The California Water Commission left dam and reservoir builders scratching their heads last week by sending all 11 applicants for water storage bond money back to the drawing board.

The commission has a July deadline to award $2.7 billion of the state’s $7.5 billion voter-approved Proposition 1 water bond money earmarked for water storage.

Water storage is the only category of the seven funded through Proposition 1 that has faced criticism around the pace that funding is being allocated, said Ellen Hanak, senior fellow and director of the Public Policy Institute of California’s Water Policy Center.

"I think people are surprised that none of the projects passed muster," said Ellen Hanak, director of the Public Policy Institute of California's Water Policy Center.

Some of the projects, including one to raise Contra Costa County’s Los Vaqueros Dam, need an answer ahead of an August deadline to apply for matching federal funds.

“Things seemed to be going smoothly until the commission staff said their analysis is that none of these projects should get any funding,” said Tim Quinn, director of the Association of California Water Agencies, whose 430 member water agencies deliver 90% of the water sent to the state’s cities, farms and businesses. “It was surprising to many including myself.”

The commission's staff found nearly half of the projects have no public benefits that meet the ballot measure’s rules and the rest don’t provide benefits equivalent to the cost, another requirement.

The commission, which met with all the applicants ahead of its Jan. 18 meeting, plans to release a more detailed analysis on Feb. 2 describing changes applicants need to make to be eligible for the funding, said Chris Orrock, a water commission spokesman.

The water storage funding for dams, reservoirs and ground water replenishment has a unique requirement that 50% of the funding provided to each applicant must be used on ecosystem projects that benefit the public. After voters approved Proposition 1 in 2014, the commission spent two years crafting requirements for the funding based on the bond language. It then requested applications and began reviewing the ones it received in August.

The commission hasn’t made a decision on any projects and the commission’s staff was just asking for more information, Orrock said.

“They are just sending people back to the drawing board in terms of explanations of public benefits,” Hanak said. “It’s not at all surprising given the fact that defining ‘public benefit’ is kind of a squishy area. But I think people are surprised that none of the projects passed muster.”

Quinn said he is not sure he will like the information that comes out of the commission’s Feb. 2 report, which is supposed to provide a more detailed analysis of why the projects don’t meet the requirements. ACWA doesn’t support specific projects, because it represents so many agencies, but he said that water storage is a significant part of Gov. Jerry Brown’s 2014 water action plan, which the association supports.

Applicants for the 11 projects are requesting a total of $5.7 billion, nearly twice the $2.7 billion available. In addition to the Los Vaqueros Dam raising, projects seeking bond funds include a new Santa Clara County dam near Pacheco Pass and a $5.1 billion off-stream water storage project in Colusa County that would be known as Sites Reservoir.

ACWA didn’t think all of the projects would get funded, he said, but it did think some would.

The state legislature has appropriated 86% of the $7.5 billion split between seven categories in the bond measure, but only 14% of the money has been awarded, according to a PPIC blog post.

The state’s pace of spending $1 billion in water bond money annually is on par with how quickly the state has spent water bond money over the past two decades, Hanak said.

“Some people are frustrated when the money doesn’t go out the door right away, but that is not how this works,” Hanak said. “The process involves a lot of individual grants to individual agencies, which means not a lot of checks get written the day after the bond act gets passed.”

General obligation bond measures in California require a prescriptive definition of projects for which the money can be used, Hanak said.

As a result, agencies have to spend time drafting requirements that meet bond language before money can be awarded.

Water bonds passed by voters since 2000 to support water projects typically have been aimed at filling funding gaps in areas that would not have adequate avenues to fund projects otherwise, Hanak said. That is the case with the $7.5 billion water bond.

Voters could be weighing two new bond measures to support water projects this year.

Brown signed last year Senate Bill 5, a $4 billion parks and bond measure on the statewide June ballot that would provide $2.83 billion for park improvements and $1.27 billion for flood protection, levee upgrades, water recycling and groundwater pollution cleanup.

An $8.9 billion initiative proposed by former state water resources agency head Gerald Meral aimed at the November ballot would support the same categories as the $4 billion bond, but also would pay to improve canals for farm irrigation and include $200 million for Oroville Dam repairs and also fund other reservoir upgrades.

Nearly 200,000 people downstream of the Oroville damn were evacuated after massive concrete chunks broke off in the spillway.
A $8.9 billion bond initiative targeted for California's November ballot would earmark $200 million for Oroville dam repairs. Mike Burns, California Department of Water Resources

ACWA supports both bond measures, because it views them as complementary, Quinn said.

“In a nutshell, we believe in the governor’s water action plan of 2014,” Quinn said. “A number of things in the action plan have not received adequate funding – and many more financially disadvantaged communities could get safe drinking water.”

Supporters of the water initiative have already gathered 540,000 signatures, Meral said; they are required to submit 365,880 valid voters' signatures.

“We have enough to make the ballot, but we are going to see if we can get more, because then we can get certified earlier,” Meral said. “We are planning on turning them in the first week in March. At this point, we are confident we will be on the ballot.”

Since 1972, 21 out of 22 state water bond measures have passed, said Meral, adding that polling for the measure was favorable when they conducted it last year.

“No one can be 100 percent sure, but we feel pretty good about it,” he said.

PPIC's Hanak says it would be better if the state found an alternative to always using general obligation bonds to fund water projects.

“It is not necessarily the most reliable stream of money, because there has to be a steady stream of bond measures passed,” she said.

As soon as Proposition 1 passed, people began working on new measures to fill the funding gaps not covered by that bond, she said.

One of the hot topics in the legislature this year is going to be a fee on urban water use and agricultural chemicals to fund safe drinking water. Senate Bill 623 was proposed last year, but failed to gain traction with opposition from urban water agencies.

The idea is to raise enough funds from agriculture and urban communities to support ongoing operational costs of economically disadvantaged communities that don’t have safe drinking water. In some areas, clean drinking water is an issue, because nitrates used in farming have seeped into water sources. Solutions can include digging deeper wells or hooking into larger water systems.

Brown’s budget statement included plans to put such a proposal in a trailer bill to the budget, which Hanak said signals it is a priority for the administration this year.

“The agricultural community is on board, because for them it’s better to have a fee on agricultural chemicals then to have individual farmers be on the hook,” she said.

Opposition has come from urban water agencies that would be required to add the fee to customer’s water bills. It would pay for things like eliminating arsenic that are unrelated to runoff from agricultural pollutants.

“The water agencies are opposed, because they think the money should come from the general fund, because it’s an equity issue,” Hanak said.

The fact that getting the bill passed has been an uphill battle when it’s an issue that everyone agrees is a problem demonstrates how hard it is to set up fees, Hanak said.

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