Summary

November 2013 Salton Sea Restoration Fund The State Has Not Fully Funded a Restoration Plan and the State’s Future Mitigation Costs Are Uncertain Report 2013‑101 COMMITMENT INTEGRITY LEADERSHIP The first five copies of each California State Auditor report are free. Additional copies are $3 each, payable by check or money order. You can obtain reports by contacting the California State Auditor’s Office at the following address: California State Auditor 621 Capitol Mall, Suite 1200 Sacramento, California 95814 916.445.0255 or TTY 916.445.0033 OR This report is also available on our Web site at www.auditor.ca.gov. The California State Auditor is pleased to announce the availability of an online subscription service. For information on how to subscribe, visit our Web site at www.auditor.ca.gov. Alternate format reports available upon request. Permission is granted to reproduce reports. For questions regarding the contents of this report, please contact Margarita Fernández, Chief of Public Affairs, at 916.445.0255. For complaints of state employee misconduct, contact the California State Auditor’s Whistleblower Hotline: 1.800.952.5665. Elaine M. Howle State Auditor Doug Cordiner Chief Deputy November 21, 2013 2013‑101 The Governor of California President pro Tempore of the Senate Speaker of the Assembly State Capitol Sacramento, California 95814 Dear Governor and Legislative Leaders: As requested by the Joint Legislative Audit Committee, the California State Auditor (state auditor) presents this audit report concerning the administration of the Salton Sea Restoration Fund (Restoration Fund). The Salton Sea is the State’s largest inland lake and serves as an important fishery and wildlife habitat. However, beginning in 2003, a series of agreements, known collectively as the Quantification Settlement Agreement (QSA), between the State, local water agencies, and other entities require, among other things, a water transfer that has reduced the amount of water that flows into the sea. Legislation enacted in 2003 to facilitate the implementation of the QSA, also establishes the State’s broad goals for restoring the Salton Sea and established the Restoration Fund. This report concludes that under the QSA, the State has agreed to assume sole responsibility for payment of the costs for environmental mitigation requirements in excess of the first $133 million (in 2003 dollars), an amount that the QSA requires three local water agencies to pay for this purpose. Although no formal analysis has been conducted, it is roughly estimated that the water agencies could exhaust most of their mitigation contributions as early as 2025, at which time any State financial obligations will commence. However, to date the State has not performed an estimate of these costs. To address restoration of the Salton Sea, the Legislature required the secretary of the California Natural Resources Agency (Resources Agency) to propose alternatives for restoring the Salton Sea. Although the Resources Agency identified various alternatives in 2007, none of them have been fully funded which may be due to the high costs of the alternatives presented—ranging from $2.3 billion to $8.9 billion to construct. Absent restoration efforts, experts agree that the negative impacts on the Salton Sea will be significant. In fiscal year 2013–14, the Legislature provided funding to the Resources Agency to coordinate with a local entity to create a feasibility study to, among other things, develop feasible alternatives for inclusion in a restoration plan and to develop funding options to achieve restoration goals. However, the provisions governing the feasibility study do not impose a specific deadline for completing the study, do not fully prioritize the steps that must be taken in order to achieve the State’s broad restoration goals, and do not require the identification of restoration activities that could lessen the State’s future mitigation costs. By performing restoration activities now that are also designed to reduce the need to undertake mitigation activities in the future, the State could potentially decrease its future mitigation costs. Further, the Resources Agency has taken an incremental approach to restoring the Salton Sea and over the last several years has worked with the California Department of Fish and Wildlife and the California Department of Water Resources on planning a project that calls for the restoration of 3,770 acres of the sea—a small fraction of the hundreds of thousands of acres the sea comprises—at an estimated cost of $132 million. Respectfully submitted, ELAINE M. HOWLE, CPA State Auditor 621 Capitol Mall, Suite 1200 Sacramento, CA 95814 916.445.0255 916.327.0019 fax www.auditor.ca.gov Blank page inserted for reproduction purposes only. California State Auditor Report 2013-101 v November 2013 Contents Summary 1 Introduction 7 Audit Results The State Has Not Fully Funded a Long‑Term Restoration Plan and No Current Estimate Exists of the State’s Future Financial Obligations for Mitigation 17 Lacking a Funded Restoration Plan, the Resources Agency Has Taken an Incremental Approach to Restoring the Salton Sea 25 Recommendations 34 Appendix The Salton Sea Restoration Fund’s Funding Sources and Expenditures for Fiscal Years 2003–04 Through 2012–13 37 Response to the Audit California Natural Resources Agency 41 vi California State Auditor Report 2013-101 November 2013 Blank page inserted for reproduction purposes only. California State Auditor Report 2013-101 1 November 2013 Summary Audit Highlights . . . Results in Brief Our review of the administration of the Salton Sea Restoration Fund, highlighted The Salton Sea, located in Riverside and Imperial counties in the following: Southern California, is the State’s largest inland lake. The Salton Sea » The Quantification Settlement Agreement was formed in 1905 when Colorado River floodwater breached an (QSA), among other things, requires irrigation canal being constructed in the Imperial Valley; it has since a water transfer that has reduced been primarily fed by agricultural drain water. According to experts, the amount of water that flows the Salton Sea serves as an important fishery and wildlife habitat into the Salton Sea. and is a major stopping point for migratory birds along the Pacific flyway. However, beginning in 2003, a series of agreements known » The State has agreed to assume collectively as the Quantification Settlement Agreement (QSA), sole responsibility to pay the costs between the State, local water agencies, and other entities have for environmental mitigation required, among other things, a water transfer that has reduced the requirements in excess of $133 million amount of water that flows into the Salton Sea (water transfer). To (in 2003 dollars), an amount that mitigate the effects of the water transfer, the QSA requires one of three local water agencies must first pay. the local water agencies that is a party to the agreement to provide • The three water agencies could additional water (mitigation water) to the Salton Sea for 15 years, exhaust most of their mitigation from 2003 to 2017. Experts anticipate that when the Salton Sea contributions as early as 2025, stops receiving this mitigation water, the water transfer will cause at which time any state financial profound negative environmental impacts, including the loss of obligations will commence. fishery habitat, exposure of soils to wind erosion, and declines in bird species because of the loss of food. • The State has not yet performed a cost estimate to determine how much it Under the QSA, the State has agreed to assume sole responsibility may need to pay for mitigation costs for payment of the costs for environmental mitigation requirements under the QSA. in excess of $133 million (in 2003 dollars), the amount that the QSA requires three local water agencies to pay for this purpose.1 » The California Natural Resources Although it has not performed a formal analysis, the joint powers Agency (Resources Agency) estimated, in authority that includes the three local water agencies roughly 2006 dollars, that construction costs for estimates that the water agencies could exhaust most of their fulfilling a portion of the QSA’s mitigation mitigation contributions as early as 2025, at which time any state requirements could be $801 million, financial obligations will commence. Although this financial which does not reflect all of the mitigation responsibility could materialize in just over 10 years, it is currently costs the State may incur in satisfying its unknown how significant the State’s financial obligations might be. financial obligations. The State has not yet performed a cost estimate to determine how » The QSA does not impose requirements much it may need to pay for mitigation costs under the QSA. related to restoration; however, by Legislation enacted in 2003 to facilitate the implementation of the performing certain restoration activities QSA requires the secretary of the California Natural Resources now the State could potentially decrease its Agency (Resources Agency), in consultation with other entities, future mitigation costs. to undertake an ecosystem restoration study to determine a » After more than six years, none of the preferred alternative for restoring the Salton Sea ecosystem and restoration alternatives have been permanently protecting the wildlife dependent on it. In May 2007 fully funded. continued on next page . . . 1 The local water agencies are paying their mitigation contributions in installments over many years with interest accruing on the unpaid balances at an annual rate of 6 percent. 2 California State Auditor Report 2013-101 November 2013 » Provisions governing a feasibility the Resources Agency published its Salton Sea Ecosystem study do not impose a deadline for its Restoration Program Preferred Alternative Report and Funding Plan completion and do not require it to (Preferred Alternative Report). In the Preferred Alternative Report, identify restoration activities that could the Resources Agency estimated—based on a technically feasible, lessen the State’s future mitigation costs. worst‑case scenario—that construction costs for fulfilling a portion of the QSA’s mitigation requirements could be $801 million, with » In the absence of funding from the annual operations and maintenance costs of roughly $50 million Legislature for a long-term restoration for many years thereafter. Because this estimate is in 2006 dollars, plan, the Resources Agency has taken an the actual costs under this scenario are likely to be significantly incremental approach to the restoration greater when adjusted for inflation. However, this cost estimate was of the Salton Sea. based on conditions that were known at the time it was developed, and it does not reflect all of the mitigation costs the State may incur in satisfying its financial obligations under the QSA. The State will ultimately be financially responsible for any QSA‑related mitigation costs once the three local water agencies finish making their payments. The 2003 legislation also establishes the State’s broad goals for restoring the Salton Sea. Unlike mitigation, which refers to activities that reduce the impact of an action, restoration refers to actions that bring back something that previously existed. An example of mitigation might be reducing dust emissions from exposed seabed, while an example of restoration might be constructing and maintaining bird habitat that has been lost. Although the QSA imposes a number of requirements on the State related to mitigation, it does not impose requirements related to restoration. However, by performing restoration activities now that are also designed to reduce the need to undertake mitigation activities in the future, the State could potentially decrease its future mitigation costs. For example, according to a California Department of Fish and Wildlife (Fish and Wildlife) official, restoring habitat could lessen the amount of exposed dry seabed in the future, thereby reducing the need to mitigate dust. To address restoration of the Salton Sea and the State’s QSA‑related mitigation responsibilities, the Legislature required the Resources Agency to evaluate several alternatives for restoring the Salton Sea, which the Resources Agency presented in its Preferred Alternative Report. Nonetheless, more than six years after the report was submitted, none of the alternatives have been fully funded, perhaps because of their high construction costs, which range from an estimated $2.3 billion to $8.9 billion. Despite the Legislature’s stated restoration goals, the Resources Agency has indicated that it cannot fully implement a long‑term restoration plan without additional funding. To address this, the Legislature provided funding in the fiscal year 2013–14 Budget Act for the Resources Agency to coordinate with a local entity in creating a feasibility study. According to the fiscal year 2013–14 Enacted Budget Summary, the feasibility study will, among other things, update the analysis from previous restoration planning California State Auditor Report 2013-101 3 November 2013 efforts and develop funding options to achieve restoration goals. However, the provisions governing the feasibility study do not impose a specific deadline for completing the study, do not fully prioritize the steps required to achieve the State’s broad restoration goals, and do not require the study to identify restoration activities that could lessen future state mitigation costs. Lacking such guidance, Resources Agency officials have stated the Resources Agency will use an advisory committee to determine the contents of the study. Although we agree that soliciting input from stakeholders is a sound idea, we believe it is critical for the Legislature to clearly set forth its specific expectations in law regarding the feasibility study. It is imperative that the feasibility study also include viable funding options for the proposed restoration activities. In particular, the 2003 legislation created the Salton Sea Restoration Fund (Restoration Fund) to be a dedicated source of funding for the State’s restoration efforts. However, the Restoration Fund currently receives limited funding. As of June 30, 2013, the projected amount of money the fund can anticipate receiving through 2047—the year in which certain required payments from local water agencies to the Restoration Fund will end—totals roughly $81.8 million, or $2.2 billion less than the cost to construct the least costly restoration alternative included in the Preferred Alternative Report. To address this significant disparity, recent legislation provides for the feasibility study to analyze funding sources and economic development opportunities that might serve as revenue sources for the Salton Sea’s restoration