Analysis of the 2008-09 Budget Bill: Resources

State Water Resources Control Board (3940)

The State Water Resources Control Board (state board or SWRCB), 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 about $735 million from various funds for support of the state and regional boards in 2008–09. This amount is a decrease of $276 million, or about 27 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 funded from pre–2006 bond funds. The reduction also reflects proposed budget–balancing reductions of $4.3 million for various water quality and water rights activities including Total Maximum Daily Load (TMDL) development and basin planning. Despite this overall spending reduction, the budget does propose some increases in program funding. These proposals include $100 million in Proposition 84 bond funds to implement various water quality programs; $29 million for grants to local agencies from pre–2006 bonds mainly for watershed protection, pollution control, and water recycling; $2.4 million (special funds) to implement new statutorily required programs related to plastic discharges, recycled water, and stormwater; and $1.3 million (special funds) to increase enforcement capacity.

Recommend Full Application of “Polluter Pays” Funding Principle

We recommend applying the polluter pays funding principle more fully to the board’s core water quality and water rights programs by (1) increasing existing fees to fully cover regulatory program costs, and (2) enacting a new broad–based fee to fully fund water quality management programs. Adopting our recommendation would result in $30.6 million in General Fund savings beyond the Governor’s budget proposal. (Reduce Item 3940–001–0001 by $30.6 million and increase Item 3940–001–0193 by $7.4 million, increase Item 3940–001–3058 by $400,000, increase new special fund item [timber harvest fee] by $4.4 million, and increase new special fund item [broad–based water quality fee] by $22 million.)

General Fund Provides Significant Support for Board’s Core Water Quality and Water Rights Activities. The budget proposes about $152 million for the board’s “core” regulatory and water quality management programs, and for water rights regulation. (We define the board’s core water quality programs mainly as those which assess water quality, update water quality standards and basin plans, and issue and enforce permits that are based on these standards and plans. We therefore exclude the board’s local assistance and other financial assistance programs [such as the Underground Storage Tank Cleanup Fund program] from this definition.) Of this amount, $38.7 million is from the General Fund, with the remainder provided by a mix of permit fees, federal funds, bond funds, and other special funds. As shown in Figure 1, General Fund support is a funding source in several water quality and water rights programs. Many of these programs also receive funding from other sources, with varying degrees of funding from the General Fund. These programs are managed by the state board in conjunction with nine semiautonomous regional boards—together referred to as “the boards.”

General Fund Budget–Balancing Reductions Proposed for Core Programs. Reflected in the expenditure amounts in Figure 1 is the budget’s proposal for a 10 percent reduction across the core water quality management and water rights programs totaling $4.3 million in General Fund. As shown in Figure 2, with the exception of funding for cleanup at Leviathan Mine, the reductions are roughly about 10 percent of the General Fund support level for each of the activities funded from that source.

 Recommend Remaining General Fund Support for Core Regulatory Programs Be Shifted to Regulatory Fees. We have previously recommended that fees fully support regulatory programs at the water boards, based on the application of the polluter pays principle. This funding principle provides that private individuals or businesses that use or degrade a public resource (such as water) should pay for the social costs imposed by their use of the resource. Although significant progress has been made in recent years to shift the board’s regulatory program funding to fees, our review finds that the proposed budget includes about $11 million of General Fund for regulatory activities (see Figure 1) that are more appropriately funded from fees. (This includes $4 million for “forest activities”—that is, timber harvest plan [THP] reviews—that we discuss in greater detail as part of a fee recommendation under our “Funding Timber Harvest Plan Review and Enforcement” write–up in the “Crosscutting Issues” section of this chapter.) We therefore recommend that the board’s General Fund appropriation be reduced by $11 million, and that its appropriations from the Waste Discharge Permit Fund and a new special fund for THP fee revenues be increased by $7 million and $4 million, respectively.  

Boards Not Keeping Up With Workload. We have concluded in several prior Analyses that the state and regional boards’ inability to keep up with their workload in their core programs has resulted in backlogs in the TMDL program and in water quality and water rights permitting and enforcement. To avoid further exacerbating backlogs within these programs, we recommend that the Governor’s proposed budget–balancing reductions in regulatory programs (totaling $1.2 million) be offset fully by fee revenues of a like amount ($400,000 in the Waste Discharge Permit Fund, $400,000 in the Water Rights Fund, and $400,000 of new THP fee revenues) so that program reductions will not have to be made to create the General Fund savings.

