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california legislation > SB 34

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| SENATE COMMITTEE ON NATURAL RESOURCES AND WATER |
| Senator Fran Pavley, Chair|
|2011-2012 Regular Session|
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BILL NO: SB 34 HEARING DATE: April 12, 2011
AUTHOR: Simitian URGENCY: No
VERSION: As Proposed To Be Amended CONSULTANT: Dennis O'Connor
DUAL REFERRAL: Government and FinanceFISCAL: Yes
SUBJECT: California Water Resources Investment Act of 2011

BACKGROUND AND EXISTING LAW

The State of California has increasingly relied on general
obligation (GO) bonds to fund its water resources related
investments. Since 1996, voters have approved over $14 billion
in GO bonds for water-related purposes, and the Legislature
recently placed the $11.14 billion Safe, Clean, and Reliable
Drinking Water Supply Act of 2012 on the November 2012 ballot.

The Legislative Analyst Office (LAO), Public Policy Institute of
California (PPIC), and others have commented on the
unreliability and inappropriateness of relying on GO bonds to
fund the public benefits of water related projects and programs.

PROPOSED LAW

This bill, as proposed to be amended as reflected in the
attached mock-up, would enact the California Water Resources
Investment Act of 2011. The Act finds that it is necessary to
establish a sustainable revenue source to fund the public
benefits of water related projects and programs. It would do so
by imposing a charge on all retail water suppliers consistent
with the following principles:

Funding of public benefits should be guided by the
beneficiaries pay and polluters pay principles.
Decisions regarding funding of public benefits of water
related projects and programs should be made by the public
receiving those benefits.
It is desirable for the revenue source to fund the public
benefits of water related projects and programs to be
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equitable, comprehensive, unavoidable, affordable,
understandable, easy to administer, and stable.
Owning to the differences in the uses of water, sources of
water, and method of distributing water among the end users,
it is appropriate for the assessment to apply differently to
agricultural and non-agricultural water uses, and have the
following characteristics:
The assessment should be imposed on non-agricultural
water uses on a per-acre-foot of use basis.
The assessment should be imposed on agricultural water
uses on a per-acre of irrigated agricultural lands basis.
The assessment should result in a different effective
rate for agricultural and non-agricultural uses.
The proceeds of the revenue source should be shared between
the state and regions, half allocated to the state to fund
statewide and interregional public benefits, half would be
allocated among the regions to fund the regional and local
public benefits associated with water related projects and
programs. The allocation among the regions should be in
proportion to the proceeds raised in each region.

ARGUMENTS IN SUPPORT

According to the author, "Significant funding is needed to
ensure that state and local water resources can continue to meet
the demands of a growing population and support endangered
ecosystems. The California Research Bureau estimates that unmet
water infrastructure, planning, and science needs over the next
30 years total in the $100 billion range."

"Over the past 10 years, voter-approved bonds have made
significant contributions to address state and local water
resource needs, and provided considerable incentives for local
investment on behalf of those needs."

"Although the issuance of voter-approved bonds has provided for
important improvements in the state's water management system,
the levels of available funding have fluctuated throughout the
life of each bond, while the types of projects and programs
eligible for funding have varied for each bond. This lack of
stability in incentive funding has inhibited local, regional,
and state agencies from developing and implementing long-term
plans and investment strategies."

"A new stable source of funding that can work in conjunction
with, or independently of, voter-approved bonds can provide the
financial foundation for resource planning and management,
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construction of new facilities, managing the demand for water,
and maintenance of the water management system."

"The purpose of this bill is to establish a fund that will
provide a stable source of revenue for integrated regional water
management to achieve clean, reliable, and sustainable water
supplies, in conjunction with local expenditures and other state
and federal funds."

ARGUMENTS IN OPPOSITION

Opponents raise two key issues with the 3/23 version of the
bill:
Additional charges on water users are unnecessary,
unaffordable, and unproductive.
The $11.14 B water bond placed on the November 2012 ballot is
the preferred approach to funding any necessary water projects
and programs.

