$110-Million Windfall for Agencies Seen in Passage of Water Bond Measure : Prop. 148: An interest rate subsidy that avoided deletion in the Legislature would benefit smaller operations while putting added costs on taxpayers, state officials say.

Public and private water agencies would reap a $110-million bonanza in interest rate subsidies under Proposition 148, a $380-million water bond issue, state officials say.

Ostensibly, the $380 million provided by the ballot initiative is intended to modernize water systems and help them meet new, tougher environmental standards.

But Proposition 148 also would cut interest rates in half for water agencies that qualified for state loans under a 1976 clean water bond act. Taxpayers, in turn, would have to pick up the $110 million in additional costs to the state.

Loan subsidies themselves are not new, but this measure makes them retroactive to a 14-year-old bond act, and state officials say that may be unprecedented. Mention of the costly benefit is buried deep within the analysis of Proposition 148 in a supplemental ballot pamphlet issued by the secretary of state’s office. The official summary of the bond measure does not mention the interest subsidy as a taxpayer cost.

Supporters argue that it is not unusual to subsidize so vital an effort and that water agencies need all the help they can get to bring their systems up to tough, new standards. But the measure’s zigzag course through the state Capitol and the speed with which lawmakers acted on it caught some officials by surprise.

“We thought it was going to be taken out . . . but it wasn’t,” John L. Vickerman, chief deputy legislative analyst, said of the interest subsidy.

During the measure’s last legislative committee hearing, the Senate Appropriations Committee, citing the cost of the subsidy, voted 7 to 0 to delete the provision from a clean water bond bill that later became part of Proposition 148. But it was never deleted.

Normally, bills are supposed to be read three times when they reach the Senate floor, in part to ensure that mistakes can be caught and legislators and staffers have time to review and analyze bills.

But on Aug. 16, just a day after the Appropriations Committee approved the bill, it was given a second reading, a third reading and then a final vote--all on the same day.

Just why there was the rush to pass the bill that day still is not clear, for the legislation then languished on the floor of the Senate until Sept. 1, when it got final approval on the last day of the session.

In addition to the loans to small water agencies, Proposition 148 would provide $25 million for construction of water storage facilities, $90 million for flood-control projects and $154 million in a variety of loans for water agencies for such things as drought assistance and water reclamation projects as well as a variety of other projects.

Basically, the argument in support of the retroactive interest rate subsidies is that they would give small water agencies the same break that other agencies started receiving beginning with a water bond measure passed in 1986. Supporters of the retroactive subsidies also argue that the costs would be spread out over 15 to 25 years.

But Vickerman argues: “No matter how you put it, it’s going to shift about $110 million in costs from water agencies to the state. That is money we have not factored into the budget picture, money that we will have to come up with in addition to everything else.”

These days, it is widely acknowledged that because the state is so hard pressed for money, just about any new demand means some other state services will have to be cut.

But Lucinda Chippineri, an official with the Department of Water Resources, said the agencies to be helped through the loan program are small operations that have trouble financing loans through commercial banks. “Some are paying rates of 5% and 6% and have difficulty meeting the loan payments now,” she said.

Assemblyman Jack O’Connell (D-Carpinteria), the lawmaker who carried the original bill, said the subsidies would help ensure a healthier water supply.

“It’s either pay me now or pay me later,” he said. “I don’t want districts delivering unsafe drinking water. If they do, you will end up with significant health costs, as well as human costs.”