2009-10 Budget Analysis Series: Resources

Delta Issues and the CALFED Bay–Delta Program

In the analysis that follows, we discuss the key findings of a number of recently released reports on how to fix water–related problems in the Delta, summarize the CALFED Bay–Delta Program (CALFED) budget proposal, and provide a framework for the Legislature to apply in evaluating the Governor’s budget proposals for CALFED. We then offer our recommendations regarding new budget requests and recommend reductions in CALFED’s base program that would result in General Fund savings. Finally, we discuss key issues for the Legislature to consider in adopting a policy to enable the state to move forward in solving the Delta’s problems.

Reports Agree That Delta Is Broken, Differ on Fixes

Over the past year, several reports have been published that discuss the crisis in the Delta and offer recommendations regarding how the state should proceed to fix the problems. These reports include the strategic plan of the Governor’s Delta Vision Blue Ribbon Task Force (made up of seven gubernatorial appointees) that was released in October 2008, as well as a related January 2009 report of the Delta Vision Committee (consisting of five cabinet secretaries). (The administration is statutorily required to develop a strategic vision for a “sustainable” Delta, including sustainable ecosystems; land–use patterns; flood management strategies; and transportation, water supply, utility, and recreation uses.) There have been several other reports conducted by others outside of the administration—including reports by the Public Policy Institute of California (PPIC) and environmental advocacy organizations.

Generally, there is common agreement among these various reports that a business–as–usual approach, relying on the current means of conveying (moving) water through the Delta, will not enable the state to achieve its environmental and economic–related goals for Delta water use. The reports differ, however, in their recommended solutions, with the debate squarely focused on the issue of the preferred means of water conveyance and the fundamental policy trade–offs that parties are willing to accept. We briefly summarize the findings and recommendations of some of these key reports below.

Delta Vision Strategic Plan. The Delta Vision Blue Ribbon Task Force recommended an amendment to the State Constitution to establish that the Delta must be managed according to the two coequal goals of restoring the Delta ecosystem and creating a more reliable water supply for the state. The task force recommended that a new system of “dual water conveyance” through and around the Delta be developed. (This is the concept of building both a separate canal to convey water around the Delta as well as improvements to better enable water to be channeled through the Delta.) The task force had specific recommendations for revamping Delta governance, including the creation of a new California Delta Ecosystem and Water Council (a policy making, regulatory, planning, and oversight body) and a new Delta Conservancy (to coordinate ecosystem restoration projects in the Delta).

Delta Vision Committee Implementation Report. Based on its review of the Delta Vision Blue Ribbon Task Force’s Strategic Plan, the Delta Vision Committee for the most part accepted the recommendations in the Delta Vision Strategic Plan, including a dual–conveyance approach. It recommended that the Legislature and Governor defer making a decision at this time on the specifics of a long–term governance structure, although it agreed that Delta governance needed to be improved.

PPIC Report. The PPIC report concluded that a peripheral canal conveying water around the Delta was the best long–term strategy to balance the twin objectives of maintaining a reliable, high–quality water supply and improving conditions for fish and wildlife. The PPIC viewed this option as more cost–effective than the dual–conveyance approach. The report evaluated four main options for the Delta, including the option of ending Delta water exports altogether. The report explicitly recognized that there are risks and trade–offs, and thus policy choices to be made, with each option. For example, the report found that while ending water exports altogether was the best option from the perspective of fish and wildlife protection, it was the most costly option from the perspective of its economic impact. The PPIC report also recognized the need for a more centralized, coordinated governance system to address Delta issues.

Governor’s CALFED Budget Proposal

The CALFED Bay–Delta Program. The CALFED encompasses multiple state and federal agencies that have regulatory authority over water and resource management responsibilities in the Bay–Delta region. 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 Secretary for Natural Resources is the main state agency that administers the program, with responsibility for the overall program planning, performance, and tracking.

Expenditure Summary. The budget proposes $314.9 million of state funds across eight state agencies for CALFED in 2009–10. This is a decrease of $507.4 million, or 62 percent, below estimated current–year expenditures. This decrease is primarily due to a decrease in available bond funds. Figure 12 shows the breakdown of CALFED expenditures in the current year and as proposed for 2009–10, including how they are distributed among the program’s 13 elements.

