The 2022-23 Budget: Municipal Stormwater and Urban Runoff Discharges Mandate

The 2022-23 Budget: Municipal Stormwater and Urban Runoff Discharges Mandate FEBRUARY 2022 Summary. The Governor’s budget proposal When the Legislature considers changes includes $18.4 million in one-time General Fund to the law, it can weigh the benefits of the to reimburse certain local governments in Los policy against potential fiscal liabilities that Angeles County for costs related to the Municipal might result if the legislation were to create a Stormwater and Urban Runoff Discharges mandate. state-reimbursable mandate. Although the state Specifically, the proposal would reimburse eligible ultimately is responsible for paying the costs local local governments for the costs they incurred agencies incurred complying with a reimbursable installing and maintaining trash receptacles at mandate while the commission was reviewing transit stops between 2002 and 2012 pursuant to associated claims, the Legislature can modify regulatory stormwater permit requirements that the or repeal the associated statute to adjust state Commission on State Mandates (commission) found fiscal liabilities moving forward. However, when to be a state-reimbursable mandate. The state a state-reimbursable mandate results not from has exhausted its legal options for challenging state law, but rather from an administratively this particular mandate decision. We therefore established regulation, the Legislature is limited recommend the Legislature approve the proposal in its ability to mitigate the state’s resulting and fund this mandate, consistent with state law. fiscal liabilities. Funding this mandate does not have out-year fiscal Federal and State Laws Require Local implications for the state. Governments to Limit Amount of Pollutants in Water Runoff. The State Water Resources Background Control Board (SWRCB), together with nine Constitution Requires the State to Reimburse Regional Water Quality Control Boards (RWQCBs), Local Governments for Mandated Activities. help to enforce state and federal laws governing State law tasks the commission with determining water quality across the state, including the whether new state laws or regulations affecting federal Clean Water Act. To comply with this local agencies create state-reimbursable mandates. act, the boards issue permits—including If the commission determines that a statute or stormwater discharge permits—to entities regulation contains a reimbursable mandate, such as cities, counties, and businesses that it develops an estimate of the statewide cost discharge pollutants into water bodies. Such of the mandated activity. Typically, the process pollutants include sewage, trash, and chemicals. for determining whether a law or regulation is a For municipalities, the act directs the water state-reimbursable mandate takes several years. boards—through the state’s delegated federal State law further requires our office to analyze any authority—to design stormwater discharge permits new mandates identified by the commission as that address their specific local conditions, and a part of our annual analysis of the state budget. to “require controls to reduce the discharge of In particular, state law directs our office to report on pollutants to the maximum extent practicable.” the annual state costs for new mandates and make To satisfy the federal Clean Water Act, local recommendations to the Legislature as to whether governments must comply with the specific permit a new mandate should be repealed (permanently requirements established by the water boards eliminating it or making it optional), suspended when operating their local storm sewer systems. (rendering it inoperative for one year), modified, or funded. 2022-23 Budget Series 1 Courts Have Found That Water Boards’ Commission Determined Portion of Permit Implementation Decisions Over Federal Requirements Created a State-Reimbursable Stormwater Laws Can Be State-Reimbursable Mandate for Some Local Governments. In 2003, Mandates. As noted, overarching regulatory Los Angeles County and several cities in the region requirements governing stormwater discharges filed test claims with the commission alleging are pursuant to the federal Clean Water Act, and that various sections of the 2001 Los Angeles the act directs states to design permits based on RWQCB stormwater discharge permit constituted local conditions to implement the law and reduce state-reimbursable mandates. In 2009, the pollutants. (In California, the water boards have commission determined that the permit requirement been delegated authority to design permits on to install and maintain trash receptacles at transit behalf of the state.) The California Constitution stops constituted a mandate because the federal does not require the state to reimburse local Clean Water Act does not explicitly require this governments for the costs of complying with specific action. (Other activities included in the test federal laws. Despite the general federal direction claims were not found to be state-reimbursable to the state water boards to reduce the discharge mandates by the commission.) The Department of of pollutants, however, courts have found that Finance and SWRCB unsuccessfully challenged specific permit conditions required by the boards this mandate decision through legal processes, but not explicitly stated in federal law can be arguing that the RWQCB’s permit requirements state-reimbursable mandates (Department of were implementing federal law. The commission Finance v. Commission on State Mandates, 2016). found that local governments could only claim Los Angeles RWQCB Required Some Local reimbursement for activities undertaken at transit Governments to Place Trash Receptacles at stops that were located in portions of the county Transit Stops. As part of its federal Clean Water that were not covered by a trash TMDL plan. Act implementation responsibilities, in 2001, the This limited the number of claimants within the Los Angeles RWQCB designed a stormwater Ballona Creek watershed and made some affected discharge permit requiring that—among