efforts. In the absence of additional funding for a long‑term restoration plan, an official from the Resources Agency maintains that it must take an incremental approach to the restoration of the sea, meaning it can only undertake restoration activities as additional funding becomes available. Consequently, the Resources Agency has worked with Fish and Wildlife and the California Department of Water Resources (Water Resources) over the last several years on planning the Species Conservation Habitat Project (Habitat Project). Based on a project included in the Preferred Alternative Report, the Habitat Project calls for the restoration of 3,770 acres of the sea—a small fraction of the roughly 200,000 acres the recommended alternative within the Preferred Alternative Report proposes to restore—at a cost of $132 million. However, Fish and Wildlife and Water Resources’ officials maintain that the funds currently in the Restoration Fund will only support restoration of 600 to 700 of those acres, at a cost of roughly $30 million. Nevertheless, the agencies are near completion of the planning phase of the project and intend to begin construction after June 2014. Not surprisingly, during our audit period—fiscal years 2010–11 through 2012–13—the vast majority of expenditures from the Restoration Fund relate to Fish and Wildlife 4 California State Auditor Report 2013-101 November 2013 and Water Resources’ personnel and contracts with consultants for planning of the Habitat Project. During our audit period, we also found that expenditures from the Restoration Fund were reasonable, appropriate, and furthered the purposes for which the fund was created. Recommendations Legislature To ensure that the feasibility study it recently funded will provide it with meaningful and timely information, the Legislature should enact legislation that does the following: • Contains specific guidance to the Resources Agency regarding the Legislature’s priorities for restoring the Salton Sea so that the Resources Agency can address those priorities when developing the feasibility study. • Provides a deadline for the completion of the feasibility study and submission of a restoration plan. • Requires the feasibility study to analyze and include the extent to which restoration activities could lessen the State’s future financial obligations for mitigation under the QSA. • Once the Legislature has approved a restoration plan, it should hold a budget hearing to consider the appropriate funding mechanism. Resources Agency To ensure that the Legislature has the information necessary to meet the State’s restoration goals and to plan for the State’s future financial obligations related to mitigation, the Resources Agency should work with Fish and Wildlife and Water Resources to do the following: • Provide a written report to the Legislature on its recommendations for the content of the feasibility study no later than February 1, 2014. It should include in the report the State’s progress to date on the Habitat Project. • Meet with the Legislature regularly to provide updates on the status of its restoration efforts and the feasibility study to ensure that the Legislature has the information necessary to make informed funding and other decisions. California State Auditor Report 2013-101 5 November 2013 • Develop an estimate of the costs, adjusted for inflation, that the State may incur for fulfilling its financial obligations related to mitigation under the QSA. The Resources Agency should include this information in the feasibility study so the Legislature is fully aware of the estimated costs and timing of the State’s future financial obligations. Agency Comments The Resources Agency does not have any concerns with our recommendations and stated that it looks forward to working with the Legislature on this very important issue. 6 California State Auditor Report 2013-101 November 2013 Blank page inserted for reproduction purposes only. California State Auditor Report 2013-101 7 November 2013 Introduction Background The Salton Sea is located in Imperial and Riverside counties, as shown in Figure 1 on the following page. The State’s largest inland body of water, it serves as an important fishery and wildlife habitat. According to experts, it is a critical link on the Pacific flyway that supports more than 400 resident, migratory, and special‑status bird species. The Salton Sea was formed in 1905 when Colorado River floodwater breached an irrigation canal being constructed in the Imperial Valley, and it has since been primarily fed by agricultural drain water. However, as we discuss below, a series of agreements between the State, the federal government, and other entities will significantly decrease the water flow to the Salton Sea beginning in 2018. The Quantification Settlement Agreement The decreased flow of water to the Salton Sea is the result of a series of agreements related to water that California receives from the Colorado River. Certain federal statutes, compacts, treaties, court decisions, and legal doctrines—known collectively as the Law of the River—apportion the water from the Colorado River among California, six other states, and Mexico. Under the Law of the River, California is entitled to 4.4 million acre‑feet per year from the Colorado River. 2 California’s allotment is then apportioned among various local entities, including the Imperial Irrigation District (Imperial), the Metropolitan Water District of Southern California (Metropolitan), the Coachella Valley Water District (Coachella), and the San Diego County Water Authority (San Diego). Until the mid‑1990s, Arizona and Nevada—other recipients of Colorado River water—did not use their full apportionment of the water. Consequently, the United States Secretary of the Interior (Secretary), who oversees the allotments of the river water, allowed California to draw approximately 5.2 million acre‑feet per year, or 800,000 acre‑feet per year more than its 4.4 million acre‑feet allotment. However, as the populations of Arizona and Nevada grew in the mid‑ to late 1990s, so did their need to use their full entitlements of the water. In 1996, the Secretary ordered California to reduce its draw of Colorado River water to within its 4.4 million acre‑feet per year allotment. Further, in the 1990s, San Diego became concerned about the reliability of water supplies that Metropolitan provided to it; to diversify its supplies, it negotiated a deal with Imperial for a transfer of some of Imperial’s Colorado River water (water transfer). 2 An acre‑foot is the amount of water needed to cover one acre with one foot of water. 8 California State Auditor Report 2013-101 November 2013 Figure 1 Location of the Salton Sea RIVERSIDE COUNTY Indio 10 Salton City IMPERIAL COUNTY 86 SAN DIEGO 111 N D O E R L TE COUNTY SISKIYOU Brawley 86 111 er v Ri o d a or ol C Source: California State Auditor’s adaptation of the location of the Salton Sea. California State Auditor Report 2013-101 9 November 2013 The order from the Secretary, combined with the water transfer agreement between San Diego and Imperial, resulted in protracted negotiations among the State of California, the federal government, and the four local water agencies. In 2003 these entities, among others, finalized a series of agreements, collectively known as the Quantification Settlement Agreement (QSA). The QSA, in conjunction with state law, memorializes California’s commitment to reduce its use of Colorado River water to within its annual allotment. To achieve that reduction, the four local water agencies agreed to undertake a series of measures, including water conservation. The QSA also includes an agreement that Imperial would transfer up to 200,000 acre‑feet of its Colorado River water to San Diego annually beginning in 2003 for at least 35 and as many as 75 years. This water transfer will significantly reduce the amount of water flowing into the Salton Sea. To mitigate the effects on the sea, the QSA requires Imperial to provide additional water (mitigation water) for delivery into the Salton Sea for 15 years, from 2003 to 2017. After 2017, when mitigation water is no longer conveyed into the Salton Sea, experts predict that the size of the sea will begin to decrease dramatically, causing it to become increasingly saline. According to the experts, this will result in negative environmental impacts, including reduced habitat for fish and wildlife and increased air pollution from the dust arising from exposed portions of the dried‑up seabed. Salton Sea Mitigation Requirements The parties to the QSA recognized that their agreements would have significant negative environmental impacts, and they therefore included certain requirements in the QSA and its implementing legislation for mitigating those harms. Mitigation refers to activities that include the following: • Rectifying the impact of an action by repairing, rehabilitating, or restoring the impacted environment. • Reducing the impact of an action by preservation and maintenance operations during the life of the action. Under the QSA and its implementing legislation, the State and three local water agencies are responsible for the costs associated with the mitigation measures described in a June 2002 joint environmental document (2002 environmental document), as amended.3 Specifically, the QSA states that Coachella, Imperial, and San Diego are responsible 3 The June 2002 environmental document is titled Imperial Irrigation District Water Conservation and Transfer Project, Habitat Conservation Plan, Final Environmental Impact Report/Environmental Impact Statement. 10 California State Auditor Report 2013-101 November 2013 for the first $133 million (in 2003 dollars) of mitigation costs and the State assumes financial responsibility for any mitigation costs above this amount. The QSA only requires mitigation in the area covered by the 2002 environmental document, as amended, or according to an environmental program manager from Imperial, essentially the Imperial Valley, the Salton Sea, and its surrounding shoreline. These required activities include reducing the effects of dust emissions from dry seabed, referred to as exposed playa. To facilitate the implementation of the QSA, the Legislature passed and the governor signed a package of three bills in September 2003. This legislation details the financial responsibility the State assumes with respect to mitigation, and requires the formation of a joint powers authority (JPA) to implement and allocate mitigation responsibilities between local water agencies and the State. The JPA consists of the California Department of Fish and Wildlife (Fish and Wildlife), Coachella, Imperial, and San Diego. The local water agencies opted to pay their share of the mitigation costs over an extended period of time. Based on the payment schedules within the QSA, they will owe a total of $388 million, including interest. According to Fish and Wildlife’s alternate chair for the JPA, since 2003 the JPA has primarily used the three water agencies’ mitigation funds to pay for delivery of mitigation water into the sea. The JPA is required to continue to use funds for this purpose until 2017. The alternate chair explained that the JPA has also paid for other mitigation projects, including air quality monitoring and air quality projects to reduce dust emissions, with these funds. JPA officials estimate that the local water agencies could exhaust most of their environmental mitigation contributions under the QSA as early as 2025. The officials explained that this is only an estimate as the JPA has yet to perform a formal analysis of when the three local water agencies might exhaust their mitigation contributions. Under the QSA, once the local water agencies fulfill their mitigation contributions, the State will become responsible for any additional mitigation costs. The Salton Sea Restoration Fund The QSA and related implementing legislation also require Imperial, Coachella, and San Diego to contribute a total of $30 million (in 2003 dollars) to the State for the restoration of the Salton Sea.4 The QSA and related implementing legislation refer to these 4 Under the QSA, the three local water agencies may pay their $30 million Salton Sea Restoration Limit contributions in lump‑sum payments or in installments. Coachella and San Diego opted to pay their contributions in a lump sum in fiscal year 2004–05. In contrast, Imperial opted to pay its contribution in installments, adjusted for interest, beginning in 2003 and ending in 2047. Thus, the total combined contributions of all three local water agencies under the Salton Sea Restoration Limit will be approximately $68.6 million. California State Auditor Report 2013-101 11 November 2013 contributions as the Salton Sea Restoration Limit. Restoration differs from mitigation in that it refers to actions intended to bring back something that previously existed, such as bird habitat, rather than actions intended to reduce or rectify a negative effect. The QSA and its implementing legislation specifically limit required mitigation to the area covered by the 2002 environmental document, while restoration applies broadly to the whole Salton Sea ecosystem, which includes the agricultural lands surrounding the Salton Sea and the tributaries and drains within Imperial and Coachella valleys that deliver water to it. Although the QSA and its implementing legislation establish the Salton Sea Restoration Limit, neither imposes any specific requirements on the State to restore the Salton Sea. However, the Legislature’s 2003 legislative package established the State’s broad goals for restoration. Specifically, the legislation states that its objectives include restoring aquatic and shoreline habitats to historic levels to protect the diversity of fish and wildlife that depend on the Salton Sea, eliminating air quality impacts from the restoration projects, and protecting water quality. To achieve these objectives, the legislation enacted the Salton Sea Restoration Act, created the Salton Sea Restoration Fund (Restoration Fund), and established several funding sources. As of June 30, 2013, however, only two of the sources—the Salton Sea Restoration Limit and Proposition 84—have provided the Restoration Fund with money, about $32.1 million to date. We describe the funding sources and expenditures of the Restoration Fund in more detail in the Appendix. Fish and Wildlife administers the Restoration Fund. Currently, money within—and promised to—the Allowable Uses of the Salton Sea Restoration Fund is available for restoration‑related Restoration Fund activities. Additional related provisions of state law indicate that the money in the Restoration Fund • Environmental and engineering studies related to the may not be used for mitigation except for mitigation restoration of the Salton Sea