Figure 12

CALFED Expenditures—State Funds Only

(In Millions)




Expenditures by Program Element



Bay Delta Conservation Plan






Delta Vision


Ecosystem restoration



Environmental Water Account


Levee system integrity



Oversight and coordination








Water quality



Water supply reliability



Water use efficiency



Watershed management






Expenditures by Department



Water Resources



Fish and Game



Secretary for Resources



Public Health



State Water Resources Control Board









San Francisco Bay Conservation






Expenditures by Fund Source



General Fund



Proposition 204 (1996)



Proposition 13 (2000)



Proposition 50 (2002)



Proposition 1E (2006)



Proposition 84 (2006)



State Water Project Funds



Other state funds






Off–Budget CALFED Expenditures Are Increasingly Driving the Program. As Figure 12 indicates, CALFED expenditures are proposed in eight state departments. Most of this funding would go to DWR and DFG, with proposed expenditures of $263.9 million and $32.9 million, respectively, in 2009–10. As can also be seen in Figure 12, the state funding in the budget year is proposed to come largely from two sources—various bond funds (totaling $183.6 million) and SWP funds ($114.4 million). The SWP funds originate from payments of charges by SWP water contractors. It is important to note that SWP expenditures are off budget, meaning that they are not subject to legislative appropriation in the annual budget bill. (Please see our write–up on the SWP staffing request elsewhere in this report for further discussion of this issue.) The largest single proposed CALFED program expenditure by far—$116.8 million for conveyance—is largely funded by SWP funds.

Evaluation of CALFED Budget Proposals

Budget Reflects $157 Million of New CALFED Spending Proposals. Of the $315 million of state–funded CALFED expenditures proposed for 2009–10, $157 million reflects new spending for which budget change proposals have been submitted for legislative review. To a large degree, the new spending reflects the second year of funding for bond–funded projects and programs appropriated by the Legislature on a one–time basis in the current year. The remainder is for ongoing projects and programs that have been previously approved by the Legislature.

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. Specifically, we recommend that budget proposals:

Applying the above criteria, our recommendations on a number of the CALFED budget proposals follow.

Bay–Delta Modeling Should Be Funded From Existing Resources. The budget requests five positions and $936,000 (off–budget SWP funds) for increased support of an existing IT–based modeling program being used to determine historic water flow patterns in the Delta. The department has said this modeling activity is increasingly important to its work. However, we note that there is no proposal to redirect funding to this activity from other programs to reflect its higher–priority status. Over the past several years, the division which carries out this modeling work has increased by 19 staff and $80 million. While this activity may have merit in concept, we recommend that the department fund these activities out of existing resources by redirecting funding from lower–priority activities. We therefore recommend that the budget request be denied.

South Delta Improvement Program Funded Inappropriately. The budget proposes $29.4 million in bond funds (Propositions 13 and 50) for final design and construction costs for a capital project under the South Delta Improvements Program. The total cost of the project is projected to be about $105 million. This project directly benefits water users of both the federal Central Valley Project (CVP) and SWP by improving water flow conditions near the pumping plants at Tracy and therefore the reliability of water supplies. However, the budget proposal does not include any funding contribution from the state and federal water project contractors. The proposal acknowledges that a federal cost–sharing agreement has not been secured and that the project, while accomplishing program goals, will “result in a disproportionate level of cost to the state.” As this project is now moving into the construction phase, we think that cost–sharing agreements with the project’s water–user beneficiaries are long overdue. Accordingly, we recommend that the funding proposal be rejected, on that grounds that it is inappropriately funded from state funds rather than by the project’s direct beneficiaries.

Pumping Plant Fish Protection Activity Funded Inappropriately. The budget requests $180,000 in Proposition 13 bond funds for the CALFED conveyance program to support the South Delta Fish Facility Improvement Projects. Two new limited–term positions would be responsible for evaluating the impact of Delta pumping on fish populations and protection of fish at the pumping plants. The activities proposed for funding directly benefit both the CVP and SWP water contractors, as they are part of a larger conservation planning effort intended to provide greater regulatory certainty to water exporters and thus greater reliability of water supplies. We recommend that this funding request be rejected, on the basis that the activity’s direct beneficiaries—the state and federal water contractors—should pay for the activity, rather than state funds.