Recommend New Broad–Based Fee to Replace General Fund Support for Water Quality Management. The bulk of the board’s General Fund supported programs—$19.6 million—relate to the assessment of the state’s water quality, and the related development of water quality standards and plans which ultimately form the basis of the board’s permitting and enforcement actions.

Although not strictly regulatory program activities, we find that the board’s water quality management activities are appropriately funded by a broad–based fee on water users statewide who, as users, impact water quality. This is a somewhat broader application of the polluter pays principle applied currently to regulatory programs. As an example of a potential fee structure, a fee of less than $10 per year, per individual water utility hookup, to include residential, commercial, and agricultural users would provide funding at the level of current General Fund support for these activities ($19.6 million). We think that shifting funding for the board’s core water quality management activities to fees would provide greater funding stability to these activities that are the foundation of much of the board’s work.

We therefore recommend the enactment of legislation to establish the new broad–based fee at a level that will replace the General Fund support budgeted for water quality management ($19.6 million) and offset the Governor’s proposed General Fund budget–balancing reduction of $2.4 million for these activities. We recommend that the legislation create a new special fund for the deposit of these new revenues. In order to create full–year General Fund savings from our recommendation in the budget year, it would be necessary to enact urgency legislation to create the new broad–based fee.

Information Technology Update: Progress Made, but Problems Persist

We recommend the adoption of budget bill language to prohibit expenditures for new information technology (IT) projects until (1) the board’s IT strategic plan is updated and submitted to the Legislature and, (2) the IT implementation plan required by supplemental report language is submitted. We further recommend the Legislature deny the budget proposal to increase support for the California Integrated Water Quality System (CIWQS) by $129,000 as it cannot be evaluated

without these plans. Finally, we recommend the board report at budget hearings on the loss of future federal funding for CIWQS and with a proposal for alternative federal funding opportunities. (Reduce Item 3940–001–0193 by $129,000.)

IT at the Water Boards. The SWRCB IT systems serve a variety of purposes, including administrative functions, permitting and enforcement systems, water quality monitoring, and providing public access to water quality and enforcement data (through the Internet). On numerous occasions, the Legislature has stressed the fundamental role that management of data—including permitting, enforcement, and water quality—at the boards plays in assisting the board to carry out its mission. The board’s CIWQS is the main IT program used to assist the state and regional boards in this regard.

Budget Proposes Augmentation to CIWQS. The budget proposes $129,000 (special funds) in contract funds for CIWQS. This proposal does not propose to directly augment day–to–day data entry and quality control at the regional board levels, but rather increases efforts at the state board level to manage CIWQS through outreach and training activities.

LAO Previously Reviewed IT Program. We previously reviewed the board’s IT systems (see our Analysis of the 2007–08 Budget Bill, page B–138) and cited various deficiencies including a lack of strategic plan, circumvention of legislative oversight, and data entry backlogs which resulted in misleading information to the public on permitting and enforcement. At that time, the board was aware of these issues and initiated an external review of the program. The review committee met in May 2007 to make recommendations to the board, with a report back on progress to the committee due in December 2007. The Legislature also imposed certain oversight measures on the board including adopting (1) budget bill language prohibiting the development of new IT projects until a strategic plan was submitted to the Legislature for review, and (2) supplemental reporting language requiring the board to submit a report on its IT projects.

Required Report Late, Results of External Review Delayed. The legislatively required report, due on January 10, 2008, had not been submitted at the time this analysis was prepared. This report is important in order to help the Legislature evaluate the need for additional funding for IT programs, including at both the state and regional board levels, and to evaluate the board’s progress in implementing reforms to CIWQS. In addition, a scheduled meeting of the external review committee was delayed to allow the board more time to begin addressing the review panel’s recommendations for reform and to report back to the review committee on its progress.

