The 2022-23 Budget: Water and Drought Response Proposals

2022-23 BUDGET The 2022-23 Budget: Water and Drought Response Proposals Summary Governor Provides $880 Million to Continue Current Year’s Water Resilience Package and Additional $750 Million for Drought Response. The 2021-22 budget package included an agreement to provide $4.6 billion across three years for water activities, including $3.3 billion in the current year. Consistent with that agreement, the Governor’s 2022-23 budget includes $880 million in General Fund for 11 programs. The Governor also proposes an additional $750 million in General Fund for what he characterizes as drought response activities. Of these funds, $500 million would be for specified activities—including $200 million for water conservation efforts and $65 million for activities that would address immediate drought conditions—whereas the Governor has not yet specified uses for $250 million. Addressing State’s Longer-Term Ability to Respond to Droughts Has Merit, but Legislature Recently Made Significant Investments in Building Water Resilience. While the Governor has presented his $750 million package as being for drought response, most of the proposed activities would not address conditions this summer and fall. Moreover, it remains too early to know whether the state will again experience severe drought conditions this year. While building drought resilience is an important statewide priority, given its recent investments, the Legislature does not need to approve the Governor’s proposals in order to make progress towards this goal. The Legislature’s recent budget decisions have already ensured that the state has a significantly expanded focus on enhancing water supply, addressing fish and wildlife needs, responding to drinking water shortages and contamination, and managing lands for multiple benefits. Recommend Legislature Develop Funding Approach Focused on Highest Priority, Most Cost-Effective Activities. While improving longer-term statewide drought resilience has merit, we recommend the Legislature weigh this goal against its other budget priorities, given its recent large investments in similar activities. If allocating additional funding for improving water and drought resilience is a legislative priority in 2022-23, we recommend modifying the Governor’s proposal to fund the mix of programs the Legislature deems to be the highest priority and most cost-effective for achieving its goals. For example, this could include less emphasis on funding for water conservation or comparatively more funding for groundwater recharge and storage projects. Considering how the various proposals affect the state appropriations limit calculation will also be an important factor in the Legislature’s final decisions. Given the uncertainty about how the state’s hydrology and conditions will evolve, we recommend waiting until the May Revision to determine how much funding to allocate for urgent drought response activities. Finally, given both the important state goal of increasing water resilience and the magnitude of recent investments, we recommend both near-term and ongoing legislative oversight of funding from the recent Drought and Water Resilience package. GABRIEL PETEK | LEGISLATIVE ANALYST JANUARY 2022 www.lao.ca.gov 1 2022-23 BUDGET BACKGROUND Climate Change Already Affecting California’s 2021-22 Budget Package Included Hydrology and Infrastructure. Scientists have Agreement for $4.6 Billion Across Three Years found that the state will experience increasingly for Water Activities. In response to these trends variable precipitation under a changing climate, and conditions, the state provided a significant leading to more frequent and intense droughts investment in water-related activities in the and floods. Along with higher temperatures and current-year budget. As displayed in Figure 1, interspersed among longer lasting dry periods, the budget included $3.3 billion for water- and climate change is also bringing more episodic, drought-related activities in 2021-22, primarily intense, warmer atmospheric river storms to the from the General Fund, spread across numerous state. These types of storms can result in significant departments and activities. (The totals shown in amounts of precipitation falling in short periods of the figure do not include funding approved by the time, and as rain rather than snow. Compared to Legislature for water-related activities outside of the historical precipitation patterns—which traditionally Drought and Water Resilience packages approved built up a snowpack that gradually melted into the in July and September 2021.) As shown, a total of state’s reservoirs and rivers over the course of $137 million was for activities intended to respond months—these “flashy” wet storms can challenge to emergency drought conditions over the coming the capacity of both existing flood control systems year, such as for the State Water Resources Control and water storage infrastructure by sending Board (SWRCB) and California Department of significant amounts of