and the protection of fish and wildlife dependent on it. undertaken by the State. The California Natural Resources Agency (Resources Agency) interprets this • Implementation of conservation measures necessary to statute to mean that money in the fund may be used protect the fish and wildlife species dependent on the to mitigate the effects of restoration performed under Salton Sea. These conservation measures must be limited the Salton Sea Restoration Act, but it does not believe to the Salton Sea and Lower Colorado River ecosystems, it can lawfully use the money in the fund to pay for any including the Colorado River Delta. QSA‑related mitigation costs it may incur after the • Implementation of the preferred Salton Sea local water agencies have satisfied their $133 million restoration alternative. mitigation obligation. As shown in the text box, Fish • Administrative, technical, and public outreach costs and Wildlife can use the fund to pay for environmental related to the development and selection of the preferred studies and to implement conservation measures. Salton Sea restoration alternative. The 2003 legislation also requires the secretary of the Resources Agency, in consultation with other entities, Source: California Fish and Game Code. to undertake a restoration study and to determine a preferred alternative for restoring the sea, 12 California State Auditor Report 2013-101 November 2013 which we describe further in the Audit Results, and the legislation indicates that Fish and Wildlife can use the Restoration Fund for implementing the determined preferred alternative. Key Entities Involved in Restoration Efforts Relating to the Salton Sea State law specifies that the Resources Agency is responsible for carrying out any Salton Sea restoration project plan that the Legislature approves. Figure 2 depicts the State’s governance structure for administering the restoration of the Salton Sea as of June 30, 2013, and describes the roles and responsibilities of the Resources Agency, Fish and Wildlife, and the California Department of Water Resources (Water Resources). As shown in the figure, Fish and Wildlife’s primary responsibilities include administering the Restoration Fund and overseeing an interagency agreement it entered into with Water Resources, in which Water Resources— through contracts with consultants—has performed the majority of the State’s current restoration activities related to the Salton Sea. Numerous local and federal entities also play a role in the effort to protect the Salton Sea’s ecosystem. For instance, another JPA that was formed in 1993 called the Salton Sea Authority (authority) currently comprises Coachella, Imperial, Riverside County, Imperial County, and the Torres Martinez Desert Cahuilla Indians. It also has ex officio members that include representatives from federal, state, and tribal agencies. According to officials from the authority, it works with local, state, and federal agencies to develop programs that continue the beneficial use of the Salton Sea. These programs have focused on issues such as the protection of endangered species, fisheries, and waterfowl; the sea’s use as a depository for agricultural drainage, storm waste, and wastewater flows; and the sea’s use for recreational purposes. Authority officials told us that, since fiscal year 2006–07, the authority has primarily focused its efforts on public outreach to garner support for the sea’s restoration effort, and it has not worked on any local restoration, mitigation, or conservation projects during this period because it lacks funding. As previously discussed, Imperial is a local water agency and a party to the QSA; as such, it is responsible for some of the sea’s mitigation and conservation measures. According to one of its environmental program managers, Imperial is one of the largest landowners in and around the Salton Sea. He reported that Imperial is working closely with local, state, and federal entities and the authority to develop an incremental approach to restoring the sea; however, he indicated that it is unclear when the development of this incremental approach will occur. He explained that Fish and Wildlife initiated California State Auditor Report 2013-101 13 November 2013 this coordinated effort with local agencies and interested parties in 2012 to ensure that the entities involved did not duplicate one another’s efforts. Figure 2 Governance Structure for the State’s Administration of the Restoration of the Salton Sea as of June 30, 2013 (cid:127) Responsible for carrying out any Salton Sea restoration project plan that is approved by the Legislature. (cid:127) Works collaboratively with the California Department of Fish and Wildlife (Fish and Wildlife), the California Department of Water Resources (Water Resources), and other entities to carry out various restoration-related activities. FISH AND WILDLIFE Administers the Salton Sea Restoration Fund (Restoration Fund). Administrative Division Inland Deserts Region 6 Provides various services for the (cid:127) Directs Fish and Wildlife’s Salton Sea Program by Restoration Fund, including overseeing the environmental review, permitting, accounting and budgeting. construction, and operation and adaptive management of the Species Conservation Habitat Project (Habitat Project), a project aimed at providing habitat for fish-eating birds and other important wildlife. (cid:127) Provides biological expertise and certain departmental permit oversight to local water agencies related to the implementation of the Quantification Settlement Agreement. (cid:127) Monitors its interagency agreement with Water Resources, which began in June 2008 and ends in June 2014. This agreement requires Water Resources to provide assistance and support to Fish and Wildlife in a variety of areas. Fish and Wildlife plans to retain, by way of contract, Water Resources’ services up through the completion of the Habitat Project. (cid:127) Provides survey results and other biological information to the Salton Sea Authority—a joint powers authority chartered for the purpose of ensuring the beneficial uses of the Salton Sea—and any other interested parties. (cid:127) Directed Water Resources to develop the Salton Sea Financial Assistance Program (Financial Assistance Program), which finances local agencies‘ and other qualified entities’ restoration-related projects. WATER RESOURCES (cid:127) Through the interagency agreement with Fish and Wildlife, Water Resources works with various consultants to perform restoration activities that include environmental-related studies, engineering and design, environmental documentation and permit preparation, and public outreach. With assistance from consultants, it also implemented the Financial Assistance Program. (cid:127) Monitors its contracts with consultants that provide technical support for the Habitat Project. Sources: California Fish and Game Code, and information and documentation obtained from interviews with officials from the California Natural Resources Agency, Fish and Wildlife, and Water Resources. 14 California State Auditor Report 2013-101 November 2013 The Unites States Bureau of Reclamation (Reclamation) also owns a considerable amount of land in and around the Salton Sea. According to a biologist from its lower Colorado region, Reclamation established four saline habitat ponds in the southeastern part of the sea between 2006 through 2010, among other activities. She explained that constructing these ponds was a way of identifying and evaluating ecological risks or benefits before implementing larger‑scale wetland complexes. In September 2007, in a report regarding the restoration of the Salton Sea, Reclamation presented five restoration alternatives and stated that it does not have a basis for recommending the implementation of any of the alternatives due to their extreme costs and substantial uncertainties. Rather, the report explained that consideration could be given to a focused adaptive management study of shallow saline habitat complexes. According to its biologist, Reclamation continues to coordinate with both state and local stakeholders to provide technical assistance as funding allows. Scope and Methodology The Joint Legislative Audit Committee (audit committee) directed the California State Auditor to conduct an audit of Fish and Wildlife and Water Resources’ management of the Restoration Fund. It specifically asked us to determine whether these agencies had developed any strategic or spending plans for the fund. Table 1 lists the audit committee’s objectives and the methods we used to address those objectives. Table 1 Audit Objectives and the Methods Used to Address Them AUDIT OBJECTIVE METHOD 1 Review and evaluate the laws With the assistance of legal counsel, we reviewed relevant laws, regulations, and other background and policies significant to the materials applicable to the restoration of the Salton Sea and to the Salton Sea Restoration Fund audit objectives. (Restoration Fund). We also reviewed the roles and responsibilities of the California Natural Resources Agency (Resources Agency), the California Department of Fish and Wildlife (Fish and Wildlife), and the California Department of Water Resources (Water Resources). With the assistance of legal counsel, we also reviewed a series of agreements, collectively known as the Quantification Settlement Agreement (QSA), to gain an understanding of the water transfer agreement between the Imperial Irrigation District (Imperial) and the San Diego County Water Authority as well as any related mitigation requirements. California State Auditor Report 2013-101 15 November 2013 AUDIT OBJECTIVE METHOD 2 Review and evaluate the roles, • We reviewed relevant state laws, the interagency agreement Fish and Wildlife and Water Resources responsibilities, and authority of Fish entered into from June 2008 through June 2014, and other documentary evidence, such as and Wildlife and Water Resources in organization charts, to understand the roles and responsibilities of the agencies in administering administering the Restoration Fund the Restoration Fund and in undertaking restoration‑related activities pertaining to the Salton Sea. and determine the organizational • We interviewed relevant staff from Fish and Wildlife, Water Resources, and the Resources structure used by the departments to Agency to identify and understand their roles, responsibilities, and decisions related to resource manage the fund and make decisions allocation and work prioritization for the administration of the Restoration Fund and for the regarding how funds are spent, such activities it funds. as decisions about allocating resources • To understand the three agencies’ prioritization of work and spending of money within the and prioritizing work. Evaluate the Restoration Fund, we obtained and reviewed budget change proposals and reports, including departments’ effectiveness and the Resources Agency’s Salton Sea Ecosystem Restoration Program: Preferred Alternative Report efficiency in coordinating and fulfilling and Funding Plan (Preferred Alternative Report) and both the draft and final Salton Sea their respective responsibilities. Ecosystem Restoration Program: Programmatic Environmental Impact Reports (Programmatic Environmental Impact Reports). • In evaluating the agencies’ effectiveness and efficiency in coordinating and fulfilling their respective responsibilities, we did not identify any reportable issues. 3 Determine whether short‑term and/ • We interviewed staff from the Resources Agency, Fish and Wildlife, and Water Resources to or long‑term strategic plans and determine if the agencies had developed short‑term and/or long‑term strategic plans and spending plans have been developed spending plans. We learned that the Resources Agency, having developed the restoration plan for the Restoration Fund and whether required by law, and in the absence of full funding for any of the alternatives, has taken an those plans are reasonable in light incremental approach to the restoration of the Salton Sea. We describe this approach in the of the purposes for which the fund Audit Results. was established. • To understand the activities the three agencies had undertaken and accomplished, we reviewed the Preferred Alternative Report, Programmatic Environmental Impact Reports, the Resources Agency’s July 2013 Salton Sea Species Conservation Habitat Project: Final Environmental Impact Statement/Environmental Impact Report, and other documents. • In September 2013 the Legislature passed and the governor approved legislation providing for the Salton Sea Authority (authority) to lead a restoration and feasibility study, in consultation with the Resources Agency. We interviewed officials from the Resources Agency and the authority to determine the steps they planned to undertake to develop and complete the feasibility study. 4 For the most recent three‑year period, We defined our audit period as fiscal years 2010–11 through 2012–13. perform the following analysis related to the Restoration Fund: a. Identify the amounts Fish and • We obtained Fish and Wildlife’s accounting records and Water Resources’ invoices related to their Wildlife and Water Resources spent interagency agreement to determine the amounts paid to consultants each fiscal year. on consultants and whether the • We judgmentally selected five invoices, generally submitted on a monthly basis from Water work performed by the consultants Resources to Fish and Wildlife, related to the interagency agreement. These Water Resources’ furthered the purposes for which the invoices included charges for personnel and consultants. From the five selected invoices, we Restoration Fund was established. judgmentally selected one consultant invoice to test from each of the contracted entities and an additional invoice from the consultant with the most significant contract amount. We reviewed all selected invoices to determine if the duties performed and deliverables received aligned with the scope of the interagency agreement or the pertinent consultant contract. We also evaluated whether the work performed furthered the purposes of the Restoration Fund. We found no exceptions. b. Determine how Fish and Wildlife and • We interviewed relevant staff at Fish and Wildlife’s Inland Deserts Region and Water Resources to Water Resources allocate staff time obtain an understanding of the duties staff perform and the allocation of staff time. to administer the Restoration Fund • We obtained duty statements, timesheets, and other documents to determine how the and identify expenditures for staff by two agencies allocated and charged staff time to the Restoration Fund. Based on this major job classification. information, we determined that the duties of the Fish and Wildlife and Water Resources staff we reviewed furthered the purposes of the Restoration Fund. • We obtained Fish and Wildlife and Water Resources’ payroll information and interagency agreement invoices to identify payroll expenditures and consultant costs by fiscal year and major job classification. We present this information in Table 3 on page 33 in the Audit Results. continued on next page . . . 