Data Management Problems Persist, Federal Support Lost. In recent months, incorrect or incomplete data continue to be reported to the public using CIWQS. This is particularly the case with respect to enforcement data. Not only does this cause confusion as to the board’s progress in meeting its water quality goals, but the lack of reliable enforcement data (including the status of corrective actions made in response to an enforcement action) also frustrates both the board’s enforcement efforts and the efforts of the regulated community to comply with enforcement actions taken against them. Additionally, the board has not yet reported on its actual progress in addressing its efforts to correct erroneous historical data and reduce the data entry backlog to its federal funding partners (specifically US EPA, Region IX). This, among other reasons, led the US EPA to deny further federal grant resources in support of CIWQS–related tasks, including in future budget years. Therefore, the budget reflects no federal funding for the program.

Legislative Oversight Continues to Be Needed. In view of the above problems, we recommend the adoption of budget bill language prohibiting expenditures for new IT projects until (1) the board’s IT strategic plan is updated and submitted to the Legislature, and (2) the required IT implementation supplemental report is submitted. We recommend:

No funds appropriated in this item or any other items appropriating funds to the State Water Resources Control Board can be used for new information technology modules related to the California Integrated Water Quality System (CIWQS) no sooner than 30 days after the board has submitted its updated Agency Information Management Strategy and the report required by the Supplemental Report of the 2007 Budget Act to the Joint Legislative Budget Committee, or such lesser time as the chair may determine.

Recommend Denying IT Budget Proposal. As detailed above, various documents requested by the Legislature have not been submitted, including the IT strategic plan and the IT implementation plan. In addition to this, the board’s report to the external review committee has been delayed until February 2008. While the proposal may have merit, the Legislature does not have enough information to evaluate the budget proposal, and we therefore recommend denying the request.

Recommend Report at Hearings. Finally, we recommend the board report at hearings on the loss of federal funding for CIWQS as well as the steps it is taking to reestablish federal funding for the project. The board should also be prepared to discuss the various late reports and its progress in improving the CIWQS system, including addressing issues raised by the external review panel.

Legislative and State Board Controls Needed for Supplemental Environmental Projects (SEPs)

We recommend several measures to increase legislative and administrative oversight over enforcement penalties authorized by the regional boards, including the use of supplemental environmental projects as a penalty mechanism. Adopting our recommendation should increase enforcement penalties paid into the Cleanup and Abatement Account by up to $500,000, and we recommend that the state board’s expenditure authority be increased by this amount to further its oversight of regional board enforcement. (Increase Item 3940–001–0679 by $500,000.)

Regional Water Board Authority Over Enforcement Penalties. Under current law, the regional boards may administratively issue civil liability penalties against companies, cities, and individual waste dischargers that violate water quality laws or permit conditions, or do not comply with enforcement and penalty orders of the boards. Monetary penalties collected through these enforcement actions are paid to the state board and deposited in the Cleanup and Abatement Account (CAA), an account within the State Water Quality Control Fund. These funds are used to address priority water quality cleanup and abatement activities throughout the state. The budget projects revenues of about $5.2 million in the budget year to CAA. This amount fluctuates depending on the size and number of individual penalties assessed in any given year.

SEPs. As an alternative to paying penalties that are deposited into the CAA, current law allows dischargers to pay a portion of their penalty assessment by providing funding for water quality improvements within the region in which the enforcement action was taken. These are known as SEPs. The SEPs are projects, generally proposed and implemented by nonprofits, local governments, or collaborative efforts, that enhance the beneficial uses of the waters of the state, provide a benefit to the public at large, and are not otherwise required by board directives. Examples of SEPs include pollution prevention projects, environmental restoration programs, water education activities, and watershed assessments.

The SEP Process. Most regional boards choose to use SEPs as an alternative to full monetary penalties, as current law allows. Generally, this means that in negotiations with the board, the discharger and board come to an agreement on how much will be paid in monetary penalties, and how much will be paid to support a SEP. Some boards have a formal list of potential SEPs available to assist this negotiation process, while others have no criteria or formal list available to the public during this phase of the penalty negotiations. Once a project is agreed upon, the discharger then pays both the monetary penalty (deposited in the CAA for statewide purposes) as well as the SEP amount provided for in the penalty agreement. Regional boards are then required to track these projects.