water through the state’s Fish and Wildlife (CDFW) to oversee and enforce streets, streams, and rivers all at once. regulatory restrictions on water diversions and State Has Been Experiencing Severe fishing in certain streams. In contrast, some of Drought Conditions. Last year was notable in the activities—such as grants for water supply terms of both its lack of precipitation and its high and ecosystem restoration projects—are temperatures. Specifically, 2021 was the third intended to increase the state’s resilience to driest year on record in terms of precipitation, and unpredictable changes to water availability in had the second lowest measured annual runoff the future, and likely will take multiple years to (the amount of water that melted from snowpack complete. Administering departments are still in and flowed into the state’s rivers and reservoirs). the process of allocating this funding. As shown Moreover, average summer temperatures in in the figure, the budget agreement between the California were the hottest on record in 2021, Legislature and Governor also intends to provide breaking the previous June-through-August an additional $1.4 billion—$880 million in 2022-23 record set in 2017. These factors, combined with and $500 million in 2023-24—to continue some the preceding dry and warm year, led to very activities over the coming years. severe drought conditions in the summer and fall Most of the programs included as part of this of 2021. Impacts included domestic wells going package represent activities that the state has dry, reductions in available water for agriculture funded and undertaken in previous years, primarily and certain highly affected communities, high using voter-approved bonds. The significant levels of groundwater pumping that exacerbated exceptions—which represent substantively both deficits in underground basins and land new programs initiated in 2021-22—include the subsidence, and impaired conditions and higher Department of Conservation’s (DOC’s) multibenefit mortality for fish and wildlife. The Governor issued land repurposing program, SWRCB’s funding to drought-related emergency proclamations that address per- and polyfluoroalkyl substances, and cover every county in the state—and still are in the California Natural Resources Agency’s funding effect as of this writing—and called on Californians for water resilience projects. to voluntarily reduce their water use by 15 percent. 2 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET Figure 1 Recently Approved Drought and Water Resilience Package (In Millions)a Activity Department 2021-22 2022-23 2023-24 Totals Water Supply and Reliability, Drinking Water, and Flood $2,676 $420 $220 $3,316 Drinking water and wastewater projects SWRCB $1,300 — — $1,300 Multibenefit water projects DWR 200 — — 200 Small community water projects DWR 200 — — 200 SGMA implementation DWR 180 $60 $60 300 Groundwater cleanup and water recycling projects SWRCB 150 100 100 350 Flood management DWR 130 110 60 300 Urban water projects DWR 100 — — 100 Water conveyance repairs DWR 100 100 — 200 Data, research, and communications DWR 91 — — 91 SWEEP CDFA 50 50 — 100 San Diego Pure Water project SWRCB 50 — — 50 Multibenefit land repurposing program DOC 50 — — 50 Water rights modernization SWRCB 30 — — 30 Watershed climate studies DWR 25 — — 25 Aqueduct solar panel pilot study DWR 20 — — 20 Water Quality and Ecosystem Restoration $456 $460 $280 $1,196 Water resilience projects CNRA $165b $100 $180 $445 Streamflow for the environment WCB 100 150 — 250 Resilience projects for fish and wildlife WCB 65 40 — 105 Salton Sea DWR 40 100 80 220 Funding to address PFAs contamination SWRCB 30 50 20 100 Urban rivers and streams Various 30 20 — 50 Water quality improvements for border rivers SWRCB 20 — — 20 Clear Lake rehabilitation CNRA 6 — — 6 Immediate Drought Response $137 — — $137 Drought support for fish and wildlife CDFW $33 — — $33 Drought emergency response Various 25 — — 25 Drought permitting compliance and enforcement SWRCB 18c — — 18 Drought permitting compliance and enforcement CDFW 8 — — 18 Drinking water emergencies SWRCB 12 — — 12 Drought technical assistance DWR 10d — — 10 Salinity barrier DWR 10 — — 10 Data, research, and communications Various 6 — — 6 Agriculture technical assistance CDFA 5 — — 5 Totals $3,269 $880 $500 $4,649 a All from the General Fund unless otherwise noted. Does not include funding approved by the Legislature for water-related activities outside of the Drought and Water Resilience packages approved in July and September 2021. b Includes $125 million from Proposition 68. c Includes $2 million from the Safe Drinking Water Account. d Includes $7 million from Proposition 1. SWRCB = State Water Resources Control Board; DWR = Department of Water Resources; SGMA = Sustainable Groundwater Management Act; SWEEP = State Water Efficiency and Enhancement Program; DOC = Department of Conservation; CNRA = California Natural Resources Agency; WCB = Wildlife Conservation Board; PFAs = per- and polyfluoroalkyl substances; CDFW = California