The California Legislature will recess today without achieving a long-standing and urgent objective: find a substitute for the $11.14 billion water bond on this November’s ballot. In a July 1st interview with Capitol Public Radio, Assembly Speaker Atkins (D-San Diego) said that a water bond deal can be reached in August if interest groups accept less money than they want.
Given California’s tradition of state funding of water, this is a tall order:
Can California’s water establishment reinvent themselves in a few weeks?
In 2009, the Legislature passed the Safe, Clean and Reliable Drinking Water Supply Act to ask voters to approve $11.14 billion in general obligation bonds for projects and programs to improve water supply reliability and ecosystem health in the Delta. The water bond has been postponed twice (from the 2010 and 2012 ballots) due to concerns about the bond’s size and project earmarking.
The concern about the bond’s size is well founded. Hydrowonk studied the history of voting on prior water bonds and debt levels. Voter-approval of Water Bonds dwindles in the face of rising debt burdens. Given California’s current debt level, an $11.14 billion water bond has an expected vote share of 42.4%. The probability of the 2014 water bond securing voter approval is 12.2%. The odds against passage are 7/1.
Will the current drought change the outcome? Business week published last spring an article quoting a recent poll finding that 60% of the respondents would support the water bond. This poll, however, is an outlier relative to other polling suggesting that support for the water bond is in the low 40’s.
In that most polling and the history of voting on water bonds have support in the low 40’s, it is becoming conventional wisdom in Sacramento that the $11.14 billion water bond is destined to fail.
“Up to the Minute” Legislative Actions
Developing legislation to replace the current water bond has become a crowded cottage industry this legislative session. Numerous bills have been introduced. Last spring, there were seven bills working their way through the legislative process. The smallest in size was $5.8 billion (AB 1445) and the largest in size was $9.2 billion (SB 927).
As a June 26th deadline approached (last date for Legislature to pass and the Governor sign legislation replacing the $11.14 billion water bond with a new bond), legislators and interests burned the midnight oil. A $10.5 billion bond proposed by State Senator Wolk (D-Davis) stalled in the Senate. Governor Brown proposed a $6 billion bond as a compromise (up for re-election, Governor Brown has signaled that he would oppose the $11.14 billion bond if it remains on the ballot). Assembly Speaker Atkins then tried to move the Governor’s proposal through the Assembly, where negotiations increased the bond’s size to $8 billion before the Speaker threw in the towel on her effort.
In her interview with Capitol Public Radio, Speaker Atkins stated:
“the stakeholders are really going to have to understand, if they hold out for everything that they want, they could end up with nothing – and I think that’s my biggest concern.”
Earlier this afternoon, State Senator Wolk announced a revised version of SB 848 that cuts $3 billion from the Senate’s earlier proposal. At $7.5 billion, the spending cuts represent proportional cuts with “the exception of funding for some high priority areas including groundwater sustainability and recycled water. . . It funds storage projects at the same level proposed by the Governor ($2 billion). And, critically, it continues to be tunnel neutral (i.e. tunnel project in the Bay Delta Conservation Plan).”
While the revised SB 848 shows significant movement towards Governor Brown’s goal about bond size, the terrain for political conflict remains. Advocates for storage want $3 billion. Some environmental interests want nothing. Speaker Atkins observed:
“water storage supporters and environmental groups that oppose money for dams won’t get everything they want.”
Where are the Policy Principles?
Channeling Ronald Reagan, here are some economic principles that could guide policy:
- what water users pay: water users should fund water supply benefits and the mitigation efforts related to those benefits
- what taxpayers pay: state funding should fund the cost of environmental and any other non-water supply benefits
What these principles imply for state funding of water storage depends on the specifics of a water storage project. If a project were designed and operated solely to provide storage for water users, then water users should pay for the project. No state funding. However, storage projects can be designed and operated to also achieve environmental and other non-water supply objectives. In this circumstance, there is a case for state funding of a portion of the cost of that water storage project (but not all).
If these were the policy principles guiding the design of the water bond (Hydrowonk doubts that they are), then bond size and allocation among project categories would reflect:
(i) the environmental and other non-water supply benefits generated from funded projects,
(ii) the priority of the environmental and other non-water supply benefits relative to other uses of state money (education, transportation, welfare, etc.).
This brings us back to the “second reason” for the two delays in putting the $11.14 billion bond on the 2010 and 2012 ballots—earmarking. With project funding determined “behind closed doors”, it is inevitable that some voters may wonder about whether the billions in state tax dollars can be better spent on other state programs or, even better still, stay in their own pockets.
We will know soon whether the legislative process can yield a new water bond. Significant political capital will be expended. Even if the new water bond meets Governor Brown’s goal of $6 billion, passage may not be a slam dunk. Based on Hydrowonk’s analysis of voting on water bonds and the high debt levels in California, the expected vote share for a $6 billion water bond is 44.7% with about a 20% chance of passage. The odds against passage are 4/1. The smaller bond has much better chance of passing than the $11.14 billion bond, but not a slam dunk.
California’s water establishment is making a big bet that the drought motivates voters to dig deep into their pocket despite the difficult economic times. Speaker Atkins “biggest concern” may occur even if the Legislature and Governor put a new water bond on the ballot. California’s water establishment may indeed get nothing.
What is Plan B?