Paying for Water in California
November 16, 2015
Ellen Hanak, Center Director and
Senior Fellow
Senate Natural Resources and Water Committee
Hearing on Underfunded Water Needs
The drought highlights the crucial role of
our water system

California’s economic, social, and environmental health
all rely on a well-managed water system

A key ingredient for success is adequate funding
Lake Oroville, January 2014
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Local agencies raise most of $30+billion
spent annually on California water
20
Billions of 2012 $ per year
18
Annual water system spending (2008–11)
$16.9
Federal (4%)
State (12%)
Local (84%)
16
14
12
$10.1
10
8
6
4
$2.2
2
<$1
<$1
0
Water supply
Water quality
Flood
management
Aquatic
ecosystems
GO debt
service
Source: Hanak et al., Paying for Water in California (PPIC 2014).
3
Urban water and wastewater utilities
are in relatively good fiscal health
 Can usually raise rates to
4.5
4.1
Capital needs
4
Billions of 2012 $ per year
Capital spending
3.5
3
2.5
2.5
2.3
2
1.4
1.5
1
0.5
0
Water supply
Wastewater
Source: Hanak et al. Paying for Water in California (PPIC 2014)
(Capital needs from USEPA surveys; spending from CA State
Controller).
meet needs
 Investments have improved
urban drought resilience
 But looming concerns:
– Rising costs (treatment
standards, aging
infrastructure)
– Legal obstacles to
conservation pricing,
portfolio-based
management, lifeline
rates
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Debilitating funding gaps in other areas:
the “fiscal orphans”
Overall grade
Annual gap
($ millions)
Water supply
Passing (mostly)
—
Wastewater
Passing (mostly)
—
Safe drinking water
(small rural systems)
Failing
$30–$160
Flood protection
Failing
$800–$1,000
Stormwater management
Failing
$500–$800
Aquatic ecosystem management
Failing
$400–$700
On the brink
$200–$300
Integrated management
Total annual gap: $2–$3 billion ($12–$20/month per household)
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Three constitutional reforms make it harder
to pay for local water services
Prop. 13
1978
Prop. 218
1996
• Property taxes
reduced
• General taxes no longer
available to special districts
• Local special taxes
require 2/3 voter
approval
• Local property-related
fees/assessments:
• State taxes require
2/3 legislative
approval*
* Ballot measures can still
pass with 50% of state
voters
o Property-owner protest
hearings
o Strict cost-of-service
requirements
Prop. 26
2010
• Stricter requirements on
local non-property
related fees and state
regulatory fees
• Stricter cost-of-service
requirements for
wholesale agency fees
o Floods and stormwater:
new charges require 50%
vote by property owners
or 2/3 popular vote
6
State GO water bonds have grown
significantly since the early 2000s
Water-oriented state GO bonds
(Bllions of 2012 $)
30
25
20
15
Possible
~$5 billion
bond for
Nov. 2016
ballot
10
5
0
1970s
1980s
1990s
2000s
2010s
Source: Governor’s Budgets
7
State bonds contribute under $1B/year to
water system; debt service now as high
Total bond spending ($2014 billions)*
2.5
Bond spending on water sector ($2014 billions)
Bond debt repayment ($2014 billions)
Projected repayment ($2014 billions)
Billions of 2014 $ per year
2.0
1.5
1.0
0.5
0.0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Source: Governor’s budgets
* Total bond spending includes funds for parks
2015
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Prop. 1 focuses mainly on water supply
and ecosystems
Ecosystems
20%
Drinking water
quality
7%
Water supply
58%
Flood protection
5%
Integrated
mgmt.
7%
Stormwater and
runoff
3%
$7.5 billion ($7.12 of new debt)
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California must go beyond bonds to
address fiscal orphans
Gap area
Safe drinking water in
small rural systems
Flood protection
Stormwater
management
Annual gap
($ millions)
$30–$160
$800–$1,000
$500–$800
One-time infusion
from Prop 1
($ millions)
Other long-term funding
options
$260*
•
Statewide surcharges on water,
chemical use
$395
•
•
•
Developer fees
Property assessments
Special state, local taxes
•
•
•
•
Developer fees
Property assessments
Special state, local taxes
Surcharges on water, chemical, or
road use
Special state, local taxes
Surcharges on water use,
hydropower production
$200
Aquatic ecosystem
management
$400–$700
$2,845**
Integrated management
$200–$300
$510
•
•
•
•
Special state, local taxes
Surcharges on water use
*These funds are available for communities of all sizes. Another $260 million is available for small community wastewater systems.
** This includes the $1.495 billion earmarked for ecosystem investments and $1.35 billion from water storage project matching funds set aside for
ecosystem benefits.
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The legislature can help in
many ways

Some recent legislative support:
– Funding authorities for local groundwater
sustainability agencies (SGMA, 2014)
– Broader definition of water supply (e.g., stormwater
capture) (AB 2403, 2014)
– Consolidation of small systems (AB 115/SB 88, 2015)

Other actions that could help:
– Broadening local agency missions (AB 810, 2001)
– Approving new fees and taxes
– Addressing constitutional issues related to definition
of water, lifeline rates
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Thank you!
These slides were created to accompany a presentation.
They do not include full documentation of sources, data
samples, methods, and interpretations. To avoid
misinterpretations, please contact:
Ellen Hanak ([email protected]; 415-291-4433)
Research presented here was supported in part by the S.D.
Bechtel, Jr. Foundation and the California Water
Foundation, an initiative of the Resources Legacy Fund.
More information available at: www.ppic.org/water
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