Department of Fish and Wildlife; and CDFA = California Department of Food and Agriculture. www.lao.ca.gov 3 2022-23 BUDGET 2020-21 Budget Package Also Included construction of capital projects. An additional Additional Funding to Improve Conditions $1.8 billion over five years will also be available for Fish and Wildlife. In addition to the funding through the SRF programs for specific water shown in the above figure, a separate Climate quality efforts to address emerging contaminants Resilience funding package adopted as part of the and replace lead service lines. In recent years, the 2021-22 budget agreement also contained funding SRF programs have received roughly $210 million for some water- and ecosystem-related activities. in federal funds annually, so the IIJA funding This includes $15 million in 2021-22 and $35 million represents a significant increase. The U.S. in 2022-23 for CDFW to address climate change government requires that states provide funding impacts on wildlife, such as by implementing to “match” the federal funds, typically 20 cents projects that address degrading water and habitat to each dollar received. Historically, California conditions. That package also includes $353 million has used water bond funds or contributions from over three years for the Wildlife Conservation Board SRF recipients to meet this match requirement for to allocate grants for projects that protect fish and federal SRF funds. wildlife from changing conditions. Despite Receiving Some Large Storms, State Will Also Receive New Federal Funding State Still Experiencing Drought Conditions. for Water-Related Activities. In addition to Fortunately, the state received some significant the $1.3 billion from the General Fund the state storms in late 2021 which helped begin to provided in the 2021-22 budget for drinking water remediate extremely low levels in reservoirs across and wastewater projects as part of the package the state, build snowpack for potential spring shown in Figure 1, California expects to receive runoff, and improve conditions for fish and wildlife. about $3.8 billion over five years from the federal Given the significant deficits that accumulated in Infrastructure Investment and Jobs Act (IIJA) to 2020 and 2021, however, as of this writing, most improve local water infrastructure. About $1.9 billion of the state is still experiencing moderate to severe of these funds will be administered by SWRCB drought conditions. Moreover, this past January through its existing State Revolving Fund (SRF) was exceptionally dry, particularly in the southern programs for drinking water and wastewater half of the state. Nearly all of the state’s large systems, which provide loans and non-repayable reservoirs remain below their historical average financing to local governments, water agencies, levels of water in storage for this time of year. and tribal governments for planning, design, and PROPOSAL Provides $880 Million Consistent With Provides Additional $500 Million for Drought Legislative Agreement. In alignment with what Response Activities, Sets Aside Additional was agreed upon as part of the 2021-22 budget $250 Million for Potential Needs. In addition to package, the Governor’s proposal includes the $880 million, the Governor proposes providing $880 million from the General Fund for several $750 million from the General Fund for what he water-related efforts. As shown in Figure 1, this characterizes as drought response activities. includes $420 million for water supply reliability and We display the proposed activities in Figure 2. flood activities and $460 million for water quality As shown, the funded activities would span four and ecosystem restoration efforts. All 11 of the categories, with the Governor not yet specifying the funded activities are continuations of programs that uses for a portion of the proposed funding. were also funded in the current year. 4 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET The activities include: Figure 2 • $200 million for water Governor’s Proposed Drought Response Activities conservation efforts such 2022-23, General Fund (In Millions) as grants to local agencies, grants for replacing turf Activity Department Proposal with more drought-tolerant Water Conservation $200 plants, and the State Water Urban grants and projects DWR $75 Efficiency and Enhancement Turf replacement grants DWR 75 Program (SWEEP), which Small community grants and projects DWR 25 provides grants to farming SWEEP CDFA 20 operations to replace irrigation Data collection and technical assistance DWR 5 systems with more water- and Water Storage and Reliability $150 energy-efficient equipment. Small community water projects DWR $60 Urban community water projects DWR 60 • $150 million for water SGMA groundwater recharge projects DWR 30 storage and reliability efforts, Lands Management and Habitat Enhancement $85 including for urban and small Multibenefit land repurposing program DOC $40 community water agencies to Projects to enhance habitat CDFW 30 upgrade their infrastructure, Enhance