The 2024-25 Budget: Salton Sea Management Program

2024-25 BUDGET The 2024-25 Budget: Salton Sea Management Program GABRIEL PETEK | LEGISLATIVE ANALYST | FEBRUARY 2024 SUMMARY The Governor’s budget proposes $65.2 million from the General Fund in 2024-25 to support the Salton Sea Management Program (SSMP) and authority for 18 new positions phased in over two years. This includes $60 million on a one-time basis to initiate six capital projects. Beginning in 2026-27, the Governor proposes to support the 18 positions with the Salton Sea Lithium Fund, which is anticipated to receive revenue from a lithium extraction tax in the coming years. Weigh Trade-Offs of Funding the Governor’s Proposed Salton Sea Projects—Perhaps at a Partial Level—Against Other Budget Priorities. Because the state is experiencing a serious—and worsening— budget problem, the Legislature will need to be very selective about approving any new General Fund spending proposals. At the same time, addressing serious public health impacts from toxic dust and the deteriorating bird habitat at the Salton Sea remain important—and required—state responsibilities. Although the Governor’s proposed projects have merit, the Legislature will have to consider these relative to its other budget priorities. It could wait to see if other funding sources materialize in the next couple of years rather than providing $60 million from the General Fund this year. For example, lithium tax revenues could provide some funding for the program in the next few years (although the amount and timing remain fairly uncertain). The state also expects to receive $175 million in federal funding over the next two years—contingent on local water agencies reducing their use of Colorado River water—which could be used to support one of the larger proposed projects. If funding these activities is a top priority for the Legislature in 2024-25, we recommend it consider a couple of options: (1) providing a lower amount of funding to support fewer projects or (2) providing the full amount but to support a smaller number of projects all the way through completion rather than just for their initial stages (so the state does not start projects it does not have the funding to complete). Recommend Approving Two Components of the Proposal. First, we recommend approving approximately $700,000 in 2024-25 and $1.2 million in 2025-26 and ongoing for eight positions to maintain and operate existing projects that are complete or nearly complete. The state has already expended significant time and resources to plan, design, and construct these projects. This funding would preserve the value of those investments and help ensure the projects achieve their intended goals. These costs could potentially shift from the General Fund to the Salton Sea Lithium Fund in the future. Second, we recommend approving $3 million on a one-time basis for the state’s share of costs of a federally supported feasibility study to explore long-range restoration options at the Salton Sea. The state already entered into an agreement with the federal government to share costs. Moreover, depending on what the study finds, it could lead to significant federal project support in the future. Recommend Legislature Craft a Longer-Term Approach for How to Fund the State’s Ongoing Commitments at the Salton Sea. Addressing the state’s commitments at the Salton Sea will far exceed a one-time $60 million appropriation for projects. We suggest the Legislature consider some combination of the following approaches for crafting a longer-term funding plan, none of which is without trade-offs: (1) bond financing, which could support completion of all projects that are part of the first phase of restoration (but will require voter approval); (2) lithium tax revenues, which could support certain projects or activities (but for which the timing and amounts available still are uncertain); (3) annual General Fund built into SSMP’s baseline budget (which is complicated by the current state budget deficit); and (4) special funds, such as a dedicated amount from the Greenhouse Gas Reduction Fund (which also faces competing priorities). www.lao.ca.gov 1 2024-25 BUDGET BACKGROUND Overview of the Salton Sea Sea Provides Important Bird Habitat. Despite being a relatively new water body in History of the Salton Sea. The Salton Sea, geologic terms, the Sea has become an important located in Riverside and Imperial Counties, is habitat area for a large number of birds. As wetland California’s largest inland lake. It is a terminal lake habitat has been lost to development throughout with no outlet to the ocean. Over the past several California and northern Mexico, many bird thousand years, the Sea has intermittently both species have come to rely on the Sea for food, filled and dried up in this location. The modern rest, and nesting—particularly during their annual Sea was created in 1905 when a nearby irrigation migrations. More than 270 species of birds use canal carrying Colorado River water breached and the Sea on a regular basis, including many that water overflowed into the lake bed for nearly two state and/or federal law have identified as being years. In the subsequent years, agricultural runoff threatened or endangered. The Salton Sea National from farms in the Imperial Valley fed the Sea and Wildlife Refuge—now named for Sonny Bono— prevented it from fully drying up. However, over the was established in 1930 for waterfowl and other past several decades, changes in agricultural water migratory birds. Hundreds of thousands of birds use practices by nearby farmers have gradually use the Sea as a stopover point on their migrations diminished inflow into the Sea, causing it to slowly each year. shrink. Between the 1940s and 1960s, the Sea was a popular destination for tourism, fishing (the Changes Affecting the Salton Sea Sea was stocked with sport fish), and water sports. Several changes in recent times have affected However, due to episodes of flooding, fish die-offs, the size of the Sea, the quality of the water and and some of the other trends described in this habitat, the region around the Sea, and the way that report, tourism over recent decades has largely the Sea is managed. faded away. Many landowners lay claim to the Sea 2003 Colorado River Agreement Reduced and its surrounding areas, including the Torres Salton Sea Inflow. In 2003, the state, the Martinez Desert Cahuilla Indians, who have deep federal government, native tribes, and a number roots in the area. Other landowners include the of water districts in the region entered into a state, Riverside County, Imperial Irrigation District series of agreements to address longstanding (IID), Coachella Valley Water District (CVWD), issues regarding use of Colorado River water. the federal Bureau of Land Management, the These agreements are known collectively as federal Bureau of Reclamation (Reclamation), and the Quantification Settlement Agreement (QSA). private landowners. The QSA included an agreement to transfer up to Sea Is Extremely Saline. While the modern Sea 300,000 acre-feet of water annually (ramping up started off as a relatively fresh water body in 1905, over time) from IID—which uses Colorado River it is now more than twice as salty as the Pacific water for agricultural irrigation—to three other Ocean. This is partially due to the high salinity Southern California water districts (the San Diego of the agricultural runoff water that has been the County Water Authority [SCDWA], CVWD, and Sea’s primary source of replenishment for the past the Metropolitan Water District) for residential century. Additionally, because the Sea has no outlet uses. (An acre foot is the amount of water that to the ocean, water that enters the Sea can only would cover an acre of land at a depth of one depart through evaporation, leaving salts behind. foot.) By reducing the amount of water available The Sea therefore has and will continue to become for agricultural uses in the Imperial Valley, these increasingly saline over time. transfers have had the effect of decreasing the amount of water that runs off fields into the Sea. However, reductions in inflow thus far have been less than what was initially estimated. 