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california legislation > SB 34

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SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair


BILL NO: SB 34 HEARING: 5/4/11
AUTHOR: SimitianFISCAL: Yes
VERSION: 4/13/11 TAX LEVY: No
CONSULTANT: Miller

WATER RESOURCES INVESTMENT ACT OF 2011


Charges a fee on each retail water supplier in the state
based on volume.


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.

In addition to the property tax, the sales and use tax and
various excise taxes, the Board of Equalization collects
various fees in this state. For example:

Oil Spill Prevention and Administration Fee. Existing law
also imposes an Oil Spill Prevention and Administration Fee
of $0.05 per barrel, pursuant to Government Code Section
8670.40, upon persons owning crude oil when it is received
at a marine terminal from within the state, which is
collected by the marine terminal operator. The fee is also
imposed on operators of pipelines transporting oil in the
state across, under, or through marine waters. This
BOE-administered fee is deposited into the Oil Spill
Prevention and Administration Fund.

Oil Spill Response Fee. The BOE also collects an oil spill




SB 34 -- 4/13/11 -- Page 2



response fee which is paid by specified marine terminal
operators, pipeline operators, and refiners in an amount
not exceeding $0.25 per barrel of petroleum product or
crude oil. The BOE collects the fees and deposits all
proceeds into the Oil Spill Response Trust Fund, but only
until a maximum of $50 million is available to react to a
spill. No fees are currently being collected since the Oil
Spill Response Trust Fund is at its maximum.

The Ballast Water Management Act of 1999 established a
program to address the problem of the introduction and
spread of nonindigenous aquatic species into the state
waters of California. The fee is currently $850 per
qualifying voyage.

Water Rights Fee Effective January 1, 2004, the California
Water Code was amended to require the State Water Resources
Control Board (State Water Board) to adopt emergency
regulations revising and establishing water right fees and
water quality certification fees to be deposited in the
Water Rights Fund in the State Treasury. The Water Code
authorizes the State Water Board to periodically adjust the
fees and requires the State Water Board to revise the fee
schedule each fiscal year as necessary to conform to the
revenue levels set forth in the annual Budget Act. The
SWRCB entered into a contractual arrangement with the Board
of Equalization (BOE) to process and collect all assessed
annual fees.



Proposed Law

Senate Bill 34 creates 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





SB 34 -- 4/13/11 -- Page 3



public benefits of water related projects and programs
to be equitable, comprehensive, unavoidable,
affordable, understandable, easy to administer, and
stable.

Commencing on July 1, 2012, the bill imposes an annual
water resources investment fee. Every fee amount is left
blank in the bill.

Recognizing 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.

The bill requires the Board of Equalization (BOE) to
collect the charges from retail water suppliers in
accordance with the Fee Collection Procedures Law.

The bill also allows the Department of Water Resources and
the BOE to adopt and enforce regulations for the
administration and enforcement of the charges and related
requirements as emergency regulations.


State Revenue Impact

No estimate.





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Comments

1. Purpose of the bill . 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
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, 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."

The author further states that this bill intended to be a
"vehicle for discussion" that will not move beyond the
Senate Appropriations Committee this year.

2. Pay up. The opposition cites concerns with the fee in
the bill stating that additional charges on water users are
unnecessary, unaffordable and unproductive. Further, the
opposition states that the beneficiary pays principle
requires direct and demonstrable benefits to the water
user. Any such fee should be equitably and proportionally
based on the project benefits derived by those who are
subject to the fee and beneficiary must be clearly defined.





SB 34 -- 4/13/11 -- Page 5





3. I'll give you a dollar if you give me hot dog. The
intent of the bill is that all water users in the state
should be assessed the fee to pay for the public benefits
of water projects. For example, watershed restoration
projects have public benefits and are typically paid for
with general obligation bonds. With this bill, projects
like these could be paid for by this fee on all water users
paying the fee. The bill needs to determine how the idea
of "public benefits" will be determined and then how it
will be allocated to specific project.

4. A bill about blanks. This bill is a "work in
progress," and has blanks as entire subdivisions and also
blanks for amounts of the fee and reimbursements for the
BOE. As a work in progress, the bill is a notion of how
the fee should work rather than providing any specifics.
While the notion is based on studies (see comment 4), the
fee is mainly a concept. Before the fee can be imposed,
administered, implemented, or even fully analyzed, the
author will have to consider the following questions in
addition to the amount of the fee; for example:
What is the best rate of the fee and how should it
be determined?
Does the Department of Water Resources (DWR),
another agency or the BOE asses (not impose) the fee?
Or, will that be prescribed in the legislation?
What is the penalty structure if the fee cannot be
collected? Who enforces the penalty?
How will the fee be imposed on land that is both
agricultural and non-agricultural?
Will DWR and BOE be reimbursed for administrative
costs? Will these costs come out of the fee?

Other definitions are also necessary in order for the bill
to be implemented:
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





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new funds.

The Committee may wish to consider having this bill
analyzed when all of these questions, among others, are
answered.

5. To study and learn. This bill is based on the
Legislative Analyst's office "Preferred Funding Option."
Elements of that study relevant to this committee include:

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.

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

Support and Opposition (5/3/11)

Support : Unknown.

Opposition : California Municipal Utilities Association;
California Outdoor Heritage Alliance; California Taxpayers
Association; Kern County Water Agency; Eastern Municipal
Water Districts; Kings River Conservation District, Kings
River Water Association; San Bernardino Valley Municipal
Water District; Solano County Water Agency; Upper San
Gabriel Valley Municipal Water District; Walnut Valley
Water District; LaCanada Irrigation District; Foothill
Municipal Water District; Modesto Irrigation District;
Western Growers; Los Angeles Gateway Region; Regional
Council of Rural Counties; California Council for
Environmental and Economic Balance; Burbank Water and
Power; Desert Water Agency; Irvine Ranch Water District;





SB 34 -- 4/13/11 -- Page 7



Mojave Water Agency; Association of California Water
Agencies; City of Lakewood; Calleguas Municipal Water
District; Three Valleys Municipal Water District; Las
Virgenes Municipal Water District; North Marin Water
District; Crescenta Valley Water District.