In recent weeks, work has begun in earnest in the Capitol to revamp the water bond that will go before California voters in November 2014. Everyone seems to agree that the new bond needs to be smaller than the $11 billion bond currently slated for that ballot, which polling suggests is more than the voters are likely to approve. But agreeing on what the new bond should include is proving harder. Our advice? This is an opportunity to put California on a more sustainable water funding diet with a balanced portfolio that relies less on periodic injections of general-fund-backed debt.
A bit of background on the current bond dilemma: From 2000 to 2006, California voters approved six general obligation bonds for water-related purposes, totaling more than $23 billion (in today's dollars). This is nearly three times as much as the sums approved in the preceding 30 years, and it translated into generous state programs to support local water, wastewater, flood protection, ecosystem restoration and parks. By the time the Legislature approved the proposed $11 billion bond in late 2009, water managers had gotten used to a steady stream of funds, and a new bond was needed to maintain it.
Since then, however, voters who foot the bill through repayments out of the state's general fund seem to have lost some of their enthusiasm for bonds.
Weak public support has already led the Legislature to postpone sending this measure to the voters twice, and the current overhaul aims to make the price tag more palatable. This inevitably means elimination of projects that matter to someone. At the same time, existing water and restoration funds are running out, and the pressure is on to pass a new bond.
There are no magic recipes that will resolve this dilemma to everyone's satisfaction. But California can take some steps now to get on a healthier path.
Admit we need to go on a bond diet: Even if voters approve a bond next November, the future stream of state bond funds for water projects is likely to be much smaller than what the sector has enjoyed in the recent past. Bonds have supported many valuable activities, but the easy money has also made us lazy about pursuing other funding options. The litmus test for whether an activity deserves bond funding shouldn't simply be whether it is valuable, but whether bonds reimbursed with general tax revenue are the best way to pay for it.
Create incentives to consume less: One important alternative to bonds is directly charging local residents and businesses that consume the state's water. Indeed, the lion's share of the $34 billion spent annually on water-related activities already comes from local water and sewer rates. This user fee approach is often superior to bond funding because it aligns incentives: When water users pay for new supplies through higher water bills, they are encouraged to use water more efficiently.
Increased efficiency makes more water available for environmental and recreational uses and reduces future demands for additional water projects.
Make healthy, balanced choices: We propose focusing scarce taxpayer dollars on activities that meet one of three broad goals. The first goal is to address social equity by, for example, making safe drinking water available in impoverished communities. The second goal is to generate broad public benefits enhancing the ecosystem in the Delta, where most California residents have contributed to current environmental problems, is one example. The third goal is to leverage innovative management behavior that might not otherwise occur because of high startup costs. This goal provided justification for supporting integrated regional water management which helped bring local agencies together to tackle problems jointly in recent bonds. Now that these regional groups are up and running, we should be finding ways to make these programs self-financing for example, with regional fees and use bonds to support other innovations.
Help Californians read the labels: One key to making healthy spending choices is transparency. The Legislature and water managers should clearly define both the benefits of proposed bond expenditures and the sources of bond repayment, rather than hoping that Californians won't realize a bond will cost them money (in terms of new tax revenue or reduced spending on something else in the state budget).
Establish better habits for the long-term: The Legislature's job won't be done when it agrees on the contents of a new bond. Right now, some activities such as flood and stormwater management and environmental mitigation face difficult funding hurdles. The Legislature could improve the sustainability of the system by removing barriers to local funding, encouraging the development of regional funding systems, and improving the capacity of the water sector to pay for itself.
Ellen Hanak is senior fellow at the Public Policy Institute of California. Brian Gray is professor at the University of California Hastings College of the Law. Jay Lund is director of the Center for Watershed Sciences at the University of California, Davis.