2 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET Specifically, annual inflow to the Sea declined from dry out the established vegetation and wetlands about 1.2 million acre-feet in 2003 to about 1 million that exist along the edges of the Sea, degrading acre-feet in 2022 (whereas previous projections that habitat for birds as well as the fish—including had expected it to drop to between 700,000 and the endangered desert pupfish—and insects that 800,000 acre-feet by that time). Nevertheless, they eat. In addition, the changing Salton Sea has reductions are expected to progress and and will continue to have significant impacts for evaporation consistently outpaces inflows, meaning local residents (beyond the serious public health the Sea will continue to contract. impacts). These include repeated and sometimes 2002 SWRCB Order Delayed Impacts of Water significant fish die-offs and distasteful sulfurous Transfers Until 2017. Anticipating the potential odors when temperatures are high due to the effects of the QSA, the State Water Resources algae and nutrients in the Sea. These conditions Control Board (SWRCB) ordered delays in the pace have contributed to a decline in recreation and of water flow reductions. Specifically, the board tourism over the past several decades, which issued a water rights order in 2002 requiring that has correspondingly depressed home values for 15 years, IID had to continue to provide inflow and limited job opportunities and economic water to the Sea at levels sufficient to maintain the development. The unemployment rate for the region salinity levels that would have existed absent the is significantly higher than the statewide average. transfer. This was intended to provide the state time As the Sea shrinks, former lakeside houses and to develop a long-term plan to address the effects boat docks become stranded far from the water, of the QSA transfers. That requirement to provide further depressing their desirability, recreational mitigation flows expired at the end of 2017. utility, and resale value. Shrinking Salton Sea Has Significant Water Board Stipulated Order Requires Negative Impacts on Public Health, Wildlife, Implementation of 10-Year Management Plan. and Local Economy. The shrinking Salton Sea Despite 15 years to plan between the QSA in 2003 is exposing dry lakebed, referred to as “playa.” and the end of the temporary inflow to the Sea in The playa is covered in dust containing toxic December 2017, the state did not implement any elements like selenium and arsenic resulting from major management projects at the Salton Sea the agricultural runoff that has fed the Sea. When during that time. In 2007, the California Natural this dust becomes airborne due to the area’s high Resources Agency (CNRA) released a study of winds and arid climate, it increases the amount eight potential approaches to restoring the Sea, of fine particulate in the air, which in turn can and recommended a “preferred alternative” to the increase the risk of asthma, bronchitis, and other Legislature with a corresponding cost of $9 billion. lung diseases for the surrounding residents and Funding constraints—including those associated workers. The air quality around the Sea is already with the severe recession that followed—rendered poor, due to pollution from agricultural activities this plan infeasible. In 2014, frustration with the and the nearby city of Mexicali, Mexico, and the slow pace of management activities led IID to region consistently fails to meet federal air quality petition SWRCB to amend its original QSA-related standards designed to protect public health. water rights permit and require the state to begin A 2019 study led by researchers at the University implementing a management plan. This led to the of Southern California found that about 22 percent corresponding SWRCB action in 2017 described of children in the area suffer from asthma, which in the next paragraph. The state adopted—and is nearly three times the nationwide incidence. began funding—a plan for making significant The shrinking Sea also impairs wildlife habitats. progress on management activities in 2017. Specifically, as the Sea evaporates and salinity and Specifically, the state established SSMP—led by other toxic elements become more concentrated, CNRA in collaboration with the Department of conditions become increasingly inhospitable for Water Resources (DWR) and California Department the fish upon which migratory birds depend as of Fish and Wildlife (CDFW)—and published a a source of food. Moreover, a retreating Sea will Phase I: 10-Year Plan to guide state projects at www.lao.ca.gov 3 2024-25 BUDGET the Sea and address potential public health and As shown, both state and local agencies are environmental effects over the subsequent decade implementing activities to address the impacts of (we describe the SSMP and Phase 1: 10-Year Plan changing conditions at the Sea. Many of the local in more detail below). agency responsibilities result from mitigation and In response to the 2014 petition from IID, environmental permitting requirements associated SWRCB approved a stipulated water rights order with the QSA. in November 2017 that revised the conditions of State Bears Primary Financial Responsibility the permit approval that SWRCB granted for the and Plays Leadership Role. As required by the QSA. Specifically, the order requires the state to QSA, IID, CVWD, and SDCWA were responsible meet annual acreage goals included in the Phase 1: for contributing some funding to begin to mitigate 10-Year Plan. These annual goals specify the the effects of the water transfers, and the state number of acres on which the state must construct has committed to implementing and funding the habitat restoration and dust suppression projects. additional activities necessary to address public The order also requires that for each year, at least health and wildlife impacts. These commitments half of the project acres that the state constructs were codified through several pieces of legislation must provide habitat benefits for fish and wildlife; implementing the QSA, including Chapter 613 that is, no more than half of annual construction can of 2003 (SB 654, Machado), which specified be solely focused on dust suppression. Every year, environmental mitigation spending requirements for SWRCB holds a public meeting by March 31 to hear the QSA agencies. The legislation also stated that a progress report on the previous year, including “any future actions to restore the Salton