Safe Drinking Water, Clean Water, Watershed Protection, and Flood Protection Bond Act.
	Analysis by the Legislative Analyst

Background

The state carries out a number of programs that provide loans and grants to local agencies for various water-related purposes. These purposes include improving the safety of drinking water, flood control, water quality, and the reliability of the water supply.

Safe Drinking Water. In past years, the state has provided funds for loans and grants to public water systems for facility improvements to meet safe drinking water standards. To raise money for these purposes, the state has relied mainly on sales of general obligation bonds. As of June 1999, all but about $11 million of the $425 million authorized by previous bond acts since 1976 had been spent or committed to specific projects.

Flood Control. The state also has provided funds to local agencies for locally sponsored, federally authorized flood control projects. The costs of these projects are shared among local, state, and federal governments. These projects have primarily been funded from the state General Fund. Due to the state's fiscal condition in the early 1990s, the state was not able to pay its full share of the costs for these projects. In 1996, voters approved Proposition 204 which provided $60 million in general obligation bonds to pay a portion of these costs. These bond funds have been spent. The Department of Water Resources estimates that the unpaid amount the state owes for its share of costs for local flood control projects will total about $130 million as of June 30, 2000.

In addition, the state has provided funds for state-sponsored flood control projects, mainly located in the Central Valley. The primary source of funding for these projects has been the state General Fund.

Bay-Delta Restoration. The state also has funded the restoration and improvement of fish and wildlife habitat in the San Francisco Bay/Sacramento-San Joaquin Delta Estuary (the Bay-Delta) and other areas. The state has done this using various fund sources including general obligation bonds and the state General Fund. The Bay-Delta supplies a substantial portion of the water used in the state for domestic, industrial, agricultural, and environmental purposes. Over the years, the Bay-Delta's capacity to provide reliable supplies of water and sustain fish and wildlife species has been reduced. This has occurred because of increased demand for water from the Bay-Delta and other factors such as pollution, degradation of fish and wildlife habitat, and deterioration of delta levees.

The CALFED Bay-Delta Program is a joint state and federal effort to develop a long-term approach for better management of water resources in the Bay-Delta. Program costs for the first stage of the CALFED Bay-Delta plan (covering seven years) currently under consideration are projected to total about $5 billion. These costs could double over the projected 30-year term of the plan. It is anticipated that funding would come from a variety of federal, state, local, and private sources.

Proposition 204 provided $583 million for ecosystem restoration and other improvements in the Bay-Delta. As of June 1999, about $415 million of this amount remains available for future projects.

Water Quality and Water Supply. The state also has provided funds for projects that improve water quality and supply. For example, the state has provided loans and grants to local agencies for construction and implementation of wastewater treatment, water recycling, and water conservation projects and facilities. The state has sold general obligation bonds to raise money for these purposes. As of June 1999, all but about $100 million of the approximately $1.8 billion authorized by previous bond acts since 1970 had been spent or committed to specific projects.

Watershed Protection. In recent years, the state has modified the way it manages the state's water and other natural resources. Instead of using primarily a project-by-project or site-by-site approach, the state now takes a broader approach by focusing on entire watersheds. Under the "watershed management" approach, programs designed to improve water quality and reliability of supply, restore and enhance wildlife habitat, and address flood control within a watershed are coordinated, often involving various federal, state, and local agencies. Watershed protection programs may include a variety of activities, such as water conservation, desalination, erosion control, water quality monitoring, groundwater recharge, and wetlands restoration.

In general, under the watershed management approach, the federal and state governments enforce environmental standards, while local agencies develop and implement local watershed management plans to meet the standards set for a watershed.

Funding for watershed protection programs, which have included grants to local agencies to control nonpoint source pollution (such as runoff from farming, logging, and mining operations), has come from various sources, including federal funds, the General Fund, and general obligation bonds.

Proposal

This measure allows the state to sell $1.97 billion of general obligation bonds to improve the safety, quality, and reliability of water supplies, as well as to improve flood protection. Of this total, $250 million is dedicated specifically to carrying out the CALFED Bay-Delta plan.

General obligation bonds are backed by the state, meaning that the state is required to pay the principal and interest costs on these bonds. General Fund revenues would be used to pay these costs. These revenues come primarily from the state personal and corporate income taxes and sales tax.

Figure 1 summarizes the purposes for which the bond money would be used. The bond money will be available for expenditure by various state agencies and for loans and grants to local agencies and nonprofit associations. The measure specifies the conditions under which the funds are available for loans, including the terms for interest and repayment of the loans.

The measure also requires that funds remaining in specified accounts under the 1996 Safe, Clean, Reliable Water Supply Bond Act (Proposition 204) be used to provide loans and grants for similar types of projects funded under this measure. Additionally, the measure requires that repayments of loans funded from specified Proposition 204 accounts and under the Clean Water and Water Reclamation Bond Law of 1988 (Proposition 83) be used to provide loans and grants for similar projects funded under this measure.

Fiscal Effect

Bond and Other Costs.

For these bonds, the state would make principal and interest payments from the state's General Fund over a period of about 25 years. If the bonds are sold at an interest rate of 5.5 percent (the current rate for this type of bond), the cost would be about $3.4 billion to pay off both the principal ($1.97 billion) and interest ($1.4 billion). The average payment would be about $135 million per year.

However, total debt repayment costs to the state will be somewhat less. This is because the measure requires that loans made for nonpoint source pollution control, water conservation, and specified water quality/supply projects (up to $363 million) be repaid to the General Fund. The repayments of these loans could reduce the General Fund costs by about $470 million over the life of the bonds.

Local governments that develop projects with these bond funds may incur additional costs to operate or maintain the projects. The amount of these potential additional costs is unknown.

Use of Repayments of Past Loans. Proposition 204 authorized $25 million in loans to local agencies for water conservation projects and groundwater recharge facilities. Currently, repayments of these loans are used to provide additional loans for such projects and facilities. This measure requires, instead, that the repayments be used to fund loans and grants for projects authorized by this measure. Repayments from the loans made under this measure would be required to be deposited in the state's General Fund. This will result in a General Fund savings potentially of up to $40 million to pay off the principal and interest of the bonds. Proposition 13 | Vote 2000 Home | Next - Prop 14 | Secretary of State Home |