• U.S. Fish and Wildlife Invasive Species Program ($200,000)—State support for a federal program to prevent invasive species from becoming established in the Delta.

Recommend Legislature Reject Certain ERP Proposals. As a general rule, we recommend the Legislature reject budget proposals for new ERP projects that can be delayed until the results of the Delta Vision process is complete. When this process is complete, the Legislature will have an opportunity to consider the long–term uses and configurations of the Delta as both an ecosystem and a water supply system. The result of those deliberations may be significant changes to the way in which the state uses the Delta. We believe it would be premature to fund several of the proposed restoration projects before those decisions are made—since fundamental changes to the Delta may make the proposed projects unsustainable in the long term. In addition, as noted earlier, the “End of Stage One Report” found that in–Delta ERP projects over the last seven years have made low levels of progress—as evidenced by the dramatic decline in open water fish species such as Delta smelt. Until a comprehensive system of performance measures are developed, it would be fiscally imprudent to continue to fund restoration projects whose benefits are uncertain and will not be verifiable. On this basis, we recommend the Legislature reject the Dutch Slough Tidal Marsh Restoration and the Miens Landing Tidal Marsh Restoration proposals in the budget year.

In addition, we recommend the Legislature reject the proposed M&T/Llano Seco Fish Screen project. As noted above, ERP to date has spent a lot of money on infrastructure projects outside of the Delta, with resulting improvements in fish populations in these areas, but has spent little on projects that have directly benefited fish populations in the Delta. Thus, it seems unwise to use significant bond funds for another out–of–Delta ERP project. Also, we believe that the water users whose water diversion is covered by the existing fish screen should pay for the cost of preventing further siltation. Given the significant ecosystem problems within the Delta, we do not believe the state should use bond funds to pay for an ecosystem project that does not directly address ecosystem problems within the Delta—particularly when there are direct beneficiaries who could pay for the project.

Recommend Approval of Select Subset of ERP Proposals. As a general rule, we recommend the Legislature approve ERP projects that will improve the state’s ability to evaluate the success or failure of CALFED projects. To this end, we recommend the Legislature approve the proposal to develop performance measures for the program. Also, we recommend the Legislature approve the Constant Fractional Marking proposal, as the information gathered by this project should be useful in future planning for salmon restoration and management activities.

Finally, we recommend the Legislature approve the proposal to provide funding to the U.S. Fish and Wildlife Service for invasive species prevention. While we continue to be concerned about the lack of federal funding for the CALFED program, we find that the potential threat to the Delta ecosystem from invasive species—particularly zebra and quagga mussels—warrants state funding for these activities.

Adoption of these recommendations would result in savings of $18.9 million in Proposition 84 funds.