habitat on state and partner lands CDFW 15 and for groundwater Immediate Drought Response $65 recharge projects Drinking water emergencies SWRCB $25 Drought support for fish and wildlife CDFW 17 related to implementing Fish hatchery upgrades CDFW 13 the requirements of Drought technical assistance DWR 5 the 2014 Sustainable Relief for small farmers CDFA 5 Groundwater Management Unallocated Drought Funding $250 Act (SGMA). Total $750 • $85 million for improving DWR = Department of Water Resources; SWEEP = State Water Efficiency and Enhancement lands management and fish Program; CDFA = California Department of Food and Agriculture; SGMA = Sustainable Groundwater Management Act; DOC = Department of Conservation; CDFW = California Department of Fish and and wildlife habitat, including Wildlife; and SWRCB = State Water Resources Control Board. DOC’s new program initiated in the 2021-22 budget to Federal Funds Anticipated for 2022, but repurpose agricultural land to reduce reliance Will Not Flow Through State Budget. While the on groundwater. state expects to receive some IIJA funds for the • $65 million for activities that would address aforementioned water and wastewater activities in immediate drought conditions, such as the budget year, these funds are not included in the assisting fish and wildlife and for drinking Governor’s 2022-23 budget proposal because the water shortages. SRF funds are continuously appropriated. SWRCB • $250 million for which the Governor has not indicates it has sufficient appropriated funds—such yet specified uses. The administration plans as General Fund and bond funds—available to use to come back to the Legislature with a more for the required state match in the budget year. detailed proposal for these funds later in the SWRCB estimates California will begin to receive spring budget process after the hydrologic its 2022 allotments of roughly $650 million from the conditions for the coming year become federal government in early fall. more clear. www.lao.ca.gov 5 2022-23 BUDGET ASSESSMENT State and Local Agencies Busy Implementing This is because the majority of the activities would Significant 2021-22 Investments. As noted earlier, not result in an immediate increase in water supply the 2021-22 water and climate budget packages or reduction in water use, or respond to emergency included significant levels of funding for water-related needs. Of the $500 million in proposed expenditures, activities in the current year, along with additional $65 million is clearly focused on remediating funding committed for 2022-23 and 2023-24. urgent needs. This would include activities such as State and local agencies likely will be busy providing emergency drinking water for households administering and implementing recently funded with dry domestic wells, rescuing stranded fish and activities both in the budget year as well as in the wildlife, and providing financial assistance to highly coming years. As such, the Legislature will want impacted small farmers. In contrast, the majority of to be mindful that state and local agencies likely the proposed activities would focus on longer-term will have limitations on their capacity to oversee efforts that might improve the state’s and local and expend significant amounts of new funding communities’ abilities to respond to future droughts. in the budget year. Providing additional funding Specifically, both the infrastructure projects that for a few targeted efforts—similar in scope to would be funded in urban and small communities, what the Governor proposes—likely could be as well as many of the water conservation initiatives accommodated, but agencies probably would and habitat improvement projects, likely would not be able to implement major new or expanded take at least a year and perhaps multiple years programs promptly. to implement. This is particularly true in cases Possible That Drought Conditions Will Abate where grant application processes, environmental in Coming Year, Reducing Need for $250 Million. permitting, and/or construction are required. It remains too early to know whether the state Addressing State’s Longer-Term Ability to will again experience severe drought conditions Respond to Droughts Has Merit… Even if most this summer and fall. The need for new spending of his proposals would not provide immediate on urgent drought response activities in 2022-23 drought relief, the Governor’s focus on longer-term largely will depend on the amount of precipitation drought resilience is not without value. California the state receives in February, March, and April, as has received lower-than-average precipitation levels well as the degree to which temperatures this spring in 10 of the last 15 years, and the changing climate and summer impact snowpack runoff. By the May will bring increasingly frequent and severe droughts. Revision, the Legislature should know more about The best time to address water shortages is before potential drought conditions and what additional they occur, as the most effective water supply, near-term activities