Sea will updates on completed projects and the amount be the sole responsibility of the State of California.” of acreage completed, as well as plans for the Finally, the SWRCB stipulated order from 2017 coming year and funding availability. The order and subsequent MOU with the U.S. Department specifies that if the state fails to meet the specified of the Interior further solidify the state’s lead role acreage goals in a given year, it must “catch up” in mitigating deleterious impacts of a shrinking the following year and report to SWRCB on how Sea. These state responsibilities are focused on it will address the deficiency. In addition to the responding to public health and wildlife-related SWRCB order, implementation of the Phase 1: impacts. The state carries out this role through 10-Year Plan is supported by an agreement with the SSMP. (While statute requires the state to the federal government. Specifically, CNRA consider local economic impacts, it does not entered into a memorandum of understanding assign fiscal responsibility to the state to address (MOU) with the federal Department of the Interior any such effects that may result from a shrinking affirming that the state has the lead role in Salton Salton Sea. Addressing such concerns would fall Sea management efforts, and expressing mutual under the jurisdiction of local governments and intent to try to support achievement of the goals in community organizations.) the Phase 1: 10-Year Plan (such as by expediting Reclamation and U.S. Army Corps of Engineers permitting processes). (USACE) Involved at the Federal Level. At the federal level, the U.S. Department of the Interior— Management of the Salton Sea primarily through Reclamation—and USACE play key Management of the Sea involves many actors roles in supporting efforts at the Sea. at all levels of government, Native American tribes, • Reclamation Providing Funding and Other and nongovernmental organizations. Below, we Support to SSMP. Reclamation owns about describe the various players and focus in on the 81,000 acres at the Sea (the Bureau of Land state and federal roles. Management owns an additional 12,000 acres). Many Agencies Have a Role to Play at the Consequently, SSMP regularly collaborates with Salton Sea. Numerous agencies at all levels Reclamation on projects occurring on its land of government are involved in responding to (including securing land access agreements). conditions at the Salton Sea. The principal agencies In addition, Reclamation has provided some and their major roles are described in Figure 1. funding for projects at the Sea. 4 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET Figure 1 Agencies With Major Responsibilities at the Salton Sea Entity Role Local Imperial Irrigation District (IID) As a party to QSA, transfers up to 300,000 acre-feet per year of its water to SDCWA, CVWD, and Metropolitan Water District (MWD). Helps fund the mitigation projects required by the QSA permits and implements those projects for the QSA JPA. One of the largest landowners in the region. Delivers Colorado River water to irrigate farmland in the Imperial Valley near the Sea. Coachella Valley Water District As a party to QSA, receives up to 100,000 acre-feet of additional water per year from IID. Helps (CVWD) fund the mitigation projects required by the QSA permits and serves as legal counsel for the QSA JPA. Delivers water for irrigation and domestic uses in the Coachella Valley near the Sea. San Diego County Water As a party to QSA, receives up to 200,000 acre-feet of additional water per year from IID. Helps Authority (SDCWA) fund the mitigation projects required by the QSA permits and handles administration and finance for the QSA JPA. QSA JPA JPA including IID, SDCWA, CVWD, MWD, and the state Department of Fish and Wildlife. Administers funding for implementing the mitigation activities required by QSA permits. Salton Sea Authority JPA including IID, CVWD, the Torres Martinez Desert Cahuilla Indians, and Imperial and Riverside counties. Partners with other entities to develop projects to restore the Sea. State Natural Resources Agency Serves as lead agency overseeing and guiding state’s Salton Sea activities. Coordinates and negotiates with other local, state, and federal agencies. Department of Water Implements most of the state’s restoration projects at the Sea, including engineering and design, Resources contracting, construction, and operations and maintenance. State Water Resources Control Responsible for protecting water quality and water rights, including by: issuing permit for QSA Board water transfers, imposing certain permit conditions (such as provision of mitigation water for 15 years), and requiring that the state construct specified amounts of management projects at the Sea each year. Department of Fish and Wildlife Helps design Salton Sea habitat projects, will develop and implement wildlife monitoring program for constructed habitat. Issues regulatory permits for projects at the Sea as required by state law. Administers Salton Sea Restoration Fund. Tribal Torres Martinez Desert Largest private landowner of property around the Sea, including roughly half of the land under the Cahuilla Indians Sea. Partners with other agencies on restoration projects, including pilot wetland project on tribal land at north end of Sea. Federal Bureau of Reclamation Owns significant amount of land under and around the Sea. QSA = Quantification Settlement Agreement and JPA = Joint Powers Authority. • USACE Conducting National Environmental • USACE Also Conducting Feasibility Protection Act Review. USACE is the Study of Potential Long-Term Restoration lead agency for the required National Activities. USACE is leading a long-term Environmental Protection Act environmental feasibility study, the Imperial Streams assessment process for the Phase 1: 10-Year Salton Sea and Tributaries Feasibility Plan. USACE released the draft environmental Study, to explore potential long-term assessment in June 2022. In addition, USACE ecosystem restoration, flood management, works with SSMP to secure necessary federal or other land- and water-resource projects. permits for projects. DWR, the Salton Sea Authority, and USACE are sharing the costs of the study. www.lao.ca.gov 5 2024-25 BUDGET Expected to take three years, the study could creates habitat and is the state’s first large-scale lead to future federal financial support from project in the region. Three smaller dust USACE depending on its findings and the suppression projects nearing completion include viability of potential projects. approximately 1,700 acres. These efforts seed and plant native vegetation and use grass bales SSMP Progress to Date to protect the vegetation from wind-blown dust As required by the SWRCB order, SSMP and soil erosion. Three additional projects totaling currently is undertaking projects to reduce 1,022 acres are under construction or about exposed lakebed, create and enhance habitat and to start construction—a pilot project to create vegetation, and suppress dust. Although these fish habitat, a project to preserve and enhance often are discussed as “restoration” projects, they wetlands, and a project to restore several stranded will not restore the Sea to its original conditions. channels. In addition, SSMP has completed about Instead, these projects seek to decrease the 755 acres of interim dust suppression projects. potential harmful effects of the water transfers. Although SWRCB’s stipulated order requires the (As discussed later, the QSA also requires the state to meet annual acreage targets, SSMP has local water agencies to fund and carry out missed these targets during the first five years mitigation projects.) The order also required of the Phase 1: 10-Year Plan, as shown in the SSMP to develop a long-range plan for the Sea figure. By the end of 2023, the order required following Phase 1. SSMP to have completed a cumulative 11,500 acres, but thus far the state has completed fewer SSMP Behind in Meeting Acreage Targets. than 2,500 acres. As shown in Figure 2, to date, SSMP has about 7,600 acres of projects completed or under SSMP Is Planning Projects to Cover an construction (completed acreage totals less than Additional 8,165 Acres as Part of Phase 1. 