State Water Project Staffing Request Not Fully Justified

Department of Water Resources Budget Issues. We discuss budget issues relating to DWR in three places in this report. Earlier in this section, we discussed (1) the Governor’s DWR budget proposal to provide funding for, and make statutory reforms to, the Davis–Dolwig Act, and (2) various Delta–related budget proposals, many of which pertain to DWR, including the SWP. In this analysis, we focus on the budget request for 111 new staff positions for the SWP.

SWP Background. The DWR protects and manages California’s water resources. In this capacity, the department maintains the SWP, which is the nation’s largest state–built water conveyance system, providing water to 23 million Californians and 755,000 acres of agriculture. The project conveys (moves) water mostly from Northern California and through the Sacramento–San Joaquin Delta to parts of the San Francisco Bay Area, the Central Valley, and Southern California. The project was initiated with a voter–approved bond in November 1960. The project is mainly funded by users of the water system (often referred to as SWP contractors). These user revenues are commonly referred to as SWP funds. However, there are other significant sources of funding related to SWP. Specifically, the federal government provides a share of the costs for flood control projects related to SWP, the General Fund has supported related recreation and fish and wildlife programs, and state general obligation bond funds have supported several related environmental programs, including CALFED.

SWP Staffing Request. The budget requests 111 new positions for SWP to be funded from SWP funds. This is an increase of 7 percent above the current–year number of positions—1,509. Over the past three years, SWP has added 195 positions mainly for administration, environmental compliance, and legal support. The proposed positions include:

• 60 positions for management, various state operations, and activities related to addressing global climate change and energy–related activities.
• 26 positions for overall support of DWR administration.
• 25 positions for Bay–Delta programs, including support for a new conveyance program and modeling of water flow and water quality in the Bay–Delta.

We provide our recommendations on the requested positions below.

Recommend Denial of 60 Positions for Management, State Operations, and Energy Activities. Below, we describe the requested positions in more detail, and the basis for our recommendation to reject them.

• Reject Positions for Program Management Group. Of the 60 new SWP positions, nine are program management positions, costing about $1.5 million, that would be used to establish a centralized point within DWR to initiate, track, account for, allocate, and bill costs of SWP projects. However, we note that at least 17 positions related to SWP administration, legal review, and protest resolution have been added to the existing base budget for these activities in the past three years. Moreover, it is unclear why the 50–year old program requires at this time a new central program management group. As the budget request has not been justified, we recommend that it be denied.
• Reject Positions for Expanded Operating Programs. The SWP requests 42 of the 60 new positions, which would cost about $5.9 million, for a broad spectrum of SWP programs, including licensing of energy facilities, protection of endangered species, and asset management. The majority of the positions added over the past three years were added for similar purposes, including positions for energy license implementation and environmental compliance. We do not find that the additional requested positions are justified at this time, and therefore recommend that this component of the staffing request be denied.
• Reject Positions for Climate Change Energy Activities. The SWP requests nine new positions at a cost of $1.7 million to help SWP shift to a more renewable energy–focused portfolio in meeting its energy requirements. The proposal to increase the use of renewable energy in SWP has merit. The budget proposal, however, has not justified why existing SWP staff working on energy–related matters could not be utilized for this proposal by redirecting their focus to increasing SWP’s use of renewable energy. Consequently, we recommend deletion of these positions.

Recommend Denial of 26 Positions for Support of DWR Administration. The budget requests 26 new positions and $3.4 million, of which $2.7 million would come from SWP funds, to increase administrative capacity to handle workload created by these previous position increases. However, SWP has already received additional administrative positions in recent years. We find that the request for further additional administrative positions has not been justified, and therefore recommend denying this component of the budget request.