might be needed. The Governor’s infrastructure upgrade, and habitat enhancement proposed $250 million “contingency” funding could projects generally take significant time to plan and be appropriate to address urgent needs, but a lesser implement. Taking steps to increase the state’s level or greater amount may end up being warranted of preparation for droughts is a worthwhile priority instead. Similarly, the proposed $65 million for for the state. immediate drought response activities could be …But Legislature Recently Made Significant justified, insufficient, or excessive, depending on Investments in Building Water Resilience. how conditions develop. While building drought resilience is an important Most Proposed Activities Address statewide priority, given its recent investments, Longer-Term Resilience to Drought, Not the Legislature does not need to approve the Near-Term Conditions. While the Governor has Governor’s proposals in order to make progress presented his $750 million package as being for towards this goal. With its recent budget decisions, drought response, most of the proposed activities the Legislature has already ensured that the state would not address conditions this summer and fall. has a significantly expanded focus on enhancing 6 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET water supply, addressing fish and wildlife needs, Questionable Whether Water Conservation Is responding to drinking water shortages and Most Effective Use of State Funding. The focus contamination, and managing lands for multiple on water conservation is the most notable distinction benefits. As discussed above, the current-year between the Governor’s proposed 2022-23 drought budget package committed $3.3 billion for such response package and the 2021-22 three-year activities in 2021-22, as well as an additional Drought and Water Resilience Package, which $880 million in 2022-23 (as reflected in the did not fund such activities. However, this does Governor’s proposed budget). This is in addition not necessarily indicate that water conservation to even more funding from the Climate Resilience represents a high-priority unmet need for state funding package, which includes 2022-23 funding funding, for several reasons. for CDFW to undertake similar activities as First, California already has significantly reduced those proposed in the Governor’s new proposal. urban water use across the state within the past We also note that local agencies have rate-payer decade, with statewide average residential water use funds available to use for local projects such as dropping by 14 percent from 108 gallons per capita infrastructure repair or water conservation initiatives per day (GPCD) in 2014 to 93 gallons GPCD in 2021. should they have projects ready to implement. (Over the longer term, average statewide residential Water Storage Component of Proposal Is GPCD water use decreased by 34 percent between Relatively Modest. As shown in Figure 2, the 1994 and 2019.) This raises questions about how Governor dedicates only $30 million from his new much more reduction in use might be reasonable— proposal for water storage projects. These funds and cost-effective—to expect. would be used for groundwater recharge projects Second, urban water use represents a relatively related to implementing local groundwater small share of overall applied water use in the state— management plans in accordance with SGMA. only around 20 percent, compared to 80 percent In the context of the changing hydrology described used in the agricultural sector. As such, the state above, this is not a particularly large level of might achieve more impact on its overall state water spending. As warmer temperatures contribute to a supply—in terms of demand reduction or increased lower snowpack and more prolonged dry stretches, supply—by targeting its efforts on the agricultural in the coming years the state likely will want to sector. Of the Governor’s proposed $200 million increase its ability to capture and store water that for water conservation activities, only $20 million is falls from episodic wet storms when they do occur. focused on improving agricultural water efficiency Managed aquifer recharge projects are among the (the SWEEP program). most promising emerging strategies to achieve Third, the Legislature has adopted policies to these goals. This approach involves developing help improve water conservation and better position both built and natural infrastructure such as local water agencies to withstand future dry periods, canals, flood bypasses, and designated recharge which the state is still in the process of implementing. basins—including farm fields—to direct runoff and Specifically, Chapters 14 (SB 606, Hertzberg) floodwaters onto land where it can percolate into and 15 (AB 1668, Friedman) of 2018 included the ground to be used later. In addition to potentially requirements that urban water agencies develop and restoring some existing groundwater deficits meet new water use efficiency objectives based on (and mitigating associated