16 California State Auditor Report 2013-101 November 2013 AUDIT OBJECTIVE METHOD c. Identify funding sources and • We reviewed relevant laws and the QSA to determine the funding sources available to the total expenditures and the major Restoration Fund. categories of these expenditures. • We obtained Fish and Wildlife’s accounting records to determine the sources and amounts of For a selection of expenditures, funding deposited into the Restoration Fund since the fund’s inception in fiscal year 2003–04. determine whether they were We also used the information to identify the fund’s expenditures by major category for our audit allowable and reasonable. period. We present this information in Table A on page 40 in the Appendix. • We reconciled the fund balance in the California State Controller’s Office’s Budgetary/Legal Basis Annual Reports for the Restoration Fund to Fish and Wildlife’s accounting records for the fiscal years ending June 30, 2004 through June 30, 2012. • We interviewed Fish and Wildlife staff to determine why the Restoration Fund had not received any money from potential funding sources described in the QSA and state law and to determine if it might receive funds from these sources in the future. We describe these funding sources further in the Appendix. • We obtained Water Resources’ invoices related to the interagency agreement to further identify its expenditures, including those for consultants, by fiscal year and major expenditure category. Additionally, we obtained and reviewed each of the consultant contracts to ensure that the scope of work furthered the purposes of the Restoration Fund. • We interviewed appropriate staff and reviewed supporting documents to determine the adequacy of the departments’ contract monitoring controls to ensure that expenditures furthered the purpose of the Restoration Fund and were reasonable. We found no exceptions. • Using the judgmental selection of invoices related to the interagency agreement and described in the Method column for Objective 4a, we compared the invoices and deliverables to the interagency agreement and consulting contracts and determined that these costs were allowable and reasonable. • We haphazardly selected timesheets for nine employees—six from Fish and Wildlife and three from Water Resources—who charged time to the Restoration Fund to determine whether the charges to the fund were for allowable and reasonable activities. We found no exceptions. 5 Review and assess any other issues that • We interviewed officials from other key entities involved in activities related to the restoration of are significant to the administration the Salton Sea, including the authority, Imperial, and the United States Bureau of Reclamation. of the Restoration Fund by Fish and • To understand the environmental impacts that the water transfer described in the QSA may Wildlife and Water Resources. cause to the Salton Sea and its ecosystem, we reviewed numerous reports by various experts and policy advisors. Sources: California State Auditor’s analysis of the Joint Legislative Audit Committee’s audit request number 2013‑101, planning documents, and analysis of information and documentation identified in the column titled Method. Assessment of Data Reliability In performing this audit, we obtained Fish and Wildlife’s electronic data files extracted from the California Department of Finance’s California State Accounting and Reporting System (CALSTARS). The U.S. Government Accountability Office, whose standards we follow, requires us to assess the sufficiency and appropriateness of computer‑processed information that we use to support our findings, conclusions, or recommendations. When analyzing the CALSTARS data, we performed data‑set verification procedures and did not identify any issues. We did not perform traditional accuracy and completeness testing of these data. However, to gain reasonable assurance of the data’s accuracy and completeness, we compared Fish and Wildlife’s CALSTARS data to invoices, employee timesheets, and financial records obtained from the California State Controller’s Office. We did not identify any material errors. As a result, we determined there is minimal risk related to the accuracy and completeness of the data. Thus, the use of this data to compile the Restoration Fund’s funding sources and expenditures, by major category for fiscal years 2010–11 through 2012–13, would not lead to an incorrect or unintentional message. California State Auditor Report 2013-101 17 November 2013 Audit Results The State Has Not Fully Funded a Long‑Term Restoration Plan and No Current Estimate Exists of the State’s Future Financial Obligations for Mitigation As discussed in the Introduction, the transfer of water from Imperial Valley to San Diego (water transfer) is likely to begin adversely affecting the Salton Sea in 2018. To limit the negative effects of the water transfer, legislation enacted in 2003 requires the secretary of the California Natural Resources Agency (Resources Agency), in consultation with other entities, to undertake an ecosystem restoration study to determine a preferred alternative for restoring the Salton Sea ecosystem and permanently protecting the wildlife dependent on it. In May 2007 the Resources Agency published its Salton Sea Ecosystem Restoration Program: Preferred Alternative Report and Funding Plan (Preferred Alternative Report), in which it identified a variety of alternatives for restoring the Salton Sea. However, the State has not fully funded any of the alternatives the report presents, perhaps because of the high estimated costs of the alternatives, coupled with the lack of available funding options to support the restoration efforts. Absent a restoration effort, experts generally agree that the negative environmental impact on the Salton Sea will be significant and the State may be responsible for paying costs associated with mitigating this damage. Specifically, the Quantification Settlement Agreement (QSA) and its implementing legislation, as explained in the Introduction, require three local water agencies to pay the first $133 million (in 2003 dollars) in environmental mitigation costs, and the State is required to pay any costs above this amount. The Resources Agency included a no action alternative within its Preferred Alternative Report that reflects the costs of performing a portion of the mitigation activities that would otherwise occur if a restoration plan were not funded. Specifically, the No Action Alternative contemplated activities that would cost roughly $800 million (in 2006 dollars) to construct; according to California Department of Fish and Wildlife (Fish and Wildlife) officials, these costs were based on a technically feasible, worst‑case scenario. However, this cost estimate was based on conditions that were known at the time it was developed and does not reflect all of the mitigation costs the State may incur in satisfying its financial obligations under the QSA. To date, the State has not estimated these costs. 18 California State Auditor Report 2013-101 November 2013 Figure 3 shows a time‑elapsed image of the Salton Sea’s water elevation assuming that the State does not fund a restoration plan and that only certain mitigation activities are implemented. As shown, the Resources Agency expects a significant impact on the Salton Sea’s ecosystem from 2018 through 2030, the initial 12 years following the end of mitigation water delivery into the Salton Sea, which is currently helping offset the effects of the water transfer. For example, based on data from Fish and Wildlife, exposed playa— or dry seabed—will increase from an estimated 20,000 acres in 2018 to more than 80,000 acres in 2030, reaching a high of approximately 90,000 acres in 2040. State and federal experts agree that the high winds around the sea are likely to pick up significant amounts of fine dust from the dry seabed, increasing the amount of particulate matter in the air and further reducing the air quality in an already degraded air basin. Because the activities described in the No Action Alternative do not address the State’s broader goal of restoring the Salton Sea habitat to historic levels and because the future costs of mitigation are uncertain, we believe formalizing the State’s next steps is prudent. Further, the Resources Agency cannot fully implement a long‑term restoration plan without additional funding, thus potentially jeopardizing the Salton Sea’s ecosystem and possibly causing the Fish and Wildlife officials noted State to miss the opportunity to reduce its potential future financial that undertaking certain activities obligations related to the QSA’s mitigation requirements. For now to restore the sea could reduce instance, Fish and Wildlife officials noted that undertaking certain the need—and costs—for some activities now to restore the sea could reduce the need—and costs— mitigation activities in the future. for some mitigation activities in the future. Experts predict the ecosystem of the Salton Sea will significantly degrade over the next decade or two without restoration efforts. Recent legislation provides for a restoration funding and feasibility study to, among other things, review existing long‑term restoration plans, recommend changes to these plans, and analyze funding options for Salton Sea restoration activities. However, because the statute governing the feasibility study does not impose a specific deadline for its completion, does not fully prioritize the steps that must be taken in order to achieve the State’s broad restoration goals, and does not require identifying restoration activities that could lessen the State’s future mitigation costs, the study risks not being as timely or meaningful as it could be. California State Auditor Report 2013-101 19 November 2013 Figure 3 Time‑Elapsed Image of the Salton Sea Under the No Action Alternative 2040 2030 2018 0 20 40 60 80 100 Acres of Exposed Playa* sraeY Salton Sea Year 2040 90,113 80,461 20,189 Sources: California State Auditor’s adaptation of information provided by the California Department of Fish and Wildlife and the California Natural Resources Agency’s Salton Sea Ecosystem Restoration Program: Draft Programmatic Environmental Impact Report, Figure 5‑11: Salton Sea surface water elevation under the No Action Alternative–Variability Conditions. * Exposed playa refers to dry seabed. All of the Resources Agency’s Proposed Restoration Alternatives to Date Are Costly, and the State Has Not Fully Funded Any of Them In 2003 the Legislature required the secretary of the Resources Agency, in consultation with Fish and Wildlife, the California Department of Water Resources (Water Resources), and other specified entities, to undertake a restoration study to determine a preferred alternative for the restoration of the sea. The 2003 legislation requires the restoration study to evaluate alternatives, 20 California State Auditor Report 2013-101 November 2013 including different strategies, such as salinity control, habitation creation, and restoration. The Resources Agency was responsible for determining a preferred alternative and a proposed funding plan for its implementation. To satisfy this requirement, the Resources Agency released the Preferred Alternative Report in May 2007. In the report, the Resources Agency presented nine alternatives. The amount of land that each of the alternatives proposed to restore ranged from 110,400 acres to 224,600 acres, which equates to roughly 50 percent to nearly 100 percent of the Salton Sea’s acreage. According to the Preferred Alternative Report, each of the alternatives addresses the restoration objectives established by the 2003 legislation, including restoring long term stable aquatic and shoreline habitat to historic levels, maintaining the diversity of fish and wildlife that depend on the Salton Sea, eliminating air quality impacts from the restoration project, and protecting water quality. Further, common to each of the alternatives is an Early Start Habitat that would provide a shallow saline habitat for use by birds after the sea’s salinity becomes too high to sustain some species. According to the Resources Agency’s deputy secretary of legislative affairs (deputy secretary), the Resources Agency developed the preferred alternative (Preferred Alternative) in consultation with local, state, and federal entities, as well as the public, to provide for the most complete restoration effort that would respond to the concerns of nearly all stakeholders. However, the State—after more than six years—has yet to identify an adequate funding mechanism for any of the alternatives presented, including the Preferred Alternative, perhaps because of their associated The Resources Agency estimated costs. Specifically, the Resources Agency estimated that the costs of that the costs of each alternative each alternative would be in the billions of dollars spread out over a would be in the billions of dollars 75‑year period, ranging from a minimum of $2.3 billion to construct the spread out over a 75-year period, least costly alternative up to $8.9 billion for the Preferred Alternative.5 ranging from a minimum of Table 2 displays the estimated costs and acreage to be restored for $2.3 billion to construct the least each of the alternatives. According to the deputy secretary, the costly alternative up to $8.9 billion Resources Agency presented the report to the Legislature through for the Preferred Alternative. meetings with legislative staff and members subsequent to its release. However, he was not aware of the Legislature holding any formal hearings to discuss the Preferred Alternative Report, nor did the Legislature fund any of the alternatives. Although the Resources Agency has the authority to implement many of the restoration projects detailed in the Preferred Alternative Report, the deputy secretary stated that it has not done so because of the lack of funding. Instead, it has worked with Fish and Wildlife and Water Resources on implementing those activities within the Preferred Alternative Report that it believes are the highest priority, as we discuss later. 