2,500). One effort nearing completion is Species As discussed below related to the Governor’s Conservation Habitat (SCH), an approximately budget proposal, SSMP is in the final stages of 4,100-acre project located at the southern end planning, design, and permitting for handful of of the Sea that reduces exposed playa and additional projects (totaling about 8,165 acres) intended to be completed over the 2026 to 2028 time frame. Taken altogether, completed, Figure 2 in-progress, and planned projects total about Acreage Targets for Habitat and Dust 15,700 acres, which only gets the state Suppression Projects on Exposed Playa about halfway to the 2028 required target of 29,800 acres. SSMP has not yet formally identified Acres Actually Required Number Completed or Under additional projects that it might undertake to Year of Acres Annuallya Construction achieve the intended objective. 2018 500 — SSMP Released Draft Long-Range Plan 2019 1,300 — in 2022. As required by the SWRCB stipulated 2020 1,700 755 order, SSMP developed and released for public 2021 3,500 1,000-2,000 2022 1,750 290 comment a long-range plan in December 2022. 2023 2,750 5,400 This plan explores various restoration concepts 2024 2,700 — that could be implemented after 2028 (at 2025 3,400 — 2026 4,000 — completion of the Phase 1: 10-Year Plan), including 2027 4,000 — some that assume importation of water and some 2028 4,200 — that do not. Totals 29,800 ~7,600 a Acreage targets in the Salton Sea Management Program’s Phase 1: 10-Year Plan were formalized in the State Water Resources Control Board’s 2017 Stipulated Order. The Salton Sea Management Program must construct a cumulative 29,800 acres of projects by December 31, 2028. 6 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET Funding for Salton Sea reduction to original plans.) SSMP also receives Management Program some funding from local water agencies through the Salton Sea Restoration Fund (discussed in more Approximately $590 Million Has Been detail below). Lastly, the state has received federal Authorized for State Management Activities. funding from Reclamation—including, most notably, As shown in Figure 3, a total of nearly $590 million $70 million in December 2023 from the Inflation has been authorized for SSMP projects and Reduction Act specifically to expand the SCH project activities. Most of this funding—$347 million—has (the new project is called the SCH Expansion). This come from statewide voter-approved general federal funding is part of an agreement among obligation bonds, while another $101 million has Reclamation, the state, IID, and CVWD. The state’s been provided from the General Fund. (Recent receipt of funding was contingent on the two local state budgets had planned to provide a total of water districts making voluntary reductions in their $220 million in General Fund support from 2021-22 use of Colorado River water (as discussed below, through 2023-24, which was then partially scaled additional funding may be provided through 2026, back in response the 2023-24 budget problem. contingent on additional voluntary reductions). Specifically, in the 2023 May Revision the Governor Reclamation also provided $2 million directly to the proposed reducing planned funding for the Salton Torres Martinez Desert Cahuilla Indians to support its Sea by $169 million to help solve the budget deficit. work on Salton Sea activities. The Legislature modified the Governor’s proposal and the final budget resulted in a $119 million Figure 3 Funding for the Salton Sea Management Program As of September 20, 2023 (In Millions) Source Authorized Unspent Use State $448.0 $2.1 Proposition 12 (2000) $4.8a — Species Conservation Habitat (SCH) project construction. Proposition 50 (2002) 32.9a $0.1 Environmental Impact Report and related studies and planning activities; SCH project construction. Proposition 84 (2006) 44.2a 2.0 SCH project planning and design, support for projects (Red Hill Bay, Seawater Marine Habitat Pilot, and Torres-Martinez Wetlands), and staffing and planning activities. Proposition 1 (2014) 80.0a — Staffing and project design and SCH project construction. Proposition 68 (2018) 185.0a — SCH project construction, habitat and dust suppression projects, North Lake Demonstration Project, and staffing. Revive the Salton Sea Fund (tax 0.2 — Restoration projects and/or maintenance and public awareness and check-off box from 2017-2019) education programs. General Fund 101.0 — SCH project construction, vegetation enhancement projects, project design, and staffing. Federal $71.8 — Bureau of Reclamation $1.8 — State planning activities and implementation of dust suppression projects. Bureau of Reclamation 70.0 — Construction and project management of initial SCH Expansion project. Local $68.5 — Salton Sea Restoration Fund $68.5 —b CDFW staffing, wildlife surveys, monitoring, CEQA review, and permit issuance. Totals $588.2c $2.1 a Authorized bond funds do not include state debt service costs for interest. b $68.5 million is the total amount that IID, CVWD, and SDCWA will provide by 2047 (through annual payments of approximately $1.58 million). c Does not include annual General Fund allocations of $425,000 and annual reimbursements from DWR of $316,000 to support positions at CNRA and CDFW. CDFW = California Department of Fish and Wildlife; CEQA = California Environmental Quality Act; IID = Imperial Irrigation District; CVWD = Coachella Valley Water District; SDCWA = San Diego County Water Authority; DWR = Department of Water Resources; and CNRA = California Natural Resources Agency. www.lao.ca.gov 7 2024-25 BUDGET Nearly All Existing SSMP Funds Have USACE Study Could Lead to Future Federal Been Spent or Committed. The administration Funding if It Identifies Long-Term Restoration indicates that nearly all authorized funding for Options. The goal of the feasibility study being SSMP displayed in the figure has been spent or led by USACE is to identify projects for long-term committed. This means that new, additional funding ecosystem restoration at the Salton Sea. The draft will be required for SSMP to conduct maintenance feasibility report is expected in June of 2024 and activities on recently completed projects and will be finalized in 2025. Should viable projects for to pursue planning, design, and construction of long-term ecosystem improvements be identified additional projects. in the study and subsequently approved by USACE New Lithium Extraction Tax Expected to (and funded by Congress), the