other entities within the Los Angeles River watershed conditions—local governments within its jurisdiction ineligible to claim reimbursement after 2008 install and maintain trash receptacles at transit when that trash TMDL plan was implemented. stops beginning in 2002. This was intended to No claimants were eligible for reimbursement help limit the amount of trash left on the ground for activities associated with this mandate after that could ultimately flow into waterways. This 2012 when the Los Angeles RWQCB adopted its permit condition applied until 2012, when the Los subsequent permit. Angeles RWQCB designed and adopted a new Governor’s Proposal stormwater discharge permit and associated set of Funds Mandate Reimbursement Costs. The requirements. Only certain portions of the cities and Governor’s 2022-23 budget proposes $18.4 million county were subject to the 2001 trash receptacle in one-time General Fund to reimburse certain permit requirement, however, as some were instead local governments under the jurisdiction of the Los required to comply with a different regulatory plan Angeles RWQCB for costs related to the Municipal for keeping trash out of their stormwater runoff. Stormwater and Urban Runoff Discharges mandate. Specifically, beginning in 2002, certain portions of Specifically, the proposal would reimburse eligible Los Angeles County located in the Ballona Creek local governments for the costs they incurred watershed were subject to a trash “Total Maximum installing and maintaining trash receptacles at Daily Load” (TMDL) plan, which carried its own transit stops between 2002 and 2012 while the trash management requirements. Additional parts relevant stormwater discharge permit was in effect. of the county located in the Los Angeles River watershed became subject to a separate trash TMDL plan in 2008. 2022-23 Budget Series 2 LAO Comments state-reimbursable mandates, the Legislature may receive additional proposals to reimburse Actual Costs Could Be Lower. The actual state those costs in future budgets. No cost estimates costs associated with reimbursing approved claims currently are available for these pending test claims. for this mandate still are unknown. This uncertainty Ultimately, the state would have limited recourse exists because the State Controller’s Office when it comes to funding costs incurred by local (SCO) audits mandate reimbursement claims and, governments from activities the commission finds when appropriate, disallows claims it finds to be to be reimbursable mandates during the time the improper and/or reduces claims when it identifies mandate claims were under review. Additionally, offsetting local revenues that should be applied. should these mandate claims reflect ongoing costs, A subset of SCO’s audit reductions to Municipal the Legislature also would face challenges about Stormwater and Urban Runoff Discharges mandate how to constrain those costs. Because these claims still are being challenged or are within mandates would be the result of administratively the time frame when they could be challenged established regulations rather than a state law, by claimants through “incorrect reduction claim” adjusting ongoing costs would require modifications processes. The Governor’s proposed $18.4 million to permits issued by the water boards. Since 2016, for reimbursement claims represents the high when the court decision found implementation end of the range of potential costs estimated decisions over federal stormwater laws can be by the commission, and assumes pending state-reimbursable mandates, we understand SCO audit reductions ultimately are challenged that the water boards have been trying to design and disallowed. Should all of SCO’s remaining permits in a way that minimizes creation of future audit reductions remain unchallenged or upheld, state-reimbursable mandates while also continuing however, the commission estimates that state to enforce state and federal water quality laws. costs for reimbursing this mandate could be as low However, the degree to which the boards are able to as $8.8 million. strike such a balance still is uncertain. No Future Costs Anticipated for This Mandate. Unlike many other mandates, the Recommendation Municipal Stormwater and Urban Runoff Discharges Fund Mandate. We recommend the Legislature mandate no longer has associated ongoing costs. adopt the Governor’s proposal and provide This is because, as noted, the Los Angeles RWQCB $18.4 million General Fund for incurred costs adopted a new stormwater discharge permit in associated with the Municipal Stormwater and 2012, replacing the 2001 permit that required the Urban Runoff Discharges mandate. The state reimbursable activities. Moreover, SCO required has exhausted its legal options for challenging municipalities to submit all claims for activities this particular mandate decision. Therefore, associated with this mandate no later than 2015. reimbursing local governments for mandated As such, the state should not expect any future activities they undertook while the commission costs to materialize for this mandate beyond those was considering the test claims and the included in the Governor’s proposal. stormwater discharge permit requirement was Multiple Additional Stormwater-Related Test in effect is consistent with state law. Funding Claims Pending at the Commission. While not this mandate does not have out-year fiscal directly linked to this mandate, the commission has implications for the state. Should the final state 37 pending test claims related to other stormwater costs associated with reimbursing this mandate permits issued by the state water boards dating ultimately total less than $18.4 million—if SCO back to 2009. If the commission were to find that audit reductions remain unchallenged or upheld— some activities required by the permits constitute the excess funds would revert to the General Fund. 2022-23 Budget Series 3 LAO PUBLICATIONS This post was prepared by Rachel Ehlers and Lourdes Morales, and reviewed by Ginni Bella Navarre and Carolyn Chu. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. 2022-23 Budget Series 4