5 The Preferred Alternative Report presents a 75‑year vision to restore the Salton Sea because the QSA provides a resolution of issues for a period of 35 years to 75 years regarding the reasonable and beneficial use of Colorado River water. California State Auditor Report 2013-101 21 November 2013 2 elbaT 7002 yaM detaD ,nalP gnidnuF dna tropeR evitanretlA derreferP :margorP noitarotseR metsysocE aeS notlaS eht ni deredisnoC sevitanretlA DEDULCNI EGAERCA SNOITAREPO LAUNNA EGATNECREP EHT DNA ECNANETNIAM DNA AES NOTLAS EHT FO ‡†STSOC †STSOC NOITCURTSNOC NOITPIRCSED DEROTSER )SNOILLIM NI( )SNOILLIB NI( *EVITANRETLA gnitae‑hsfi dna yrehsfi eniram a troppus ot aes eniram fo serca 000,54 erotser dluow evitanretlA derreferP ehT serca 006,002 241$ 9.8$ evitanretlA derreferP erca‑000,1 yletamixorppa fo seires a fo desopmoc xelpmoc tatibah enilas a fo serca 000,26 dda dluow ti ;sdrib )%78( tnemeganam ytilauq ria edivorp dluow ti ;efildliw dna hsfi troppus ot statibah fo ytisrevid a edivorp ot sllec yrotisoper eht edivorp ot knis enirb a tcurtsnoc dluow ti dna ;snoissime tsud lortnoc dna ,rotinom ,etaulave ot edulcni osla dluow tI .swoflni ssecxe dna ,saera niatrec morf degrahcsid retaw ,stlas ssecxe gnirots rof yrassecen ot hgih oot semoceb ytinilas aeS notlaS eht retfa sdrib yb esu rof tatibah edivorp ot tatibaH tratS ylraE na ni dedulcni si dna noitarotser eht fo tser eht erofeb dehsilbatse eb dluow tatibah sihT .seiceps emos niatsus .woleb sevitanretla thgie eht fo hcae .tnemeganam ytilauq ria dna seitilicaf noitalucricer muminim htiw xelpmoc tatibah enilas fo serca 000,83 serca 006,912 19 3.2 tatibaH enilaS 1 )%59( I xelpmoC .tnemeganam ytilauq ria dna noitalucricer enirb htiw xelpmoc tatibah enilas fo serca 000,57 serca 006,422 701 3.3 tatibaH enilaS 2 )%89( II xelpmoC .tnemeganam ytilauq ria dna sgnir cirtnecnoc owt ni aes eniram fo serca 000,16 serca 004,812 831 9.4 sgniR cirtnecnoC 3 )%59( detacided htiw ,seidob retaw cirtnecnoc ruof ni xelpmoc tatibah enilas eht ot ralimis tatibah fo serca 000,88 serca 004,011 02 3.2 sekaL cirtnecnoC 4 .seitilicaf mret‑gnol on tub tnemeganam ytilauq ria rof swoflni )%84( nrehtuos eht ni xelpmoc tatibah enilas fo serca 005,54 ,debaes nrehtron eht ni aes eniram fo serca 000,26 serca 009,302 431 5.4 aeS htroN 5 .tnemeganam ytilauq ria dna ,debaes )%98( tatibah enilas fo serca 000,92 ;sdebaes nrehtuos dna ,nretsew ,nrehtron eht ni aes eniram fo serca 000,47 serca 002,602 841 9.5 aeS htroN 6 .tnemeganam ytilauq ria dna ;debaes nrehtuos eht ni sllec xelpmoc )%09( denibmoC enilas fo serca 000,21 ;sdebaes nrehtuos dna ,nretsew ,nrehtron eht ni aes eniram fo serca 000,401 serca 007,791 28 2.5 htroN denibmoC 7 eht morf nwardhtiw retaw dna swoflni fo tnemtaert retaw ;debaes nretsae eht ni sllec xelpmoc tatibah )%68( sekaL htuoS dna ta tnemeganam ytilauq ria rof noitazilibats enirb fo esu dna ;aes eniram nrehtron eht fo noitrop nretsae .snoitavele rewol nretsew eht ni aes eniram rellams a htiw debaes nrehtuos eht ni yliramirp aes eniram fo serca 000,38 serca 004,002 541 8.5 denibmoC 8 ria dna ,debaes nrehtuos eht ni xelpmoc tatibah enilas fo serca 000,81 ,sdebaes nrehtron dna )%78( aeS htuoS .tnemeganam ytilauq detad ,)RIE tfarD( tropeR tcapmI latnemnorivnE citammargorP tfarD :margorP noitarotseR metsysocE aeS notlaS s’ycnegA secruoseR larutaN ainrofilaC eht fo sisylana s’rotiduA etatS ainrofilaC :secruoS .7002 yaM detad ,)tropeR evitanretlA derreferP( nalP gnidnuF dna tropeR evitanretlA derreferP :margorP noitarotseR metsysocE aeS notlaS eht dna ,6002 rebotcO .sevitcejbo s’tcA noitarotseR aeS notlaS eht sserdda elbat siht ni detneserp sevitanretla eht fo lla ,tropeR evitanretlA derreferP eht ot gnidroccA * dnal ro stimrep fo tsoc eht edulcni ton od tub stsoc lagel dna ,noitartsinimda ,gnireenigne ,seicnegnitnoc edulcni yehT .srallod 6002 ni era thgie hguorht eno sevitanretla rof stsoc ,RIE tfarD eht ot gnidroccA † ro dnal ,stimrep ,tcejorp noitartsnomed a rof stsoc edulcni ton od dna srallod 6002 ni osla era evitanretlA derreferP eht rof stsoc eht ,tropeR evitanretlA derreferP eht ot gnidroccA .noitisiuqca tnemesae ro .sdnuf deworrob no tseretni ro ,noitisiuqca tnemesae .8702 hguorht 0402 morf gnirrucco ,evitanretla eht fo noitatnemelpmi fo esahp tsal eht rof stsoc launna tneserper setamitse stsoc ecnanetniam dna snoitarepo launna ehT ‡ 22 California State Auditor Report 2013-101 November 2013 In the Preferred Alternative Report, the Resources Agency also presented a no action alternative, which the California Environmental Quality Act (CEQA) and its regulations require. Under CEQA, environmental documents must present a no project or no action analysis to allow decision makers to compare the impacts of approving the proposed project with the impact of not approving it. The No Action Alternative for the Salton Sea therefore describes the impact and cost of certain activities that would otherwise occur if the State does not approve a restoration plan. As described in the Introduction, the State assumed responsibility for the cost of certain environmental mitigation requirements under the QSA and related documents. Those specific requirements are set out in a June 2002 joint environmental document (2002 environmental document), as amended, adopted by the Imperial Irrigation District (Imperial).6 Under the cost‑sharing agreement that pertains to this 2002 environmental document, three local water agencies—Imperial, the Coachella Valley Water District (Coachella), and the San Diego County Water Authority— must pay the first $133 million (in 2003 dollars) in environmental mitigation costs, and the State must pay any costs above that amount. The No Action Alternative took into account the impact and cost of specific activities the 2002 environmental document identified regarding air quality management and protection of the desert pupfish because it was reasonably foreseeable that those activities would impact the Salton Sea. However, according to Fish and Wildlife officials, the No Action Alternative did not take into account the impact and costs of all environmental mitigation required under the 2002 environmental document because some mitigation activities required under the QSA will not directly impact the Salton Sea. Specifically, the area referenced in the 2002 environmental document, as amended, extends beyond the sea itself and, according to an environmental program manager at Imperial, essentially covers the Imperial Valley, the Salton Sea, and its surrounding shoreline. To date, the State has not performed To date, the State has not performed a full‑cost estimate of its a full-cost estimate of its responsibilities under the QSA. The estimated cost to construct responsibilities under the QSA. the activities considered in the No Action Alternative was $801 million, with annual operations and maintenance costs of roughly $50 million for many years thereafter. Because this estimate is in 2006 dollars, the actual costs under this scenario are likely to be significantly greater when adjusted for inflation. However, this cost estimate was based on conditions known at the time it was developed and we do not know the extent to which 6 The June 2002 environmental document is titled Imperial Irrigation District Water Conservation and Transfer Project, Habitat Conservation Plan, Final Environmental Impact Report/Environmental Impact Statement. California State Auditor Report 2013-101 23 November 2013 those conditions may have changed. Moreover, it does not reflect the cost of performing all of the mitigation activities required under the QSA. The three local water agencies are paying their The three local water agencies are $133 million portion of mitigation costs over an extended period of paying their $133 million portion of time; based on the payment schedules contained within the QSA, mitigation costs over an extended they will ultimately pay about $388 million, including interest.7 period of time; based on the payment Joint powers authority (JPA) officials roughly estimate that the schedules contained within the local water agencies could exhaust most of their environmental QSA, they will ultimately pay about mitigation contributions under the QSA as early as 2025. The $388 million, including interest. officials explained that this is only an estimate as the JPA has yet to perform a formal analysis of when the three local water agencies might exhaust their mitigation contributions. Under the QSA, once the local water agencies fulfill their mitigation contributions, the State will become responsible for any additional mitigation costs. Although this financial responsibility could materialize in just over 10 years, it is currently unknown how significant the State’s financial obligations might be. Recent Legislation Governing a Feasibility Study May Not Provide the Legislature With Enough Information to Make Informed Decisions Experts state that increasing salinity, evaporation, and declining water quality have significantly affected fishery resources and recognize that without restoration efforts, the ecosystem of the Salton Sea will significantly degrade over the next decade or two. Therefore, in fiscal year 2013–14, the Legislature appropriated $2 million from the Salton Sea Restoration Fund (Restoration Fund) for the Resources Agency to use in completing a feasibility study with the assistance of the Salton Sea Authority (authority).8 The fiscal year 2013–14 Enacted Budget Summary states that under the direction of the Resources Agency, the authority will collaborate with state, federal, and local stakeholders to, among other things, develop feasible alternatives for inclusion in a comprehensive plan and options to achieve restoration goals. According to its deputy secretary, the Resources Agency sees the goal for the feasibility study as providing a realistic restoration plan for the Salton Sea. Part of this process includes re‑examining the Preferred Alternative Report to determine which components within the alternatives align with a more realistic approach and to update the costs associated with 7 The local water agencies are paying their mitigation contributions in installments over many years with interest accruing on the unpaid balances at an annual rate of 6 percent. 8 As discussed in the Introduction, the authority consists of Coachella, Imperial, Riverside County, Imperial County, and the Torres Martinez Desert Cahuilla Indians; it was formed in 1993 as a JPA. 24 California State Auditor Report 2013-101 November 2013 those components. The deputy secretary explained that the plan presented in the feasibility study is expected to be more economical and provide a more realistic option for the restoration of the sea. In addition to the budget appropriation mentioned previously, the Legislature recently passed and the governor signed legislation that specifies certain aspects of the feasibility study. However, we are concerned that this legislation does not provide adequate, specific direction to the Resources Agency and the authority to ensure that they complete the study in a timely manner and that the study’s content meets the needs of the Legislature. Without such direction, the feasibility study may not prove helpful to the Legislature, potentially leaving it unwilling to approve or fund a restoration plan. In particular, the provisions governing the feasibility study do not impose a specific deadline for completing the study, nor do they fully prioritize the steps needed to achieve the State’s broad goals for restoring the sea. Further, the recent legislation does not require that the feasibility study consider restoration projects that could reduce the State’s future financial obligations related to mitigation. For instance, according to Fish and Wildlife officials, undertaking activities to The Resources Agency could restore habitat now could lessen the amount of exposed dry seabed better identify and anticipate the in the future, thereby reducing the need—and costs—to mitigate State’s future financial obligations the impact dust could have on air quality. In addition, the Resources by preparing a thorough cost Agency could better identify and anticipate the State’s future estimate of the State’s full potential financial obligations by preparing a thorough cost estimate of the financial liability under the QSA as State’s full potential financial liability under the QSA as part of part of the feasibility study. the feasibility study. It is imperative that the feasibility study also include viable funding options for the proposed restoration activities. As described in the Introduction, the Restoration Fund contains funding for the State’s restoration efforts; however, current funding is limited to the funds provided by Proposition 84—a voter‑approved initiative—and the Salton Sea Restoration Limit provided under the QSA. As of June 30, 2013, the amount of funds remaining from Proposition 84 for the Restoration Fund is $36.3 million; of this amount, as of the fiscal year 2013–14 Budget Act, the Legislature has appropriated $33.6 million. As of June 30, 2013, the Restoration Fund had received a total of approximately $23 million from Salton Sea Restoration Limit contributions and the estimated amount of future funding from these contributions, when adjusted for interest, is approximately $45.5 million.9 These funding sources are not sufficient to complete any of the restoration alternatives 9 The full amount of Salton Sea Restoration Limit funding under the QSA will not become available until 2047 because Imperial is paying its obligation on an installment basis at a 6 percent interest rate. California State Auditor Report 2013-101 25 November 2013 presented to date. In fact, the estimated available funding of The estimated available funding of roughly $81.8 million is $2.2 billion less than the cost to construct roughly $81.8 million is $2.2 billion the least costly alternative included in the Preferred Alternative less than the cost to construct the Report. To address this significant disparity, recent legislation provides least costly alternative included in for the feasibility study to analyze feasible funding sources and the Preferred Alternative Report. economic development opportunities that might serve as revenue sources for the Salton Sea’s restoration efforts including, but not limited to, renewable energy, biofuels, mineral development, and algae production. The deputy secretary confirmed that as of September 2013 the Resources Agency was planning to confer with an advisory group to identify the information they believe the feasibility study should contain. While we agree that this is a logical approach, we believe it is also critical for the Legislature to clearly set forth its specific expectations in law regarding the feasibility study. In addition to ensuring that the feasibility study adequately meets the State’s needs, the Legislature should designate a single entity responsible for coordinating the Salton Sea’s restoration and mitigation efforts and responsible for fostering the collaboration of all interested parties. As stated in the Preferred Alternative Report, a coordinating entity has not been identified even though many local, state, and