Franks Tract Project Premature. The budget proposes $27 million in Proposition 13 and Proposition 50 bond funds for part of the state’s share of costs for the Franks Tract Project—a $130 million project designed to improve Central Delta water quality. Other funding sources to make up the balance of the project’s costs have yet to be determined, but the department suggests that it would seek a “local cost share” from SWP funds, Proposition 84 bond funds, or local agency funds.

This proposal is problematic in two ways. First, we have concluded that the costs, benefits, and underlying rationale for this project are integrally tied to the state’s yet–to–be–finalized decision on the future of Delta water conveyance. For example, an alternative means of conveyance under consideration by the department would relocate the current South Delta pumping plants, which would substantially affect the relevance and benefits of the Franks Tract Project. Until a decision is made on whether or how to build new conveyance facilities at the Delta, it is premature to begin construction on such a significant capital project. Second, it is premature, in our view, to proceed with spending state funds on this project until the cost–sharing agreements are in place.

Ecosystem Restoration Proposals Premature, Benefits Uncertain. The budget requests $22 million in Proposition 84 bond funds in the 2009–10 budget for DFG for CALFED ecosystem restoration projects. To date, the department has identified only one project to be funded from the proposed appropriation—the restoration of Dutch Slough Tidal Marsh—at a cost of $5.9 million.

As was the case last year, we recommend that the Legislature reject the budget proposal for new ecosystem restoration projects until the Legislature has had 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 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, the “End of Stage One Report”—the administration’s review of the CALFED program’s performance between 2000 and 2007—found that in–Delta ecosystem restoration projects have made little progress in improving the Delta’s natural environment, as evidenced by the dramatic decline in fish species such as the Delta smelt. Further, the CALFED program has not yet developed performance measures for monitoring and evaluating project outcomes. Until such performance measures are developed, we believe it would be fiscally imprudent to continue to fund restoration projects whose benefits are uncertain and will not be verifiable.

Natural Community Conservation Planning Proposal Funded Inappropriately. The budget requests $8.9 million in Proposition 84 bond funds for DFG to develop a natural community conservation plan (NCCP) in the Delta. (An NCCP is a regulatory tool used to ensure compliance with the California Endangered Species Act.) The requested funds would be granted to federal wildlife agencies to pay for their participation in the NCCP development process.

We recommend that the Legislature reject this budget proposal. The administration is developing an NCCP for the Delta to ensure that SWP has sufficient regulatory authority to continue exporting water from the Delta. Because the SWP contractors are the regulated party in this case, and thus will directly benefit from the authority to continue exports, we believe it is appropriate that they pay the full cost of developing the NCCP. In addition, while Proposition 84 allows up to $20 million to be used for NCCP development, it does not require that this be done. These Proposition 84 funds could be used instead for other Delta and coastal fishery restoration projects for which alternative funding sources may not be available.

Reduction Should Be Made to CALFED’s General Fund Expenditure Base

Proposed General Fund Expenditures for CALFED. As shown in Figure 13, the budget proposes a total of $14 million from the General Fund for CALFED in 2009–10. All of this funding supports expenditures in CALFED’s base budget. Of this amount, about one–half—$7.2 million—is for CALFED program oversight of various state agencies. The majority of the remaining funding is allocated to DWR for a variety of specific CALFED programs. As shown in Figure 13, the General Fund contribution in each of these DWR–administered programs is a small fraction of the total state funds (including bond funds and SWP funds) that are spent on these programs.

Figure 13

CALFED Bay-Delta Program—Programs With General Fund Support
Governor’s Proposed 2009‑10 Budget

(Dollars in Thousands)

CALFED Programa


General Fund
Percentage of Total Support

General Fund

Other Funds


Water use efficiency





Drinking water quality





















a  Administered by Department of Water Resources.

Recommend Baseline General Fund Reduction of $5.9 Million. Our analysis indicates that the CALFED programs in DWR proposed to receive General Fund support may have merit and work towards achieving CALFED’s goals. Most of the programs proposed for General Fund support, such as the Delta levees subventions program, have existed in some form or another prior to the creation of CALFED. In the intervening years since these programs began, however, multiple funding sources in addition to the General Fund have become available to support them. This includes substantial increases in available bond funds, many of which are allocated specifically to CALFED. Now, the General Fund contributes less than 3 percent overall to these CALFED programs.