COMMENTS

Mock-Up. The attached mock-up would replace the existing
language of the bill. The mock-up reflects the following
changes:
Harmonizes the language with SB 571 (Wolk). Deletes all
provisions regarding how the funds would be spent, who decides
what to spend the funds on, specific requirement on how the
funds would be spent beyond general eligibility type
provisions, etc. Those issues would all be addressed SB 571,
which is similarly being proposed in mock-up form.
Rewrites the findings and declarations to make much more clear
the policy objectives and logical framework for the bill.
Makes more clear those areas that are works in progress, both
in the findings and main body of the bill, by leaving blanks
for issues requiring additional attention.
Deletes redundant/unnecessary provisions.

Based on LAO Proposal. On March 30, 2011, this committee held
an informational hearing titled "Beyond Bonds: Options for
Funding Public Benefits of Water Related Investments." At that
hearing, the LAO presented its "Preferred Funding Option."
Elements of that preferred option included:

Providing statutory definitions of:
The "beneficiary pays" principle.
The "polluter pays" principle.
Private/nonstate benefits.
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Defining public benefits to include:
Planning and efficient management of the statewide water
system.
Broadening access to necessary water services.
Ecosystem improvements.
Management of water-related risks and major public
emergencies.
Water system changes that improve recreational
opportunities.

Establishing the funding source using three main criteria:
Ease of enactment and implementation.
Breadth of assessment base and tie to water use.
Ability to provide a stable, reliable, ongoing source of
funding.

Levying the assessment levied on water retailers and
administered by the state Board of Equalization.

Imposing different assessment bases for nonagricultural versus
agricultural water uses.
Urban (commercial/residential) water use should be
captured by an assessment that is tied to the volume of
water that a retailer supplies to nonagricultural water
users.
Agricultural water use should be captured by an
assessment on water retailers based on the total area of
irrigated acreage of agricultural customers of water
retailers.

This bill is based in large part on the LAO "Preferred Funding
Option" and other research conducted by the LAO at the author's
request.

Open Questions. This bill poses a number of currently
unanswered questions. Three particularly hot topics are:

What Is A Region? It is not clear what the most appropriate
definition of a region for purposes of funding the public
benefits of water related projects and programs should be.
For example, there are 10 major hydrologic regions, 9 regional
water quality control boards, and the 2012 water bond has 12
different funding regions. The LAO did not have a specific
recommendation on this. However, the PPIC has recently
suggested that the state establish 9 "regional stewardship
authorities" coinciding with the jurisdiction of the 9
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regional water quality control boards.

What Should Be The Rate? Perhaps the better questions are how
much revenue is desirable, what should be the basis for the
assessment, and what does that translate into as a rate
structure? This bill follows the LAO recommendation for what
should be the basis for the assessment, but it is not clear
what the desired annual revenue requirements are.

What Should Be The Urban/Ag Differential, if any? The 3/23
version of this bill suggested that not only should there be a
different effective rate for urban and agricultural uses, but
that the difference should be substantial. The proposed rate
was $110 per acre-foot for urban uses, and the default
agricultural rate was $20 per acre of irrigated land.
Assuming the 2008 Farm and Ranch Irrigation Survey by the USDA
estimate of 3.1 feet of average water used per acre of
irrigated agricultural lands, that would make the average
effective rate for agriculture about $6.45 per acre-foot of
water.

Related Bills. SB 571 (Wolk) would create a process for funding
the public benefits of water related projects and programs
similar to that used in transportation.

Work In Progress. This bill postulates a number of principles
that need to be validated, and then turned into operative
statute. In addition to the items discussed above, issues
requiring particular attention include:
The definition and application of the beneficiaries pay and
polluters pay principles.
The definition of public benefits.
The bifurcating of decision making between the State and
funding regions.
The mechanism of collecting and disbursing funds.
The definitions of allowable and unallowable uses of the
funds.
The method of appropriating and administering the new funds.

SUGGESTED AMENDMENTS: See attached mock-up

SUPPORT
None Received

OPPOSITION (3/23/11 version)
Friant Water Authority
CalTax
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California Water Association














































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