federal interests are involved in the efforts to restore and mitigate the ecosystem of the Salton Sea. The Preferred Alternative Report further states that a consortium of these interests will be needed for effective implementation of any restoration program. Currently, the Resources Agency is responsible for implementing the State’s restoration activities in collaboration with Fish and Wildlife and Water Resources. Given the potential financial obligations of the State and the fact that the Resources Agency already plays an important role in the Salton Sea restoration effort, we believe it is best suited for fostering collaboration among the parties with vested interests in the sea’s restoration. In performing this role, the Resources Agency could likely provide a focused vision and coordinated effort for restoration and mitigation activities and could minimize any duplication of effort. Lacking a Funded Restoration Plan, the Resources Agency Has Taken an Incremental Approach to Restoring the Salton Sea In the absence of full funding for any of the proposed restoration alternatives, officials from the Resources Agency reported that the State’s approach has been incremental, meaning that the agencies involved have undertaken restoration activities only as funding becomes available. According to the Resources Agency’s deputy secretary, this approach is reasonable given that funding 26 California State Auditor Report 2013-101 November 2013 has historically been, and will likely continue to be, provided in small amounts over time. Under this incremental approach, the Resources Agency has worked with Fish and Wildlife, Water Resources, and federal and local agencies to focus efforts on planning and designing a project with features common to each of the plans in the Preferred Alternative Report. This project, referred to as the Species Conservation Habitat Project (Habitat Project), calls for the restoration of 3,770 acres of the sea—a fraction (less than 2 percent) of the hundreds of thousands of acres the State could restore under the Preferred Alternative. Despite the relatively small scale of the Habitat Project, Fish and Wildlife does not yet have the funding to complete it as planned. Officials estimate the Habitat Project will cost $132 million to finish. However, the Restoration Fund’s anticipated future funding as of June 30, 2013, totals only about $81.8 million, $50.2 million short of the project’s estimated cost. A Fish and Wildlife official noted that the current amount in the Restoration Fund will only support construction of 600 to 700 acres of the Habitat Project, at a cost of approximately $30 million. To complete the planning and design of The Implementation Schedule for the the Habitat Project, Fish and Wildlife, the Preferred Alternative administrator of the Restoration Fund, entered into an interagency agreement with Water Period 1: Five‑year plan/pre‑construction. Activities Resources to perform and oversee some of include data collection and analysis as well as completion the project’s more complex tasks. Most of the of project‑level environmental documentation, permitting, Restoration Fund’s expenditures over the last and design work. This period focuses on the planning for three fiscal years have been for department the implementation of the Early Start Habitat (now known personnel and contracted consultants involved as the Species Conservation Habitat Project), among in planning and designing the Habitat Project, other activities. as described in the next section. According to Period 2: Major construction. Activities include the Fish and Wildlife’s regional manager of its Inland construction of the following facilities: the marine sea barrier, Deserts Region (regional manager), the actual sedimentation/distribution basins, air quality management construction is slated to begin after June 2014. canals, and initial construction of the saline habitat complex and air quality management facilities. Period 3: Construction completion. Activities include any State Entities Have Focused Their Efforts on Plans to remaining construction. Restore a Fraction of the Salton Sea Period 4: Operations and maintenance. Activities include periodically inspecting for facility conditions and safety, Lacking a fully funded plan, the Resources repairing or replenishing barriers as well as berms, providing Agency, in partnership with Fish and Wildlife and continued vegetation and vector control, and repairing water Water Resources, has focused efforts over the conveyance facilities. last several years on activities from the Preferred Source: California State Auditor’s analysis of the California Alternative Report that it believes are the highest Natural Resources Agency’s Salton Sea Ecosystem Restoration priority. Specifically, the Preferred Alternative lays Program: Preferred Alternative Report and Funding Plan, issued out an implementation schedule composed of May 2007. four periods, as described in the text box. State law California State Auditor Report 2013-101 27 November 2013 requires that Fish and Wildlife use certain funds within the Restoration Fund to pay for Period 1 activities, upon appropriation by the Legislature. One of the key elements of Period 1 is the implementation of what is referred to as the Early Start Habitat. According to Fish and Wildlife’s regional manager, the Early Start Habitat has evolved into the Habitat Project. She explained that whereas the Preferred Alternative Report proposed the Early Start Habitat as a temporary measure until the construction of the Preferred Alternative, the Habitat Project will be in place for a longer time because of the uncertainty of the funding required for a more comprehensive restoration plan. According to the program manager for Water Resources’ Salton Sea Restoration Program, the Habitat Project will provide habitat for fish‑eating birds and other important wildlife that depend on the Salton Sea and that will experience significant survival challenges as the salinity of the Salton Sea rises. He explained that the project will provide a template for future habitat ponds around the Salton Sea, which collectively will help provide adequate habitat for fish and wildlife dependent on the sea. However, the Habitat Project only addresses a fraction of the sea’s acreage. If the State eventually completes the Habitat Project If the State eventually completes the as planned, it will restore only 3,770 acres of the roughly Habitat Project as planned, it will 200,000 acres that the Preferred Alternative would address, based restore only 3,770 acres of the roughly on conditions known at the time it was developed, as shown in 200,000 acres that the Preferred Figure 4 on the following page. According to the regional manager, Alternative would address, based the estimated cost of the Habitat Project is $132 million; however, as on conditions known at the time it of fiscal year 2013–14, officials from Fish and Wildlife indicated that was developed. it has only received enough funding to construct 600 to 700 acres at an estimated cost of $30 million. The planning for and design of the Habitat Project has taken several years. Construction projects that may have a significant effect on the environment generally require the development of an environmental impact report/environmental impact statement (EIR/EIS) as well as the acquisition of necessary permits. An EIR/EIS is a public document that governmental agencies use to analyze the significant environmental effects of proposed projects, to identify alternatives, and to disclose possible ways to reduce or avoid environmental damage. As the administrator of the Restoration Fund, Fish and Wildlife entered into an interagency agreement with Water Resources to assist in the development of the EIR/EIS for the Habitat Project as well as to help with the project’s implementation. The agreement initially began in 2008, and Fish and Wildlife subsequently amended it to include additional restoration‑related activities. 28 California State Auditor Report 2013-101 November 2013 Figure 4 The Preferred Alternative and the Approximate Location of the Species Conservation Habitat Project Riverside County San Diego County Imperial County Location of the Species Conservation Habitat Project (3,770 acres) As of fiscal year 2013–14, officials from the California Department of Fish and Wildlife indicated that it has only received enough funding to construct 600 to 700 acres. Sources: California State Auditor’s adaptation of information in the California Natural Resources Agency’s Salton Sea Ecosystem Restoration Program: Preferred Alternative Report and Funding Plan, issued May 2007, and the Salton Sea Species Conservation Habitat Project: Draft Environmental Impact Statement/Environmental Impact Report, issued August 2011, as well as information provided by the California Department of Fish and Wildlife. California State Auditor Report 2013-101 29 November 2013 To carry out its responsibilities under the interagency agreement, Water Resources began contracting with consultants in 2009. Figure 5 on the following page presents a timeline of key events surrounding the planning, construction, and monitoring of the Habitat Project. It also describes the four contracts Water Resources entered into with consultants to undertake a variety of activities, including the development of the EIR/EIS for the Habitat Project. Water Resources’ program manager explained that contractors have provided the environmental expertise necessary to develop the Habitat Project’s EIR/EIS as well as to design the project, identify construction specifications, and obtain regulatory permits. Planning, development, and finalization of an EIR/EIS can be a complex and lengthy process, contributing to the length of the planning phase for the Habitat Project. As shown in Figure 5, the Resources Agency finalized the EIR/EIS for the entire 3,770 acres in July 2013, nearly two years after the publication of its initial draft. He explained that the EIR/EIS had to be certified before Fish and Wildlife and Water Resources could submit completed permit applications for construction of the Habitat Project. He stated that these agencies now have all of the material needed to draft the various federal permits, which will likely be issued by the end of November 2013. According to Fish and Wildlife’s regional manager, construction of Construction of the first 600 to the first 600 to 700 acres of the Habitat Project should begin after 700 acres of the Habitat Project June 2014 and should be completed by late 2016. She further stated should begin after June 2014 and that Fish and Wildlife and Water Resources are in the process of should be completed by late 2016. finalizing a contract with Imperial to manage the construction. Fish and Wildlife decided to contract with Imperial in part because Imperial owns most of the land the project affects and in part because the contract will result in cost‑savings for the State from several efficiencies, including reduced overhead and travel costs because Fish and Wildlife’s regional office is close to the sea. In addition, the agencies hope that working with Imperial will further develop the partnership between the State and local stakeholders. Officials indicate that after completion, the project will need to be monitored to determine, among other things, whether it is successfully supporting fish and wildlife. According to Water Resources’ program manager, Water Resources recently met with Fish and Wildlife to develop the scope of work and objectives for the Adaptive Management and Monitoring Plan. He explained that this plan will be the guiding document for monitoring the performance of the Habitat Project and establishing a management feedback loop focused on monitoring results. 30 California State Auditor Report 2013-101 November 2013 Figure 5 Key Events in the Planning, Construction, and Monitoring of the Species Conservation Habitat Project California Department of Fish and Wildlife (Fish and Wildlife) entered into an interagency agreement with the California Department of Water Resources (Water Resources) PLANNING CONSTRUCTION MONITORING Contract Period: June 23, 2008, to June 30, 2014 Contract Amount: $18,094,943 (includes all costs associated with the interagency agreement during the contract period). The agreement requires Water Resources to provide support and assistance to Fish and Wildlife on a number of restoration-related activities, including the design of and planning for the Species Conservation Habitat Project (Habitat Project) and associated environmental studies, such as the environmental impact report/environmental impact statement (EIR/EIS). It also requires Water Resources to assist Fish and Wildlife with the Salton Sea Financial Assistance Program, which provides grant funds to governmental agencies and nongovernmental Water Resources estimates that the Monitoring Plan organizations for the development of habitat consistent with the goals and objectives of the Habitat Project, and the Habitat Project's will be complete in August 2014 Adaptive Management and Monitoring Plan (Monitoring Plan). According to Water Resources, once construction of the 600 to 700 acres is complete, the Monitoring Plan will be the guiding document for determining Water Resources entered into a contract with the Regents of the University of California, the success of the operations and management strategies outlined in the Riverside (Riverside) Habitat Project's EIR/EIS. Contract Period: July 1, 2009, to March 31, 2012 Contract Amount: $500,000 The contract required Riverside to provide Water Resources with specialized environmental, biological, and technical Fish and Wildlife estimates that construction of the support for activities related to development of the Habitat Project. Habitat Project will begin after June 2014 According to Fish and Wildlife, Water Resources and Fish and Wildlife Water Resources entered into a contract with Cardno ENTRIX are developing a contract for the Imperial Irrigation District (Imperial) to manage the construction of the Habitat Project. According to Contract Period: February 5, 2010, to December 31, 2014 Water Resources, part of that contract includes Imperial's Contract Amount: $5,371,514 responsibility to prepare a bid package for firms to competitively bid The contract requires Cardno ENTRIX to assist in preparing the Habitat Project EIR/EIS and in developing the project's engineering on project construction. design specifications, construction specifications, and cost estimate. It also requires the contractor to develop a Monitoring Plan and to provide consultation during construction of the Habitat Project. AUGUST SEPTEMBER JANUARY AUGUST MAY JULY LATE 2016 2008 2009 2010 2011 2012 2013 2014 2015 2016 JUNE JULY FEBRUARY JUNE AUGUST Water