negative impacts) and their local conditions, and added new components to increasing the water supply upon which farmers and urban and agricultural water management planning residents can draw during dry periods, such projects activities. The legislation requires local agencies often have the co-benefit of reducing flood risk. As to meet their new water use objectives by 2027. such, increasing available groundwater storage and These policy changes—combined with the local opportunities to capture water runoff in managed ratepayer-supported funding that local agencies have aquifer recharge projects might merit additional to implement them—have established incentives investments beyond what the Governor proposes. for urban communities to continue increasing their water conservation efforts in the coming years, even without additional state funding. www.lao.ca.gov 7 2022-23 BUDGET Providing Additional Funding for Land Oversight of Current-Year Funding Repurposing Program May Be Premature. Implementation Will Be Important. The 2021-22 As shown in Figure 2, the Governor proposes budget package represents an exceptional level of providing an additional $40 million for the land one-time General Fund spending on a wide variety repurposing program that DOC initiated with of water-related activities. While the state has $50 million in the current year. The goals of this provided funding for many of the included activities program—to implement projects that reduce before, it largely has done so using voter-approved groundwater use, repurpose irrigated agricultural general obligation bonds. Such bonds generally land to less water-intensive uses, and provide include a significant level of statutorily required wildlife habitat—represent important state priorities accountability measures, such as public reporting in the context of groundwater overuse and water on when and how bond funds are spent, specific limitations. However, DOC still is in the process projects that are funded, and outcomes from those of designing this new program. The department projects. Comparable reporting requirements plans to solicit grant applications in April 2022 and were not included in the budget appropriations make grant awards in May. As such, key information for the General Fund-supported Drought and about existing demand for funding, the types of Water Resilience Package. Moreover, the projects seeking funding, and the outcomes of administration has significant discretion over how those projects is still unknown. While some of this to design and administer the new state programs information—such as about project applicants— funded for the first time in 2021-22, such as the will be available before the Legislature must water resilience projects and land repurposing make its final budget decisions, the timing still program. Given both the important state goal of will be premature for assessing the effectiveness increasing water resilience and the magnitude of the program at meeting its stated objectives. of these recent investments, taking steps to This makes it difficult for the Legislature to be ensure the Legislature can conduct sufficient able to evaluate whether providing an additional oversight of how the $4.6 billion is spent will be $40 million is a worthwhile and high-priority important to ensure funds are being implemented investment for 2022-23. in a way that effectively meets legislative goals. More Than Half of the Governor’s Such information could also inform how the Proposed Activities Are Excluded From State Legislature may want to prioritize and shape future Appropriations Limit (SAL). The California efforts—including in 2022-23. For instance, if Constitution imposes a limit on the amount of departments face challenges with administrative revenue the state can appropriate each year. capacity, the Legislature could consider whether The state can exclude certain spending—such additional staffing is warranted. If programs are as on capital outlay projects, as well as for oversubscribed, the Legislature could consider certain kinds of emergency spending (such as to providing additional funding in the budget year respond to a declared emergency)—from the SAL or a subsequent year. Alternatively, if programs calculation. The Department of Finance estimates remain in the early stages of implementation, are that of the $500 million in the Governor’s specified undersubscribed, or show other signs that program drought response proposals, $310 million—about modifications might be needed, then the Legislature 60 percent—is for activities that are excludable could take steps to address those issues. from the SAL. This includes $120 million for water projects in small and urban communities, $100 million for water conservation grants and projects in small and urban communities, and $40 million for DOC’s land repurposing program. 