Recommend Denial of Four Positions for Delta Monitoring. Below, we describe 4 of the 25 total positions requested by SWP for Delta activities. We address the remaining 21 positions in our write–up on Delta issues. The department proposes to transfer 16 water flow monitoring stations from the United States Geological Survey (USGS) to the department when a current contract with the federal government ends in 2009. Four SWP staff would be added to take over these contract activities. Currently, these stations are operated by the USGS for water flow modeling, biological studies, water quality studies, as well as SWP–related activities. We recommend that this proposal be rejected, because we think there is merit to maintaining independent monitoring by USGS of water quality and flow monitoring stations in the Delta. As the state’s Delta policy continues to evolve over the next few years, potentially fundamentally affecting SWP operations, having independent monitoring could become increasingly important. We therefore recommend that the Legislature direct the department to extend its current contract with USGS to provide this information.

Off–Budget Process No Longer Appropriate for SWP

Broad Spending Authority Provided to Department for SWP Activities. The DWR’s requests to the Legislature for the authority to establish new SWP positions, such as those discussed above, are budgeted in a different manner than for most state agencies. While DWR must seek approval from the Legislature to establish permanent new positions, it does not need additional legislative approval for the funding to support them. That is because the expenditure authority for these positions is already provided off budget. This term means that the funds to support these positions, as well as all other operating costs and capital outlay for the SWP, are not appropriated in the annual budget bill. Instead, DWR has “continuous appropriation” authority to spend the revenues.

Because of this broad and ongoing grant of expenditure authority, the department is not required to submit funding requests in conjunction with position requests. Consequently, this complicates the Legislature’s ability to fully evaluate these position requests in the context of the SWP’s total current–year staffing of 1,509 positions.

SWP’s Budget Development Lacks Checks and Balances. There are other aspects of SWP budgeting that we believe are problematic. We are concerned that the process DWR follows to develop SWP budgets lacks checks and balances that would help ensure accountability. For example, while the SWP seeks and receives some advice from SWP water contractors, it does not actually review its budget with the contractors prior to the submission of departmental requests for additional positions to the Legislature. Review of the now $900 million budget takes place internally at DWR, with ultimate approval coming from within the department and DOF. At no point is the budget vetted and approved in a public setting, nor do ratepayers—those affected most by spending decisions—have an opportunity to review the budget prior to approval, as is the general practice at other state agencies.

The only public review of the SWP spending plan takes place at legislative budget hearings, and only then in the context of specific requests for position authority. This relative lack of budgetary oversight also applies to SWP’s capital projects, although there is some limited oversight provided by DOF and the bonding agencies in cases in which the SWP issues revenue bonds to finance the construction costs of its projects.

Lack of Transparency in SWP Budget Process Has Led to Problems. The lack of transparency in the development of the SWP budget appears to have triggered increasing billing protests from SWP contractors. This, in turn, has led to increases in staffing and increased costs to handle the billing protests, which are ultimately passed on to water ratepayers. This upward expenditure cycle is due in part to the lack of effective budgetary oversight of the SWP.

Previous Recommendation to Bring SWP on Budget More Timely Than Ever. In our 2007–08 Analysis (page B–129), we recommended SWP be brought on budget and that its expenditures be subject to ongoing review and approval in the annual budget act. As we noted in our prior analysis, we are concerned that the role of SWP has changed substantially from its inception in 1960. In the past, SWP operated as a discrete, self–contained program with sufficient fiscal oversight provided by SWP contractors who pay most of the project’s costs. However, this situation has changed. Specifically, we found that SWP had developed increasing fiscal and programmatic ties to other state on–budget programs, such as CALFED, that we believe justify placing this program under regular legislative budget scrutiny along with requests for additional positions. Our analysis has led us to conclude that the Legislature has the authority to do so.

Since publication of our 2007–08 Analysis, we believe the case for putting SWP on budget has grown stronger. We have found that, not only is SWP integrally linked to other programs, but its operation has created significant liabilities for other programs and funding sources, including the General Fund, without any legislative oversight. (For example, please see our discussion in this report on the Davis–Dolwig Act.) There is also growing recognition of SWP’s role in contributing both to the causes of, and the potential solutions to, water–related problems in the Delta. This has major policy and fiscal implications for a number of state programs.

For these reasons, we continue to recommend the enactment of legislation that would make SWP subject in all respects to the annual legislative budget process.