Resources entered into a contract with CH2M Hill, The Resources Agency published the Salton Sea Task Order 49 Species Conservation Habitat Project, draft EIR/EIS The Resources Agency published the Salton Sea Contract Period: August 11, 2010, to June 30, 2013 According to the draft EIR/EIS, the report evaluates the impacts Species Conservation Habitat Project, final EIR/EIS Contract Amount: $178,897 of alternative methods of implementing the Habitat Project. Fish and Wildlife estimates construction of the According to the report, the U.S. Corps identified its preferred The contract required CH2M Hill to assist Fish and Wildlife and Water Resources in preparing initial 600 to 700 acres of the Habitat Project will the EIR/EIS for the Habitat Project. CH2M Hill previously assisted Water Resources in alternative for the Habitat Project as one that includes the be completed in late 2016 construction of 3,770 acres of ponds on certain portions of the preparation of the Salton Sea Ecosystem Restoration Program: Preferred Alternative Report and Salton Sea. Water Resources stated that the secretary of the Funding Plan. Resources Agency certified the EIR/EIS on August 8, 2013. Water Resources entered into a contract with CH2M Hill, Task Order 50 Water Resources entered into a contract with the U.S. Army Corps of Engineers Contract Period: January 18, 2011, to June 30, 2013 (U.S. Corps) Contract Amount: $184,014 Water Resources approved grants under the The contract requires CH2M Hill to assist in the development and Salton Sea Financial Assistance Program Contract Period: September 1, 2010, to June 30, 2014 implementation of the Salton Sea Financial Assistance Program. Contract Amount: $545,180 Water Resources approved three grants for a total of $3 million The contract requires the U.S. Corps to provide services related to National Environmental Protection Act to applicants to undertake various habitat-related projects at compliance and permit evaluation in support of the EIR/EIS and construction of the Habitat Project. the Salton Sea. Sources: California State Auditor’s analysis of various documents provided by Fish and Wildlife and Water Resources, as well as interviews with officials from these agencies. Note: The contract terms in this figure include any time extensions or increases in contract amounts made by amendments to the original contracts. California State Auditor Report 2013-101 31 November 2013 Figure 5 Key Events in the Planning, Construction, and Monitoring of the Species Conservation Habitat Project California Department of Fish and Wildlife (Fish and Wildlife) entered into an interagency agreement with the California Department of Water Resources (Water Resources) PLANNING CONSTRUCTION MONITORING Contract Period: June 23, 2008, to June 30, 2014 Contract Amount: $18,094,943 (includes all costs associated with the interagency agreement during the contract period). The agreement requires Water Resources to provide support and assistance to Fish and Wildlife on a number of restoration-related activities, including the design of and planning for the Species Conservation Habitat Project (Habitat Project) and associated environmental studies, such as the environmental impact report/environmental impact statement (EIR/EIS). It also requires Water Resources to assist Fish and Wildlife with the Salton Sea Financial Assistance Program, which provides grant funds to governmental agencies and nongovernmental Water Resources estimates that the Monitoring Plan organizations for the development of habitat consistent with the goals and objectives of the Habitat Project, and the Habitat Project's will be complete in August 2014 Adaptive Management and Monitoring Plan (Monitoring Plan). According to Water Resources, once construction of the 600 to 700 acres is complete, the Monitoring Plan will be the guiding document for determining Water Resources entered into a contract with the Regents of the University of California, the success of the operations and management strategies outlined in the Riverside (Riverside) Habitat Project's EIR/EIS. Contract Period: July 1, 2009, to March 31, 2012 Contract Amount: $500,000 The contract required Riverside to provide Water Resources with specialized environmental, biological, and technical Fish and Wildlife estimates that construction of the support for activities related to development of the Habitat Project. Habitat Project will begin after June 2014 According to Fish and Wildlife, Water Resources and Fish and Wildlife Water Resources entered into a contract with Cardno ENTRIX are developing a contract for the Imperial Irrigation District (Imperial) to manage the construction of the Habitat Project. According to Contract Period: February 5, 2010, to December 31, 2014 Water Resources, part of that contract includes Imperial's Contract Amount: $5,371,514 responsibility to prepare a bid package for firms to competitively bid The contract requires Cardno ENTRIX to assist in preparing the Habitat Project EIR/EIS and in developing the project's engineering on project construction. design specifications, construction specifications, and cost estimate. It also requires the contractor to develop a Monitoring Plan and to provide consultation during construction of the Habitat Project. AUGUST SEPTEMBER JANUARY AUGUST MAY JULY LATE 2016 2008 2009 2010 2011 2012 2013 2014 2015 2016 JUNE JULY FEBRUARY JUNE AUGUST Water Resources entered into a contract with CH2M Hill, The Resources Agency published the Salton Sea Task Order 49 Species Conservation Habitat Project, draft EIR/EIS The Resources Agency published the Salton Sea Contract Period: August 11, 2010, to June 30, 2013 According to the draft EIR/EIS, the report evaluates the impacts Species Conservation Habitat Project, final EIR/EIS Contract Amount: $178,897 of alternative methods of implementing the Habitat Project. Fish and Wildlife estimates construction of the According to the report, the U.S. Corps identified its preferred The contract required CH2M Hill to assist Fish and Wildlife and Water Resources in preparing initial 600 to 700 acres of the Habitat Project will the EIR/EIS for the Habitat Project. CH2M Hill previously assisted Water Resources in alternative for the Habitat Project as one that includes the be completed in late 2016 construction of 3,770 acres of ponds on certain portions of the preparation of the Salton Sea Ecosystem Restoration Program: Preferred Alternative Report and Salton Sea. Water Resources stated that the secretary of the Funding Plan. Resources Agency certified the EIR/EIS on August 8, 2013. Water Resources entered into a contract with CH2M Hill, Task Order 50 Water Resources entered into a contract with the U.S. Army Corps of Engineers Contract Period: January 18, 2011, to June 30, 2013 (U.S. Corps) Contract Amount: $184,014 Water Resources approved grants under the The contract requires CH2M Hill to assist in the development and Salton Sea Financial Assistance Program Contract Period: September 1, 2010, to June 30, 2014 implementation of the Salton Sea Financial Assistance Program. Contract Amount: $545,180 Water Resources approved three grants for a total of $3 million The contract requires the U.S. Corps to provide services related to National Environmental Protection Act to applicants to undertake various habitat-related projects at compliance and permit evaluation in support of the EIR/EIS and construction of the Habitat Project. the Salton Sea. Sources: California State Auditor’s analysis of various documents provided by Fish and Wildlife and Water Resources, as well as interviews with officials from these agencies. Note: The contract terms in this figure include any time extensions or increases in contract amounts made by amendments to the original contracts. 32 California State Auditor Report 2013-101 November 2013 In addition to these restoration efforts, Fish and Wildlife and Water Resources have recently collaborated to establish the Salton Sea Financial Assistance Program (Financial Assistance Program). According to the Financial Assistance Program’s guidelines, it will provide grants from the Restoration Fund to eligible applicants, including local agencies and tribes, for projects that conserve fish and wildlife within the Salton Sea ecosystem. Applicants’ proposed projects must be consistent with at least one of four specific objectives, such as creating and enhancing habitat to provide sustainable and functional habitat for the protection of fish and wildlife. The projects must also satisfy an array of environmental requirements. In May 2013 Water Resources In May 2013 Water Resources approved the first awards under approved the first awards under the Financial Assistance Program, granting a total of $3 million the Financial Assistance Program, to three projects: the United States Fish and Wildlife Service, granting a total of $3 million to Imperial/Sephton Water Technology, and the Salton Sea Authority/ three projects. Torres Martinez Tribe. According to the Resources Agency’s deputy secretary, these grants should allow the recipients a chance to try different restoration activities that it hopes will be successful. He also stated that the initial $3 million in grant funds will not fully fund the proposed projects, so the Resources Agency is reviewing options to supplement this funding to ensure that the recipients can complete the projects and measure their effectiveness. According to the deputy secretary, possible sources of additional funding include the Wildlife Conservation Board or a second round of Financial Assistance Program grants. Restoration Fund Expenditures Over the Past Few Years Primarily Relate to Personnel and Consultant Costs for Planning of the Habitat Project The Joint Legislative Audit Committee asked us to identify the amount that Fish and Wildlife and Water Resources spent from the Restoration Fund on staff, by major job classification, and on consultants for the most recent three‑year period. It also asked us to determine how the departments allocate staff time to administer the Restoration Fund. As previously explained, Fish and Wildlife and Water Resources have focused their restoration efforts during the past several years on planning and designing the Habitat Project and, in doing so, have contracted with several consultants. The departments generally paid for these restoration‑related efforts by using the Restoration Fund. Not surprisingly, during our audit period, the vast majority of the expenditures from the Restoration Fund relate to Fish and Wildlife and Water Resources’ personnel and contracts with consultants, as shown in Table 3. California State Auditor Report 2013-101 33 November 2013 Table 3 Salton Sea Restoration Fund Personnel and Consultant Expenditures for Fiscal Years 2010–11 Through 2012–13 Personnel Expenditures FISCAL YEAR JOB CLASSIFICATION AGENCY (NUMBER OF PERSONNEL YEARS PER YEAR, IF APPLICABLE) 2010–11 2011–12 2012–13 TOTAL California Department Environmental Program Manager II (.3) $30,900 $50,600 $45,800 $127,300 of Fish and Wildlife Environmental Program Manager I (1) 83,500 130,600 126,600 340,700 (Fish and Wildlife) Senior Environmental Scientist (1.5)* 115,400 159,600 176,200 451,200 Environmental Scientist (4)* 316,600 355,800 300,800 973,200 Research Program Specialist I (.8) 47,100 102,100 102,000 251,200 Fish and Wildlife Technician (1.6) 84,100 57,900 90,300 232,300 Staff Services Analyst (.5) 0 42,600 59,200 101,800 Associate Governmental Program Analyst (.9) 76,000 83,300 62,400 221,700 Other (includes nominal amounts charged to the fund by various positions, totaling .2 personnel years)* 57,500 0 0 57,500 Total Fish and Wildlife Personnel Expenditures (10.8) $811,100 $982,500 $963,300 $2,756,900 California Department Environmental Program Manager I (.5) $76,700 $39,900 $0 $116,600 of Water Resources Program Manager II (.8) 56,200 67,900 73,700 197,800 (Water Resources) Supervising Engineer (.7) 67,300 82,000 82,400 231,700 Staff Environmental Scientist (.6) 45,600 18,800 50,300 114,700 Associate Governmental Program Analyst (.2) 6,500 9,600 24,500 40,600 Other (includes Division of Engineering Staff) (.3) 16,200 14,600 17,700 48,500 Line Management and Line Staff Costs† 246,300 226,000 272,500 744,800 Total Water Resources Personnel Expenditures (3.1) $514,800 $458,800 $521,100 $1,494,700 Total Personnel Expenditures $1,325,900 $1,441,300 $1,484,400 $4,251,600 Consultant Expenditures FISCAL YEAR AGENCY CONSULTANT 2010–11 2011–12 2012–13 TOTAL Water Resources U.S. Army Corps of Engineers $246,100 $0 $0 $246,100 Cardno ENTRIX 1,872,200 1,438,400 615,100 3,925,700 CH2M Hill 62,300 24,600 10,300 97,200 The Regents of the University of California, Riverside 327,700 122,300 0 450,000 Total Consultant Expenditures $2,508,300‡ $1,585,300 $625,400 $4,719,000 Total Personnel and Consultant Expenditures $3,834,200 $3,026,600 $2,109,800 $8,970,600 Total Salton Sea Restoration Fund Expenditures $4,276,600 $3,369,300 $2,699,000 $10,344,900§ Sources: California State Auditor’s analysis of accounting records and other documents obtained from Fish and Wildlife and Water Resources. * Between fiscal years 2010–11 through 2012–13, certain personnel in these job classifications were promoted to a different job classification. For purposes of presentation, we combined those personnel costs with their most current job classification. † Line Management and Line Staff costs include management overhead and state‑paid staff benefits, such as retirement, workers’ compensation, and health insurance. These costs are not related to a specific job classification. ‡ Consultant expenditures shown in this table are on a cash basis, whereas the total amount presented in Table A on page 40 of the Appendix includes accruals. § The difference of roughly $1.4 million between total Salton Sea Restoration Fund expenditures and total personnel and consultant expenditures is comprised of operating expenses and equipment and indirect costs. 