state could receive Provide Revenues for SSMP. A new source of up to 65 percent of associated project costs from funding that is expected to become available to the federal government. support SSMP projects in the coming years results Local Agencies Also Have Contributed from a recently approved tax on lithium extraction. Funding for Non-State Salton Sea Projects The Salton Sea region is rich in geothermal Pursuant to QSA Requirements. In addition resources and currently is home to a number of to the SSMP projects supported by the funds facilities that produce and sell geothermal energy. displayed in Figure 3, local entities also have Businesses that own or plan to build such facilities funded and managed certain projects at the Sea. have been developing methods to extract lithium Specifically, the QSA required the local water from the brine. Chapter 63 of 2022 (SB 125, agencies that were involved in that agreement— Committee on Budget and Fiscal Review) levied a IID, CVWD, and SDCWA—to provide funding up new state excise tax on this lithium extraction as to a cap of $133 million (in 2003 dollars) and carry of January 2023. The tax rate ranges from $400 to out a variety of mitigation projects and activities. $800 per metric ton of lithium carbonate equivalent These agencies, along with CDFW, formed the QSA that a producer extracts, adjusted annually for Joint Powers Authority (JPA) to help organize these inflation. A total of 80 percent of the revenue efforts. Because the QSA JPA agencies have made from this tax will go to the counties where lithium their expenditures over a period of many years, extraction occurs, while the other 20 percent will the total funding obligation has been adjusted for go to the new Salton Sea Lithium Fund to support inflation and accrued interest. By June 30, 2024, restoration projects and grants for community the JPA estimates it will have received cumulative engagement, public amenity, capital improvement, contributions of $262 million from its members and or community-benefit projects in the area. made cumulative expenditures of $193 million. In However, no lithium extraction activities have yet addition to these local projects, the QSA required begun in the region, and as such, no tax revenue the JPA to provide $30 million (in 2003 dollars) has yet been generated to support the SSMP or as seed money for state-led restoration projects. local communities. As this funding is collected, it is deposited into the Reclamation Committed to Provide Salton Sea Restoration Fund, which is administered $175 Million More in Federal Funding if Local by CDFW. Adjusted for inflation, this equates to Agencies Meet Water Reduction Conditions. $68.5 million in total. This funding is included in In addition to the $70 million Reclamation has Figure 3. The state collects annual payments from already provided to support SSMP projects, the the JPA of about $1.6 million to meet this obligation state is eligible to receive an additional $175 million and will continue to do so through 2047. more through 2026. However, the remaining Future Costs and Funding Sources Remain funds are contingent on additional voluntary Uncertain. The state still lacks clarity about how reductions of Colorado River water use by IID projects will unfold at the Salton Sea in the coming and CVWD. Funding must be used to support the years—and how they will be supported. SSMP SCH Expansion project, which will restore up to plans to continue evaluating potential projects and 5,000 acres of playa upon completion. environmental conditions at the Sea, particularly 8 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET as certain milestones are reached—such as Governor’s Budget Proposal completion of the first large-scale project (the The Governor’s budget proposes $65.2 million SCH project), the USACE National Environmental from the General Fund in 2024-25, $3.3 million Protection Act final environmental assessment, from the General Fund in 2025-26, and $3.3 million the USACE feasibility study, and the Phase 1: from the Salton Sea Lithium Fund in 2026-27 10-Year Plan. The state still has a long way to go and ongoing for Salton Sea restoration projects on the Phase 1: 10-Year Plan. While SSMP remains and SSMP staffing. We describe the individual undecided about which additional projects the state components of the proposal below. will pursue to reach the 2028 acreage targets and Proposes $60 Million on a One-Time Basis what activities will follow this first phase, significant to Initiate Six Projects. As shown in Figure 4, uncertainty also exists about how to fund such the Governor proposes $60 million one time from projects. Moreover, how SSMP will support ongoing the General Fund to begin work on six projects, operations and maintenance of projects after including the SCH Expansion project. Depending on their initial construction is completed is unclear. the project, activities conducted in 2024-25 would Also uncertain is the amount of revenue that will be include planning, design, and/or permitting. For one generated by the lithium extraction tax and when small project, funding would support design and those revenues will be available for SSMP projects. construction. The administration currently Apart from anticipated lithium tax revenues, no estimates the total combined cost for these ongoing state funding is dedicated for SSMP projects at between $376 million and $453 million. projects or maintenance and operations. Once completed, these projects would provide up to 8,165 acres of wetlands, dust suppression, vegetation enhancement, and aquatic habitat. Figure 4 Governor Proposes $60 Million in 2024-25 to Initiate Six Salton Sea Projects (Dollars in Millions) Estimated Proposed Completion Acres at Project Purpose Stage Funding Total Cost Date Completion Wister Bird Unit Wetland restoration Site preparation and $0.5 $0.5-$0.6 2026 160 Marsh Bird Habitat project construction IID Clubhouse Dust suppression, Design and 7.0 7.0-8.4 2026 210 Enhancement vegetation permitting enhancement SCH Vegetation Wetland restoration, Planning and 11.5 11.5-13.4 2027 535 Enhancement dust suppression, permitting vegetation enhancement San Felipe Fan Dust suppression, Design 30.0 27.0-35.0 2027 660 vegetation enhancement North Lake Aquatic habitat Planning 3.0 80.0-96.0 2027 1,600 restoration SCH Expansion Aquatic habitat Design 8.0 250.0-300.0a 2028 Up to 5,000 restoration Totals $60.0 $376.0-$453.0 Up to 8,165 a The Salton Sea Management Program received $70 million from the federal Bureau of Reclamation in 2023 and has the potential to receive an additional $175 million contingent on Colorado River conservation agreements. IID = Imperial Irrigation District and SCH = Species Conservation Habitat project. www.lao.ca.gov 9 2024-25 BUDGET Requests New Ongoing Funding and The breakdown of funding, positions, and Positions at DWR, CDFW, and CNRA. purposes across DWR, CDFW, and CNRA are The Governor’s budget also requests 18 new shown in Figure 5. positions phased in over two years (9 beginning Proposes $3.6 Million One Time for State in 2024-25 and another 9 in 2025-26) along with Cost Share of USACE Study and for Technical $1.6 million from the General Fund in 2024-25, Contract. The Governor proposes to provide $3.3 million from the General Fund in 2025-26, $3 million from the General Fund in 2024-25 for the and $3.3 million from the Salton Sea Lithium Fund state’s current required payment to support the in 2026-27 and ongoing. (The proposal assumes USACE Imperial Streams Salton Sea and Tributaries lithium development will begin generating tax Feasibility Study pursuant to an agreement the state revenue sufficient to support these positions in the made with the federal government regarding this out-years.) These positions would be responsible work. In addition, the budget proposes $600,000 for a variety of activities, including maintenance and on a one-time basis from the General Fund to operations of completed projects (including upkeep contract with a company to provide technical of both infrastructure and habitat), data collection, support for project planning, environmental and real estate support, environmental science, regulatory compliance, and initial project design. and management and administrative functions. Figure 5 Governor Proposes Ongoing Funding and Positions for Salton Sea Management Program (Dollars in Thousands)a 2024-25 2025-26 and Ongoing Funding Positions Funding Positions Purpose DWR $719 5 $1,395 9 Four positions for infrastructure-related maintenance and operations of completed projects. Four positions for data collection, administrative, and real estate support. CDFW 718b 3 1,715c 8 Four positions for habitat-related maintenance and operations of completed projects. Four positions for environmental science, legal, management, and administrative functions. CNRA 185 1 185 1 One position for outreach/engagement and grants preparation. Totals $1,622 9 $3,295 18 a Governor proposes to fund positions with General Fund in 2024-25 and 2025-26 and with the Salton Sea Lithium Fund in 2026-27 and thereafter. b Includes $18,000 one time for equipment. c Includes $40,000 one time for equipment and information technology. DWR = Department of Water Resources; CDFW = California Department of Fish and Wildlife; and CNRA = California Natural Resources Agency. 10 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET ASSESSMENT Below, we discuss the Governor’s Salton have primary financial responsibility for mitigating Sea proposals in the context of the worsening the impact of a declining Sea on the local economy, budget situation and offer some questions for the it also has an interest in supporting the well-being Legislature to consider as it weighs decisions to of residents and businesses in the region. balance the budget. …Yet Administration Has Sent Mixed General Fund Condition Requires Tough Messages on Funding Urgency. The Governor’s Choices and a Higher Bar for Approving May 2023 proposal to reduce $169 million from New Spending. The Governor’s Salton Sea previously committed and planned General proposals would commit the state to General Fund for Salton Sea projects signaled to the Fund expenditures of $65.2 million in 2024-25 Legislature that funding was not urgently needed and $3.3 million in 2025-26. Importantly, the to accomplish state goals in the region. (As noted current deficit means that General Fund revenues earlier, the Legislature modified this proposal in already are insufficient to fund existing baseline the final budget action to include a smaller yet commitments. In this context, every dollar of still significant reduction of $119 million.) Now— new spending in the budget year comes at the as the state budget condition has gotten even expense of a previously identified priority and worse—the administration proposes to partially requires finding a commensurate level of solution reverse this action by providing $65 million in somewhere within the budget. The Governor new resources. These mixed messages from the “makes room” for proposed new spending on administration make it difficult for the Legislature Salton Sea projects and staffing by making to gauge the true urgency of providing funding reductions to funds committed for other programs, this year. The administration has not provided a including many in the climate and natural resources compelling explanation for the turnaround between areas. However, our office estimates that the its contention that the SSMP could accommodate administration’s revenue projections are overly such a significant reduction in funding last year and optimistic and the budget deficit likely will exceed now, less than a year later, its argument that a new the level of solutions included in the Governor’s augmentation is critical. proposal, requiring the Legislature and Governor to Proposal Raises Several Key Questions for identify additional actions to balance the budget. Legislative Consideration. The proposed request Given the serious budget challenges this year, for $60 million to initiate six Salton Sea projects we suggest the Legislature apply a high bar to raises a number of questions the Legislature might its review of new spending proposals, be very wish to consider as it weighs this request against its selective in approving any of them, and recognize other budget priorities. that they will require finding additional General Fund • Is SSMP on Track to Meet Annual Acreage solutions from existing commitments. Targets, Even if It Receives Requested Maintaining Progress Toward Acreage Funding? The program and associated Goals Represents State Responsibility and Is projects were very slow to get started—the Important to Avoid Serious Public Health and QSA was signed in 2003 and the first projects Environmental Risks… Mitigating the deleterious were completed about 20 years later. Since public health impacts of toxic dust and the the SWRCB stipulated order was issued in environmental implications of deteriorating bird 2017, SSMP has missed required annual habitat at the Salton Sea remain important—and acreage targets in each of the first five years. required—state responsibilities. The SWRCB Although the program has some momentum stipulated order requires at least 29,800 acres of currently—nearing completion on its first projects be completed by the end of 2028, just large-scale project and with numerous under five years from now. While the state does not projects underway or in planning—what will www.lao.ca.gov 11 2024-25 BUDGET happen after these existing projects are unable to continue supporting to completion. complete still is unclear. In previous years, The Governor’s proposal represents a larger the program had plenty of funding yet still multiyear commitment that might be fiscally made slow progress—that is, money-on-hand unfeasible to sustain in the future without does not appear to have been the key barrier taking other measures, such as reducing or enabler to project success. For example, funding for core ongoing programs to free finalizing land access agreements with the up General Fund or asking voters to approve various landowners around the Sea can be a bond measure. As such, the Governor’s challenging. The administration seemingly approach runs the risk of spending funds to resolved—at least temporarily—some of start projects, but having to stop the work the difficult issues that create significant before they are complete without achieving project delays (land access issues, permitting the actual objectives. with a variety of federal and state entities, State Cost Share on Feasibility Study Could and uncertainties about the changing Help Secure Future Federal Funding. In 2022, the environment)—to make recent