MENLO PARK, Calif. — An independent study calls for California to overhaul management of its water supply system and give a newly created commission oversight of billions of dollars of bond money.

The state’s Little Hoover Commission last week released a 100-page report that called for a new model for governing California’s water agencies. The major recommendations include giving the newly formed California Water Commission oversight over resource-related bond funds.

The report also said the state’s reliance on bond funding for ­essential government services is not sustainable given the interest costs.

“Water in California is different from water in other places,” said Stuart Drown, executive director for the Little Hoover Commission. “We are asking for pretty big things.”

The Little Hoover Commission is an independent state oversight agency that was created in 1962 to investigate state government operations.

Drown said the commission’s intention with the report, which took 16 months to compile, was to frame the discussion for stakeholders, including the Legislature and governor. “Typically, legislation is based on our recommendations,” he said.

The report said California voters have authorized more than $20 billion in general obligation bond debt for resource-related projects, and billions of dollars of that bond money has yet to be awarded.

“The taxpayers who will be repaying these bonds must be confident that the borrowing prioritizes projects with the largest returns and that the departments that spend the money are accountable for the results,” the commission said.

Last year, water reform legislation revived the long-dormant California Water Commission, and gave it oversight of a proposed $11.1 billion water bond ballot measure. This year, lawmakers voted to postpone that bond measure from November until 2012 because of the unfavorable political and economic climate.

The Little Hoover Commission has called for the revived water agency to be given oversight of all resource-related bond spending to ensure it is in line with voters’ intentions, avoiding duplicate efforts and waste.

The report says the state’s reliance on bond funding for fundamental, ongoing governmental responsibilities is an inefficient use of public money and unfair to future taxpayers who will be paying off the debt.  Since 1996, voters authorized more than $20 billion in resources-related state bond borrowing and more than $3 billion of that has yet to be appropriated. 

The commission said almost none of the $1 billion authorized under 2006’s Proposition 84 for regional water management planning has been spent, though more than $470 million has been appropriated and much of that amount should be awarded by the end of the year.

Today, debt service for California general obligation bonds accounts for roughly half of the general fund’s $1.8 billion contribution to the budgets of the Natural Resources Agency and the Environmental Protection Agency, the report said.

General fund support for the Department of Water Resources has also declined 74% from its peak in 2000-2001. Support for the State Water Resources Control Board fell 66% during the same period, the commission said.

The report said in lieu of general fund support agencies rely more heavily on fee revenue and bond-funded expenditures.

“The state’s role of managing and planning for California’s future water use, however, is not a one-time investment, but part of the ongoing business of government and, as such, requires a sustainable funding source, either through fee revenue, general fund support or special fund support,” the report said.

The main purpose of the report is to propose a new management structure for California’s water resources that will streamline governance — bringing together water rights administration and water planning and management.

Right now, water planning and management in the Natural Resources Agency’s Department of Water Resources are separate from water rights accounting and enforcement in the State Water Resources Control Board, which is part of the California Environmental Protection Agency.

The report suggests moving these functions together and removing the State Water Project from the DWR to a new publicly owned water authority. A DWR spokesman said the department had yet to release a response to the commission’s report, but will in the near future.

The commission said water rights administration, planning and management should be brought under a new Department of Water Management that oversees the State Water Project. The report said the water governance system in place for the last 40 years gives priority to agricultural and urban users, rather than allocating more water to the environment and to endangered species, despite new laws and lawsuits in recent decades.

A drought over the last three years has also made the situation worse.

David Zetland, a postdoctoral fellow in natural resource economics and political economy at the University of California, Berkeley, said water in California has always been political.

“The problems that we are seeing in California, as in many parts of the world, are essentially fights between people over who gets the water,” he said. “That is your inevitable squeeze between increasing demand and either stable or shrinking supply.”

Demand for California’s water bonds has remained strong and that will likely continue. Michael Pietronico, CEO of Miller Tabak Asset Management, said that in the California market, even in the worst of times, the water sector has always been very well bid and continues to be.

“From a historical point of view, there is less reason to be concerned about water bonds because water is in short supply in California,” he said.

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