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Californians pass $7.5 billion water bond: Now what?

Dry cracked earth is visible on the banks of Shasta Lake at Bailey Cove Aug. 31, 2014 in Lakehead, California. As the severe drought in California continues for a third straight year, water levels in the State's lakes and reservoirs are reaching historic lows.
Justin Sullivan/Getty Images
Dry cracked earth is visible on the banks of Shasta Lake at Bailey Cove Aug. 31, 2014 in Lakehead, California. As the severe drought in California continues for a third straight year, water levels in the State's lakes and reservoirs are reaching historic lows.

Gov. Jerry Brown's water bond coasted to victory Tuesday night, winning more than two "yes" votes for every "no" to fund drought resiliency programs, such as adding water storage, cleaning up polluted groundwater and reusing and recycling water.

But passing a $7.5 billion water bond doesn’t just turn on a tap somewhere. The money won’t flow like all that water California wishes it had.

First, the state has to sell bonds to generate the cash.

Some Proposition 1 money already exists: There’s about $425 million in unsold bonds related to unspecified environmental issues. By passing the proposition, voters have just granted the state permission to use that money for drought resiliency, so now those old bonds will get sold. On top of that the state will get to sell $7.1 billion in new bonds.

It may take a decade to sell that whole pile.

Once bonds are sold, the cash goes into the state budget. The governor will start to factor that money into the state budget proposal, and it’s up to the legislature to approve it.

But the legislature doesn’t get to choose specific projects. Rather it allocates the money to various state agencies that will then figure out how the money is spent.

The biggest chunk of Prop 1 money, $2.7 billion, bypasses the legislature entirely. 

The proposition specifies money for so-called water storage projects like dams, reservoirs and groundwater will be under the control of the California Water Commission. The governor appointed 9 people to this commission.

But the commission can’t just go hog wild: that water storage money has some strings on it.

“This funding could only be used to cover costs related to the "public benefits” associated with water storage projects, including restoring habitats, improving water quality, reducing damage from floods, responding to emergencies, and improving recreation,” The Legislative Analyst’s Office explained in a report.

The legislature will send about $4 billion of the bond money to state agencies for oversight. Very likely, that means the money goes to the Department of Water Resources and the State Water Resources Control Board, for regional water reliability, water recycling, safe drinking water and groundwater cleanup. 

Those agencies will distribute money to cities, counties, and local agencies through grants. State agencies will write eligibility rules and application criteria.

Local applicants will have to demonstrate they can match whatever money they get from the state. They’ll also brush up their grant proposals to make the best case for getting money.  

Prop 1 sets aside about $500 million for various conservancies and rural water clean-up programs. In Southern California, those include the Baldwin Hills Conservancy, the Coachella Valley Mountains Conservancy, the Ocean Protection Council, the San Diego River Conservancy, the San Gabriel and Lower Los Angeles Rivers and Mountains Conservancy, and the Santa Monica Mountains Conservancy.

It’s not clear what the money will be used for, but it could go to buying more land for conservation or fixing a bike path. 

Also about $260 million will go to the State Water Pollution Control Revolving Fund Small Community Grant Fund, run by the State Water Resources Control Board.

According to language in the measure, the legislature can’t allocate funding to specific projects. There’s also language specifying that the money can’t be used for canals or tunnels, the kind proposed in the Bay Delta Conservation Plan.

But the legislature has, at least, some authority to set guidelines for funding. If anyone decides they’re using too heavy a hand in doing so, that discussion could get very interesting in 2015.

We’ll repay the bonds, once sold, over about 40 years. And by “we,” I mean you and me, taxpayers. Throughout the campaign, we saw projections that the state would take on about $360 million in interest on those bonds each year for about 40 years

That guess is based on some assumptions spelled out by the Legislative Analyst’s Office, like that the interest rate for the bonds would average around 5%, that the bonds would get sold over 10 years, and they’d be paid back over a 30 year period.

Payment on the interest and the principal will come from the General Fund – which is an account that pays for the core functions of state government like correctional facilities, schools, and public health.

So far, it’s hard to tell what kind of impact Proposition 1 would have on the rest of the General Fund. The LAO says in general the state’s average annual debt represents about a third of a percent of the General Fund’s annual budget.