8 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET RECOMMENDATIONS Our overarching recommendation regarding the we recommend it modify the Governor’s proposals Governor’s $750 million drought response package to ensure it funds the mix of programs it deems to is that the Legislature’s funding approach should be be the highest priority and most cost-effective for guided by what it believes are the highest-priority, achieving its goals. For example, this could include most cost-effective efforts that do not currently less emphasis on funding for water conservation— have sufficient funding from the state’s recent given prior successful efforts to reduce use, water investments. the comparatively small share that urban and Revisit Need for Additional Funding for small communities represent of overall statewide Immediate Drought Response Later in Spring water use, and existing statutory requirements Budget Process. Given the uncertainty about how in place to make urban water use more efficient. the state’s hydrology and conditions will evolve, The Legislature could also consider a package we recommend the Legislature wait until the May that provides comparatively more funding for Revision to determine how much funding to allocate groundwater recharge and storage projects, for urgent drought response activities. This will given their potential to help increase water supply, allow the Legislature to better estimate how much address groundwater deficiencies, and improve funding truly is needed and which activities to flood control. The Legislature could also consider target. Ultimately, the appropriate amount could waiting to provide additional funding for DOC’s be more or less than the $65 million proposed for land repurposing program until it has at least specific immediate drought response activities and another year of information about program demand the $250 million set aside by the Governor. and outcomes. Consider Importance of Funding Additional Consider SAL Implications. In constructing its Water Resilience Activities This Year, Given final drought response package, we recommend Large Recent Investments. While improving the Legislature be mindful of SAL considerations. longer-term statewide drought resilience has For example, if the Legislature were to reject merit, we recommend the Legislature weigh this or approve a lower amount of spending on goal against its other 2022-23 budget priorities. the proposed water-related activities that the Given that state and local agencies are busy administration excludes from SAL, it would implementing activities supported by substantial generally need to repurpose the associated funding funding provided in the current year and already will for other SAL-related purposes, such as tax receive additional General Fund for water-related reductions or an alternative excluded expenditure. activities from the Drought and Water Resilience If the statewide drought emergency proclamation is and Climate Resilience packages in 2022-23 (as still in effect in 2022-23, certain response activities well as new federal funds), the need for additional could be exempt from the spending limit, although funding may be less pressing compared to associated appropriations would need to be addressing other state priorities in the budget approved with a two-thirds vote of the Legislature in year. We do not refute the importance of funding order to be considered SAL-excludable. additional longer-term water supply, storage, and Monitor Implementation of Water Funding. ecosystem resilience projects to improve the state’s We recommend the Legislature conduct both ability to weather future droughts. Rather, we near-term and ongoing oversight of how the suggest the Legislature carefully consider whether administration is implementing—and local grantees making added investments is essential this year. are utilizing—funding from the Drought and Water Modify Package to Reflect Legislature’s Resilience Package. In particular, we recommend Highest Priorities. To the extent allocating the Legislature track: (1) how the administration additional funding for improving water and drought is prioritizing funding within newly designed resilience is a priority for the Legislature in 2022-23, programs, (2) the time lines for making funding www.lao.ca.gov 9 2022-23 BUDGET allocations and completing projects, (3) the levels of helpful to employ given that they would provide demand and over- or under-subscription for specific differing levels of detail. These include requesting programs, (4) any barriers to implementation that that the administration report at spring budget departments or grantees encounter, and (5) the hearings, requesting reports through supplemental impacts and outcomes of funded projects. The reporting language, and adopting statutory Legislature has a number of different options for reporting requirements (such as those typically conducting such oversight, all of which could be included for general obligation bonds). 10 LEGISLATIVE ANALYST’S OFFICE 2022-23 BUDGET www.lao.ca.gov 11 2022-23 BUDGET LAO PUBLICATIONS This report was prepared by Rachel Ehlers and reviewed by Anthony Simbol. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, California 95814. 12 LEGISLATIVE ANALYST’S OFFICE