Problems With Use and Tracking of SEPs in Some Regions. Our review found that implementation of SEPs varies widely among regions. Only some regional boards have formal criteria for implementing SEPs, with a list of preapproved projects available. While some regions generally track SEP projects well and report projects to the state board, in other regions we found complaints on a variety of issues emanating both from the regulated community as well as those organizations or local governments eligible for SEP funding. These include complaints about the lack of standards for awarding SEP funding, lack of accountability for completion of SEPs, and lack of clear criteria for the penalty phase of enforcement proceedings. A lack of reporting of SEPs causes problems both in tracking completion of the projects as well as in comparing enforcement actions taken across regions and across waste dischargers. One region declined our office’s request for information on SEPs, making our analysis of this enforcement tool more difficult.

Use of SEPs Not Always Authorized in Statute, Reduces Funding Available for Statewide Enforcement. Current law states that a regional board may allow certain monetary penalties to be reduced by up to 50 percent if accompanied by a SEP. For other penalties, such as certain administrative civil liabilities, SEPs are not expressly authorized by law. It is the current practice of both the state and regional boards, however, to allow SEPs in such cases, even though not expressly authorized in statute. As seen in Figure 3, within the past three years, six of the nine regional boards issued SEPs reflecting over 50 percent of a penalty amount. In at least one region, all SEPs issued over the past three years were for over 50 percent of the total monetary penalties. This practice reduces the amount of funding in CAA available for statewide water quality cleanup and enforcement purposes.

State Board Has Role in SEP Oversight. Our review finds that the state and regional boards both have statutory responsibility for tracking and reporting enforcement activity. We also find that a regional board may include in any penalty the projected administrative costs associated with the implementation of a SEP. While the majority of day–to–day oversight of a SEP project is conducted by the regional board, we find that the state board has a role in providing oversight of the SEP process, and is ultimately responsible for reporting on enforcement activity and outcomes statewide. These state board costs are eligible for funding within the administrative component of a SEP.

State Fiscal Oversight of SEP Funding Can Be Lacking. The SEP is designed to be a beneficial project completed as part of a penalty for discharger violations. However, at least one regional board has shifted funding accepted for SEPs to a nonstate entity (a local water agency) who keeps the funds in a trust fund as “holding funds” for a potential, but not certain, future SEP project. As a consequence, the state loses its fiscal oversight of SEP funding.

Recommend Measures to Increase Oversight of Regional Board Enforcement. We find that SEPs serve a useful purpose by allowing regional boards to reduce the amount of time spent on negotiating penalties, and providing for beneficial water quality improvements. However, we recommend several measures to increase state board and legislative oversight of regional board enforcement activity, including the use of SEPs.

Enforcement Data Must Be Updated and Clear. First, we think regional boards should update their enforcement–related data entries to include all penalties and SEPs issued, and this information should be available on the state board’s public and internal websites. This would allow the state board to oversee enforcement actions at the regional board level and to better compare regional board use of SEPs. We also think providing the public, including the discharger community, access to all SEP information in a clear, usable format provides another means to hold the regional boards accountable for their use of SEPs and allows potential SEP project proponents to be informed of the type and quality of SEPs authorized by the board.

Trust Fund Use Raises Issues. Second, we think it important to establish controls for the current regional board practice of setting up trust funds as holding funds for SEPs. For example, what happens to these funds should a SEP project not come to fruition? We think the state board, in its next update of its statewide enforcement policy, should set clear guidelines for such trust funds, including clear and reasonable time limits for the trust fund, with requirements that SEP projects commence by a date certain of the SEP funding being established.

Legislation Should Restrict SEP Assessment, Unless Otherwise Indicated by Law. Third, we find the current practice of issuing SEPs for over 50 percent of the total monetary value of the penalty has the effect of reducing funding available at the state board for statewide enforcement purposes, including oversight of regional board enforcement. We recommend the regional boards be required to annually report to the state board on all SEPs issued, and the amount of monetary penalty these SEPs offset, in order to assure regional board compliance with current statutory requirements governing the use of SEPs. We think that this recommendation should increase the availability of funds in the CAA by up to $500,000 in the budget year, based on a review of historical enforcement penalty collection. We therefore recommend that the expenditure authority from the State Water Quality Control Fund be increased by a like amount, allowing the state board to increase its oversight of regional board enforcement activity.