progress state entered into a cost-sharing agreement with on the SCH project and several smaller the federal government for the USACE feasibility projects. However, has the administration study and $3 million is needed for the current been able to resolve or make headway on required state payment (the total state cost share those issues more generally for upcoming and is $8 million; the state already paid $1.5 million future projects? What assurances does the and will be required to pay another $3.5 million in Legislature have that if it gives precedence to the future). Depending on what the study finds, it providing this funding for the SSMP over other could lead to federal project support in the future. state priorities, the program can spend the Spending a relatively modest amount of state requested funds promptly and complete the funding for the chance to undertake long-term specified activities? restoration with federal support seems a compelling • Is the Full $60 Million Truly Needed This justification for this proposed expenditure, despite Year? Although the requested $60 million the General Fund condition. would be spread across six projects and Supporting Maintenance and Operations of support various planning, design, permitting— Completed Projects Would Preserve State’s and in one case construction—activities, why Investments and Objectives... As shown in this specific amount of funding is required Figure 5, the Governor proposes a total of 18 new this year is unclear. What specifically does the positions for the state’s work at the Salton Sea. program plan to accomplish in 2024-25 and Of these, eight new positions—four at DWR and is the full $60 million needed immediately? four at CDFW—would be to maintain and operate What are the potential trade-offs and (1) the SCH project as it reaches completion and implications of providing a lesser amount? (2) three vegetation enhancement projects that • What Is the Longer-Term Plan for are nearing completion. (Five positions would be Completing the Proposed Projects? authorized starting in 2024-25 and an additional The proposed funding would support the three beginning in 2025-26.) These positions initial stages of five projects as well as design have an associated General Fund cost of about and construction of one small project. Yet the $700,000 in 2024-25 growing to about $1.2 million administration has not provided information in 2025-26 and ongoing. (The proposal plans to regarding how subsequent phases of these six shift support for these positions to the Salton Sea projects would be funded. Given the expected Lithium Fund beginning in 2026-27.) The state has General Fund condition over the next several already expended significant time and resources years, the Legislature will want to consider to plan, design, and construct these projects. the wisdom of providing funding in 2024-25 As such, a strong rationale exists for providing a to begin projects that the state might be modest amount of ongoing funding to preserve 12 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET the value of those investments and ensure that the Second, lithium tax revenues provide another projects achieve their intended goals. Ongoing possible source of funding for Salton Sea projects. maintenance and operations activities would The administration estimates the lithium tax could include upkeep of the infrastructure associated generate about $9 million for SSMP in 2026-27 and with these projects (for example, utility equipment up to $35 million by 2028-29. The Legislature could such as backhoes, trucks, and dozers; radial defer supporting some of the proposed funding gates; weirs; levees; pipelines; and aqueducts) as for positions and projects until lithium revenues well preservation of habitats (for example, invasive become available. While such steps could help the species control, cleaning drainages, maintaining General Fund now, a clear trade-off of waiting to equipment, and conducting surveys). see if other funding sources materialize is delaying …But Urgent Need for Other Positions Less project initiation. Postponing progress on the Clear. The remaining ten positions proposed by the proposed projects could in turn lead to delays Governor would no doubt be helpful in supporting in meeting SWRCB’s acreage targets and, more state activities at the Salton Sea. For example, importantly, in mitigating the negative impacts of a proposed new staff would provide legal support, shrinking Sea. including on land access agreements; conduct Meeting the State’s Ongoing Responsibilities outreach and engagement activities in local at the Salton Sea Will Require Longer-Term communities; provide environmental science Funding Commitment. The Governor’s 2024-25 expertise, including data collection and species proposals represent just one set of projects needed surveys; provide administrative support; and for the state to meet its 2028 restoration target at manage budgets. However, in the context of the the Salton Sea. Given the significant public health General Fund condition and resulting trade-offs, and environmental risks at the Sea, as well as the we are not certain whether these positions state’s legal responsibilities, the Legislature will are absolutely vital to begin conducting these need to grapple with how to fund these particular activities immediately. The Legislature could projects, additional (and as-yet undetermined) consider waiting to fund these positions until other activities to meet Phase 1: 10-Year Plan acreage revenue sources—such as lithium tax revenues— goals, and future projects in subsequent phases become available. as the Sea continues to shrink. If the state cannot Delaying Some Activities Could Provide afford to support these costs on a pay-as-you-go Opportunity to Use Other Funding Sources. basis with General Fund, it could consider using A couple of other funding sources could become general obligation bond financing (which is also available to support some of the Governor’s paid for with General Fund, but over a longer proposed activities in the next few years. As such, period). While that comes with the cost of debt the Legislature may want to consider waiting to service (including additional costs for paying see if such funds materialize in lieu of providing interest on the debt), the annual cost is lower than General Fund for these activities now. First, part paying up front. Another consideration is the timing of the current request—$8 million—is for the SCH of when the funds would be available to support Expansion project. The administration indicates projects. Even if the Legislature were to pursue a this funding is intended to serve as a bridge until bond containing funding for Salton Sea projects, additional federal funds are received. However, it would have to wait for a statewide election, the the administration already received $70 million proposal would have to be approved by voters, and in December 2023 from Reclamation for this the resulting funds would not be available until after project and anticipates an additional $175 million the election. (As such, bond funds could not be in federal funds may be forthcoming. Moreover, available at the beginning of the 2024-25 fiscal year Reclamation does not require a state cost share to to implement the Governor’s proposals.) In addition, draw down these federal