LAO Report on Implementing Water Bond Shows Need for Centralized, Well-Functioning Water Markets

On February 11, 2015, the Legislative Analyst’s Office (“LAO”) released the report: The 2015-16 Budget: Effectively Implementing the 2014 Water Bond, discussing the implementation and implications of Proposition 1, passed in November 2014. In the water bond, $7.5 billion was committed to fund various water related projects, with the biggest allocations going to water storage ($2.7 billion) and watershed protection and restoration ($1.5 billion) in California. With such large quantities being spent on providing clean, safe, and reliable water sources, as well as restoring habitat, there is the valid fear of overspending on water in CA.

The LAO puts forward in their report a set of three principles that could aid in effective and sustainable implementation of this enormous bond: “(1) furthering state priorities, (2) funding cost-effective projects for the state, and (3) ensuring accountability and oversight.” The purpose of these recommended principles to “inform how money is allocated to projects, promote transparency, and ensure better outcomes.”

The first principle of furthering state priorities acts as a check to ensure that the expenditure of the state bond doesn’t inhibit the state from pursuing other state priorities or result in negative impacts on other state goals.

Of high concern is the price of water, which has been driven up due to the drought.  (see “California Agricultural Water Prices Pressured by Limited Supplies in 2014,” JOW, February 2015).

“One of the challenges is that there is no centralized clearinghouse for water prices. There are regulations about water transfers regarding fish and wildlife, but there is no cap on what we pay,” says Anton Favorini-Csorba, co-author of the report.

Helen Kerstein, who also co-authored the report, explains that the lack of a well-developed market may be contributing to the recent run-up of water prices in California.

“If you have an area where there is a well-functioning market, then typically you wouldn’t need price ceilings …” explains Kerstein.

The second principle ensures that the allocation of funds from the bond the greatest public benefit. There is the distinction between public and private recipients, meaning funding projects that do not have clear private beneficiaries. This also includes allocating funds to projects with long-term benefits that can “be used for the construction and acquisition of capital improvements as well as associated planning costs.”

While this second principle states that the highest level of public benefit is the ultimate goal, side-stepping private benefits, there is also the issue of clean drinking water for all. This concern is also included in Proposition 1. In order to supply communities that don’t have the clean drinking water infrastructure that they need, it may be necessary to fund infrastructure to create jobs and get the necessary aid to these communities.

The final principle warrants the need for accountability in the expenditure of the funds in order to promote “transparency and good outcomes” for the projects to be funded by this water bond. This involves oversight and evaluation of the departments of the departments administering the bond so that project benefits are maximized.

The LAO’s proposed solutions for these principles will develop as departments form and grants are allocated to certain projects, hopefully in pursuit of long-term sustainability and water health in California.

Read the full report at:

Written by Stratecon Staff