However, in light of the magnitude of the state’s General Fund fiscal problems, we think that it is a good time for the Legislature to reconsider whether DWR’s CALFED activities warrant continued General Fund support. We believe such a reassessment of priorities is reasonable, given the level of support available to CALFED from other funding sources. We therefore recommend that CALFED’s base General Fund budget be reduced by $5.9 million by reducing or eliminating General Fund support in two programs:

Moving Forward to Address Delta Issues

Recommend Legislature Adopt Its Policy for the Delta. The findings and outcomes of the various Delta–related state planning efforts—Delta Vision, DRMS, and BDCP (discussed below)—have major policy implications for the state. As we have recommended in previous analyses, once the Legislature has reviewed the various work products stemming from these efforts, some of which are not yet complete, the Legislature should enact legislation establishing its Delta policy. This legislation would establish the Legislature’s policies for the future of the Delta and its objectives and funding priorities for CALFED and other Delta–related programs. This would enable evaluation of future budget proposals for consistency with legislative policy priorities.

Choice of a Delta Conveyance Alternative a Key Component of a Delta Policy. In our California’s Water: an LAO Primer (page 70), we call attention to the need for the Legislature to address the current problems with conveyance of water through the Delta. Solving these problems as soon as possible is necessary if the state’s environmental and economic objectives for the Delta are to be met. (Economic objectives include, for example, increasing the reliability of Delta water supplies.) We have recommended that the state prioritize the selection of an alternative to the current business–as–usual conveyance approach in which water is conveyed solely through the Delta.

How Is the Administration Proceeding on the Conveyance Issue? The budget proposes funding ($2.6 million, SWP funds) for DWR to support planning, environmental, right of way, engineering, and construction activities related to making a decision on Delta conveyance alternatives. The administration’s process, known as BDCP, involves conservation planning and an environmental permitting process authorized under federal and state law with both conservation and water supply objectives. (The budget plan assumes that at least an additional $9 million will be provided in support of the BDCP process overall from SWP funds.) The intended result of the process is (1) the issuance of federal and state endangered species permits necessary to continue the current SWP operations in the Delta, thereby increasing the reliability of water supplies, and (2) habitat conservation improvements that will go beyond those necessary to mitigate the impacts of Delta conveyance operations.

At the core of the BDCP process is an effort to change the current means of conveying water through the Delta. The BDCP is proceeding on the basis that dual conveyance is the preferred conveyance alternative. The budget request includes funding for the statutorily required environmental impact documentation that is required to back up the selection of dual conveyance as the preferred alternative. The department will be evaluating various alternative conveyance approaches under this framework.

Analysis Too Narrowly Focused. While the process described above will provide useful information to inform the Legislature on the conveyance issue, we think that its focus is too narrow to fully inform the Legislature on this issue. That is because the BDCP process is essentially a regulatory process intended to result in permit issuance for SWP operations. As such, the focus of the process is not as broad as the one that considers and balances issues from a statewide perspective.

For example, DWR has indicated that the economic component of its analysis has focused on the potential fiscal impact of various Delta alternatives on state water contractors. While this is an important concern, this focus is too narrow, in our view, and does not appear to be giving adequate consideration to the economic impact of the chosen solution on third parties (such as Delta farmers) or to the fiscal impact of the various alternatives on state finances. Some alternatives, we noted, could result in significantly greater long–term costs to the state for maintaining levees, roads, and other public facilities.

Ongoing Role Recommended for the Delta Vision Committee. Although the administration has stated publicly on a number of occasions that it will not begin construction of a new conveyance system for the Delta without legislative involvement, we are concerned that the administration is not conducting analyses that will provide the Legislature with the information it will ultimately need to make a wise decision on the conveyance issue. Therefore, we recommend that the Delta Vision Committee be directed to report to the Legislature, prior to its moving forward with construction of a new conveyance system, with the following information on each conveyance alternative evaluated by the administration:

As the Legislature proceeds with its search for a Delta solution, it will be important that it be made fully aware of the tradeoffs that it is being asked to accept, so as to ensure that the implemented conveyance solution is consistent with its policy priorities. We think that the provision of the information outlined above is necessary to enable the Legislature to establish a sound and sustainable policy for the Delta.

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