funds. Consequently, the all projects will require ongoing maintenance Legislature could consider waiting for additional activities to preserve their intended functions federal funding for the SCH Expansion project once construction is complete. While bond funds activities rather than providing General Fund now. can be helpful to support capital construction, www.lao.ca.gov 13 2024-25 BUDGET they are not an ongoing solution for maintenance Salton Sea projects. (While these projects would and operations costs. Lithium tax revenues may not directly reduce greenhouse gas emissions, provide a source of funding upon which the state they would reduce air pollution in the region and can depend in the future—however, the degree provide benefits to a largely socioeconomically to which those will materialize (and when) still is disadvantaged population, which could make uncertain. The Legislature also could consider the GGRF an appropriate fund source to consider. use of other special funds, such as, for example, The trade-off of this approach would be less GGRF the Greenhouse Gas Reduction Fund (GGRF), for available for other activities.) RECOMMENDATIONS Approve Request That Could Lead to Federal the Governor proposes in 2024-25 would mean Funding. We recommend that the Legislature having to find additional budget solutions. Given approve $3 million for the state’s share of cost for the worsening budget condition, this could mean the USACE feasibility study, as the state already cutting into core ongoing programs. As such, we committed to providing these funds and this recommend the Legislature carefully consider how relatively modest state investment could yield these activities rank alongside its other General potentially significant future federal funds to help Fund priorities. If supporting Salton Sea projects meet the state’s goals. and staffing are important 2024-25 priorities for the Approve Positions for Maintenance and Legislature even in constrained budget conditions, Operations of Completed Projects. We it has a couple of options for how it could proceed if recommend the Legislature approve funding and it wanted to modify the Governor’s proposal. positions to support the ongoing maintenance First, it could consider providing a lower amount and operations of projects the state has nearly of funding to support fewer projects and/or fewer completed at the Salton Sea, including the staff. This could allow the state to continue to make large-scale SCH project. This staffing would some progress on its goals at the Sea albeit at a protect the state’s previous investments in these slower pace. The Legislature could use one or more projects and help ensure the projects achieve criteria to guide its decisions about which projects intended goals. Specifically, we recommend to support. For example: Which projects would approving (1) approximately $700,000 and five be the most straightforward to complete (such as ongoing positions (four at DWR and one at CDFW) because they lack complex land access issues or beginning in 2024-25 and (2) a total of $1.2 million would require fewer permitting hurdles)? Which and three additional positions (at CDFW) beginning would mitigate the public health impacts of toxic in 2025-26 and on an ongoing basis. Once the dust most effectively? Which would result in the Salton Sea Lithium Fund contains sufficient most restoration acres completed? Which might resources to support these costs in the coming leverage federal support? Which staff activities are years, the Legislature can shift them off of most essential to conduct in the near term? General Fund support. Second, the Legislature could consider providing Weigh Trade-Offs of Funding the Governor’s the full amount requested, but to support fewer Other Proposals—Perhaps at a Partial Level— projects all the way through completion. This would Against Other Budget Priorities. We find that address the concern that funding constraints the proposed SSMP projects have merit and might stall progress on the subsequent activities remain important for addressing public health and needed to finish the projects. For example, rather environmental risks at the Salton Sea. Similarly, than funding the initial stages of all six projects the other ten positions the Governor requests displayed in Figure 4, the Legislature could instead could help pursue the state’s goals in the region. provide $60 million to support the full project However, providing the full amount of General Fund implementation costs for four of the six projects: 14 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET San Felipe Fan ($35 million), SCH Vegetation and, left unmitigated, conditions at the Sea pose Enhancement ($13.4 million), IID Clubhouse serious health and environmental risks. However, Expansion ($8.4 million), and Wister Bird Unit Marsh addressing this commitment far exceeds a one-time Bird Habitat Project ($600,000). $60 million appropriation. We recommend the Exercise Caution in Initiating Projects Legislature consider some combination of the Without Plan for Next Steps. The Governor’s following approaches for crafting a longer-term proposed approach of starting six projects funding plan at the Sea: without having identified a funding plan for their • Bond Financing. The Legislature could completion raises concerns. To avoid that outcome, ask voters to approve a general obligation we recommend the Legislature either ask the bond containing funding to complete all administration to come back in May with a funding Phase 1 projects. plan to complete the six projects or consider one • Lithium Tax Revenues. Once more is known of several options itself in light of these out-year about the new lithium extraction industry in uncertainties. For example, it could consider the region, the Legislature could develop a scaling down the proposal and only funding a select multiyear plan to support certain projects number of projects but supporting them through and/or activities based on the amount of their completion, as described above. As an revenues expected to be available each year. alternative, it could plan for a bond or build General • General Fund. The Legislature could Fund into its multiyear spending plan (as discussed identify a certain amount of annual funding next). Another option would be waiting until SSMP to dedicate to meeting its obligations at the has more certainty about potential future federal Sea and build it into its baseline multiyear funds and lithium tax revenues before initiating new budget plans. This could include support for projects. Whatever level of projects the Legislature both operations and maintenance as well as chooses to support, we suggest it only do so if modest annual allotments to make progress a plan is in place for how to fund these projects on capital projects. through completion to avoid stranded assets and • Special Funds. The Legislature could explore wasted expenditures. dedicating a certain amount from GGRF or Consider How to Fund the State’s other appropriate special funds for Salton Sea Longer-Term Commitment at the Salton Sea. projects and activities. Salton Sea management is a state responsibility www.lao.ca.gov 15 2024-25 BUDGET LAO PUBLICATIONS This report was prepared by Sonja Petek and reviewed by Rachel Ehlers. 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. 16 LEGISLATIVE ANALYST’S OFFICE