34 California State Auditor Report 2013-101 November 2013 As shown in Table 3, during fiscal years 2010–11 through 2012–13, Fish and Wildlife and Water Resources expended nearly $2.8 million and $1.5 million, respectively, on personnel. Fish and Wildlife funded about 11 personnel years, on average over the three‑year period, with the Restoration Fund. Many of these personnel were stationed in the Inland Deserts Region Office, located in Ontario, California, with staff who work on the Salton Sea restoration effort located in field offices in Bermuda Dunes and Blythe. These staff had a variety of duties, including performing studies of the fish and wildlife that rely on the sea for survival, reviewing environmental documents, and coordinating with state, local, and federal entities. On the other hand, Water Resources funded on average about three personnel years with the Restoration Fund. These staff were responsible for developing and monitoring its contracts with the consultants working on the Habitat Project, coordinating with stakeholders, developing consultant task orders and invoices, and administering and overseeing the Financial Assistance Program. Table 3 also shows the amounts expended for each of the contracts Water Resources entered into with the U.S. Army Corps of Engineers, Cardno ENTRIX, CH2M Hill, and the Regents of the University of California, Riverside. We describe the purposes and amounts of each of these contracts in Figure 5 on pages 30 and 31, all of which generally relate to the Habitat Project. During the three fiscal years, expenditures for these contracts totaled roughly $4.7 million, close to half of the total expended from the Restoration Fund during this time. Given the significant role of Cardno ENTRIX in developing the EIR/EIS, it is not surprising that expenditures for this contract represented roughly $3.9 million, or 83 percent of the total amount expended on consulting contracts during the period of our review. Recommendations Legislature To ensure that the feasibility study it recently funded will provide it with meaningful and timely information, the Legislature should enact legislation that does the following: • Contains specific guidance to the Resources Agency regarding the Legislature’s priorities for restoring the Salton Sea so that the Resources Agency can address those priorities when developing the feasibility study. California State Auditor Report 2013-101 35 November 2013 • Provides a deadline for the completion of the feasibility study and submission of a restoration plan. • Requires the feasibility study to analyze and include the extent to which restoration activities could lessen the State’s future financial obligations for mitigation under the QSA. • Once the Legislature has approved a restoration plan, it should hold a budget hearing to consider the appropriate funding mechanism. The Legislature should designate the Resources Agency as the implementing entity responsible for coordinating the efforts of all entities involved in the restoration and mitigation activities for the Salton Sea. Resources Agency To ensure that the Legislature has the information necessary to meet the State’s restoration goals and to plan for the State’s future financial obligations related to mitigation, the Resources Agency should work with Fish and Wildlife and Water Resources to do the following: • Provide a written report to the Legislature on its recommendations for the content of the feasibility study no later than February 1, 2014. It should include in the report the State’s progress to date on the Habitat Project. • Meet with the Legislature regularly to provide updates on the status of its restoration efforts and the feasibility study to ensure that the Legislature has the information necessary to make funding and other informed decisions. • Develop an estimate of the costs, adjusted for inflation, that the State may incur for fulfilling its financial obligations related to mitigation under the QSA. The Resources Agency should include this information in the feasibility study so the Legislature is fully aware of the estimated costs and timing of the State’s future financial obligations. 36 California State Auditor Report 2013-101 November 2013 We conducted this audit under the authority vested in the California State Auditor by Section 8543 et seq. of the California Government Code and according to generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives specified in the scope section of the report. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Respectfully submitted, ELAINE M. HOWLE, CPA State Auditor Date: November 21, 2013 Staff: Laura G. Kearney, Project Manager Mary Camacho, CPA Laurence S. Ardi Jessica E. Kubo Charles H. Meadows III Legal Counsel: Donna Neville, Chief Counsel J. Christopher Dawson For questions regarding the contents of this report, please contact Margarita Fernández, Chief of Public Affairs, at (916) 445‑0255. California State Auditor Report 2013-101 37 November 2013 Appendix The Salton Sea Restoration Fund’s Funding Sources and Expenditures for Fiscal Years 2003–04 Through 2012–13 The Joint Legislative Audit Committee directed the California State Auditor to identify the Salton Sea Restoration Fund’s (Restoration Fund) funding sources and total expenditures by major category for the most recent three‑year period, which we defined as fiscal years 2010–11 through 2012–13. We present this information in Table A on page 40. To provide additional perspective related to the Restoration Fund’s historical funding sources and expenditures, we also included unaudited amounts for fiscal years 2003–04 through 2009–10. 10 State law and the Quantification Settlement Agreement (QSA) provide the Restoration Fund with five potential funding sources: • The Salton Sea Restoration Limit: The QSA and its implementing legislation specify that three local water agencies—Imperial Irrigation District (Imperial), Coachella Valley Water District (Coachella), and the San Diego County Water Authority (San Diego)—must pay a combined total of $30 million in 2003 dollars to the Restoration Fund. • Proposition 84: In 2006 the voters approved this initiative, which provides $47 million to the Restoration Fund.11 • Proceeds from certain water purchases: The QSA and its implementing legislation allow the Metropolitan Water District of Southern California (Metropolitan) to purchase up to a specific amount of water made available by Imperial to the California Department of Water Resources (Water Resources) at a specified price. Imperial is responsible for providing the water to Water Resources to sell. Legislation requires Water Resources to deposit all proceeds from the sale into the Restoration Fund, after deducting certain administrative costs. However, the California Department of Fish and Wildlife’s (Fish and Wildlife) Fish and Wildlife’s Inland Deserts regional manager (regional manager) explained that Fish and Wildlife does not anticipate that Metropolitan will purchase any additional water from Water Resources because of local opposition; thus, proceeds from this potential funding source are unlikely. 10 Because the expenditure amounts for fiscal years 2003–04 through 2009–10 are beyond the audit period, we do not present them by major category. 11 Proposition 84 authorized $47 million for the Restoration Fund; however, a portion of this amount is reserved for estimated bond issuance costs, leaving $45.4 million. 38 California State Auditor Report 2013-101 November 2013 • Proceeds from special surplus water purchases: The QSA and its implementing legislation allow Metropolitan to pay a specified amount for all special surplus water it receives as a result of reinstatement of access to that water under guidelines issued by the United States Department of the Interior (Interior), subtracting any water delivered to Arizona as a result of a shortage. These funds must be paid into the Restoration Fund. According to the regional manager, Interior has not declared a surplus of water and is unlikely to do so in the near future due to current drought conditions. This directly impacts Metropolitan’s ability to purchase and pay for surplus water. Thus, the regional manager explained that proceeds from this funding source are also unlikely. • Ecosystem restoration fees: During the initial term of the QSA, most types of water transfers from Imperial are subject to an ecosystem restoration fee to cover the impact of the transfers on the sea. Fish and Wildlife is responsible for establishing this fee, which cannot exceed 10 percent of the compensation Metropolitan receives for the transfer of the water. Fish and Wildlife must deposit all proceeds from the fee into the Restoration Fund. However, it is unlikely that proceeds will be realized from these fees; the regional manager does not believe that Imperial will transfer any water subject to ecosystem restoration fees because Imperial has not expressed a willingness to make such water transfers. As shown in Table A on page 40, the Restoration Fund received a total of about $32.1 million from the different funding sources as of June 30, 2013, with the majority of the funds received during fiscal years 2003–04 through 2009–10. This does not include about $200,000 in interest the fund earned over the period. As of the end of fiscal year 2012–13, the Restoration Fund had not received any proceeds from water purchases, special surplus water fees, or ecosystem restoration fees. In addition to the $32.1 million, as of June 30, 2013, Fish and Wildlife expects to receive another $36.3 million from Proposition 84 and an additional $45.5 million from the Salton Sea Restoration Limit.12 Of the $36.3 million in Proposition 84 funding, the Legislature has already appropriated $33.6 million as of the fiscal year 2013–14 Budget Act. Under the QSA, the three local water agencies may pay their Salton Sea Restoration Limit funding contributions in lump‑sum payments or installments. Coachella and San Diego opted to pay their contribution amounts as lump‑sum payments 12 We based our projections for Proposition 84 funding on the total amount due to the Restoration Fund under the proposition, less estimated bond issuance costs, less the amount deposited into the Restoration Fund as of June 30, 2013. California State Auditor Report 2013-101 39 November 2013 in fiscal year 2004–05; adjusted for interest, these contributions totaled roughly $21 million. In contrast, Imperial chose to pay its contribution in installments beginning in 2003 and ending in 2047, at which time it will have paid about $47 million in total. Thus, the total combined contribution of Salton Sea Restoration Limit funds by all three local water agencies will be approximately $68.6 million. Table A also presents amounts expended over the past three fiscal years from the Restoration Fund by major category. Over the 10‑year period, the Restoration Fund’s expenditures totaled roughly $17.9 million. During this same period, it received a total of $32.3 million in funds—including $200,000 in interest not shown in Table A—a difference of $14.4 million. However, due to encumbrances and adjustments totaling approximately $5.4 million, the available fund balance as of June 30, 2013, was nearly $9 million.13 Table A identifies each of the departments’ expenditures during our audit period by major category. As shown, Fish and Wildlife expended nearly $4 million, largely for personnel costs that it incurred implementing the Species Conservation Habitat Project and monitoring activities related to its interagency agreement with Water Resources. Water Resources incurred $6.4 million in expenditures during our audit period, the majority of which were related to costs for contracts it entered into with consultants. We describe the purposes of these expenditures in more detail in the Audit Results. 13 Encumbrances are commitments for goods or services that have been ordered or contracted for but have not yet been received. 40 California State Auditor Report 2013-101 November 2013 A elbaT gnidnuF erutuF detapicitnA dna ,31–2102 hguorhT 40–3002 sraeY lacsiF rof serutidnepxE dna secruoS gnidnuF s’dnuF noitarotseR aeS notlaS RAEY LACSIF ROF LATOT DETAPICITNA FO SA LATOT HGUORHT 11–0102 HGUORHT 40–3002 GNIDNUF LATOT GNIDNUF 3102 ,03 ENUJ 31–2102 31–2102 21–1102 11–0102 01–9002 ECRUOS GNIDNUF dna ytilauQ retaW ,retaW gniknirD efaS ehT—48 noitisoporP fo tcA dnoB noitcetorP latsaoC dna reviR ,lortnoC doolF ,ylppuS 000,553,54$ 003,943,63$ 007,500,9$ 000,614,7$ 004,875,1$ 002,199,1$ 004,648,3$ 007,985,1$ * 6002 008,565,86 002,884,54 006,770,32 009,511,1 000,843 004,003 005,764 007,169,12 †sdnuF timiL noitarotseR aeS notlaS 008,029,311$ 005,738,18$ 003,380,23$ 009,135,8$ 004,629,1$ 006,192,2$ 009,313,4$ 004,155,32$ secruoS gnidnuF latoT RAEY LACSIF ROF LATOT FO SA LATOT HGUORHT 11–0102 HGUORHT 40–3002 3102 ,03 ENUJ 31–2102 31–2102 21–1102 11–0102 01–9002 SERUTIDNEPXE YCNEGA 009,657,2$ 003,369$ 005,289$ 001,118$ lennosreP tnemtrapeD ainrofilaC efildliW dna hsiF fo 007,365 000,312 006,361 001,781 tnempiuqE dna sesnepxE gnitarepO )efildliW dna hsiF( 002,206 000,812 007,25 005,133 stsoC tceridnI 009,918,01$ 008,229,3$ 003,493,1$ 008,891,1$ 007,923,1$ 001,798,6$ slatotbuS 007,494,1 001,125 008,854 008,415 lennosreP tnemtrapeD ainrofilaC 000,184,4 004,526 003,585,1 ‡003,072,2 stsoC tnatlusnoC secruoseR retaW fo )secruoseR retaW( 007,95 004,41 008,7 005,73 tnempiuqE dna sesnepxE gnitarepO 007,893 008,341 006,811 003,631 stsoC tceridnI 003,401,7$ 001,434,6$ 007,403,1$ 005,071,2$ 009,859,2$ 002,076$ slatotbuS 002,429,71$ 009,653,01$ 000,996,2$ 003,963,3$ 006,882,4$ 003,765,7$ serutidnepxE latoT etatS ainrofilaC eht dna ,secruoseR retaW dna efildliW dna hsiF morf slaicffio htiw sweivretni ,tnemeergA tnemeltteS noitacfiitnauQ eht ,edoC retaW ,edoC secruoseR cilbuP ,edoC emaG dna hsiF ainrofilaC :secruoS .seciovni tnemeerga ycnegaretni ’secruoseR retaW dna stroper metsyS gnitropeR dna gnitnuoccA etatS ainrofilaC s’efildliW dna hsiF suoirav fo sisylana s’rotiduA .yrogetac rojam yb detneserp ton era serutidnepxe dna detiduanu era sraey eseht rof stnuoma eht suht dna doirep tidua eht edistuo era 01–9002 hguorht 40–3002 sraey lacsiF :etoN ,gnidnuf erutuf detapicitna ni noillim 3.63$ ylhguor eht fO .noitaflni rof detsujda ton si taht gnidnuf fo tnuoma tes a htiw )dnuF noitarotseR( dnuF noitarotseR aeS notlaS eht sedivorp tca dnob 48 noitisoporP ehT * eht rof noillim 74$ fo latot a dezirohtua 48 noitisoporP .tcA tegduB 41–3102 raey lacsfi eht ni detairporppa saw hcihw fo lla ylraen ,dnuF noitarotseR eht ot detairporppa neeb sah noillim 6.33$ yletamixorppa .dnuF noitarotseR eht ot elbaliava noillim 4.54$ gnivael ,stsoc ecnaussi dnob detamitse rof devreser si tnuoma siht fo noitrop a ,revewoh ;dnuF noitarotseR tcirtsiD noitagirrI lairepmI ehT .50–4002 raey lacsfi ni smus pmul ni snoitubirtnoc gnidnuf timiL noitarotseR aeS notlaS rieht yap ot detpo ytirohtuA retaW ytnuoC ogeiD naS eht dna tcirtsiD retaW yellaV allehcaoC ehT † .tnecrep 6 fo etar launna na ta ecnalab diapnu eht no tseretni syap ti ;7402 ni gnidne dna 3002 ni gninnigeb stnemyap launna ni noitubirtnoc sti ekam ot detpo .11–0102 raey lacsfi ni diap yllautca erew tub 01–9002 raey lacsfi ni deurcca erew taht serutidnepxe edulcni ton seod ti esuaceb 33 egap no 3 elbaT ni nwohs latot eht naht ssel si tnuoma sihT ‡ California State Auditor Report 2013-101 41 November 2013 42 California State Auditor Report 2013-101 November 2013 cc: Members of the Legislature Office of the Lieutenant Governor Little Hoover Commission Department of Finance Attorney General State Controller State Treasurer Legislative Analyst Senate Office of Research California Research Bureau Capitol Press