Budget Siphons the Water Bond

Voters passed a $3.4-billion bond last fall after a powerful coalition of environmentalists, politicians, developers and water wholesalers promised that the money would help prevent a “looming water crisis” in California.

Backers said that Proposition 50, the “Clean Water and Coastal Protection Bond,” would provide money to secure water supplies from terrorists and boost the reliability of waterworks, while preserving watershed areas and protecting rivers from pollution.

A year later, however, a sizable share of the largest water bond in California history is being siphoned off by Gov. Gray Davis and state legislators to treat a more pressing problem: the state’s budget mess.

The spending plan approved by the California Legislature last week includes $1.7 billion from Proposition 50 and Proposition 40, a parks-bond measure approved by voters in 2000, according to the state’s nonpartisan legislative analyst. Roughly $1.1 billion would come from Proposition 50. Most of the money would maintain ongoing water and conservation projects, help pay the salaries of more than 200 state employees, and fund existing grant programs.

Though the spending plan also directs Proposition 50 money to new expenditures, most of the money would not finance new projects and improvements, but rather keep programs afloat that previously had been funded through the budget and by earlier bond issues.

The story of Proposition 50 is a textbook example of the way in which politicians and special interests often appeal directly to voters to increase funding for popular causes -- while drafting legal fine print that allows the bond money to cover existing expenses. That frees up money originally intended for those programs to be used elsewhere, and prevents the programs from being discontinued during difficult budget times.

Regular Practice

Indeed, the practice is accepted as a fact of California politics among statehouse lobbyists and legislative staffers.

“Bonds, while they have the potential to increase spending, often just wind up being used to lock up existing spending levels,” said Dan Jacobson, legislative director for the group Environment California.

“It’s essentially like what happened to the money from the lottery,” he added, referring to the lottery proceeds that California voters were promised would go to schools if they allowed the creation of the state lottery in 1985. “Yes, that money is now being used for education purposes. But it has allowed the state to use other revenues in other places instead of truly increasing [education] spending levels.”

To the anti-tax activists who opposed the water bond, the move by Sacramento’s power-brokers to tap Proposition 50 for ongoing programs and employees is outrageous -- but predictable.

The activists -- who include Ted Costa, the man who launched the Davis recall -- warned last year that the bond measure was vaguely worded on purpose by its author, capital lobbyist Joe Caves. They predicted that the money could easily be redirected by politicians.

“It seems like every time we have a general election, someone asks for a few billion dollars for safe drinking water,” three taxpayer groups wrote in the official ballot argument against Proposition 50, calling it a “stealth bond measure.”

With backing from the Nature Conservancy, the Metropolitan Water District of Southern California, developers who were poised to sell land to the state for land preserves and numerous other organizations, Proposition 50 wound up being approved by 55% of state voters.

“I’m at a loss for words. I don’t know what to say,” Costa said when informed of how much Proposition 50 money was now being been tapped for the budget. “It just further undermines the confidence of the people in their government. I do think there is a looming water crisis. We do need more water storage in this state, but I guess we are going to wait until something like the energy crisis to happen before we do something about it.”

Proposition 50 supporters counter that the bond money is at least being used to pay for important state water programs -- programs, incidentally, that are dear to the heart of water wholesalers, developers and environmentalists.

The programs might otherwise have been cut amid the current panic over the $38-billion shortfall.

For example, the state Department of Water Resources would receive $300 million in the budget, with most going toward the CalFed program, a collaboration between the state and federal government to reassess water use in the Sacramento and San Joaquin valleys.

Proposition 50 was always intended to help cover the costs of the financially troubled partnership, bond backers noted, a claim backed up by the bond language and some of the campaign literature.

Caves, the lobbyist who wrote Proposition 50, said proponents expected that much of the money would be used to finance existing obligations. In fact, he said, that was their objective all along.

“It is true that money from Proposition 50 is being used to fund programs that might not be funded because of the budget crisis. But that is one of the reasons we did Proposition 50, to ensure funding for some of these critical programs,” Caves said. “It was clear to a lot of us that the state was going to be entering a difficult period and some important water programs were going to be in jeopardy.”

Supporters also assert that the measure was written carefully enough to guarantee plenty of money for numerous new water and conservation projects.

For example, it specifically allocates $300 million for land acquisitions in Los Angeles and Ventura county watersheds -- money that could be used to purchase and preserve Ahmanson Ranch on the Ventura-Los Angeles county border or what remains of the Ballona Wetlands near Marina del Rey.

Action Defended

“Unfortunately, bonds never fund all the programs that are intended, but this plan sticks to the spirit of what was intended all along for Proposition 50,” said Bethany Westfall, an aide to Sen. Mike Machado (D-Linden). Machado, who served as chairman of the Yes on 50 campaign, was not available for comment, Westfall said.

Proposition 50 gives considerable latitude to the Legislature to use much of the bond money to fund the programs it sees fit, as long as the money benefits the general areas addressed by the bond, such as protecting urban communities from drought and reducing pollution.

In that regard, Proposition 50 is not unusual. Some money from the 2000 parks bond, Proposition 40, was tapped by lawmakers last winter to help cover the costs of a popular air pollution program to replace diesel buses.

“From our perspective, that is good,” said Jacobson of Environment California. “Without that, some programs would cease to exist altogether.”

In addition to being spent in a different manner than voters may have been led to believe, Proposition 50 will also cost taxpayers far more than initially thought.

Although voters authorized the $3.4 billion last fall, the state typically spreads such large bond issues out over time, going to Wall Street repeatedly over a number of years to secure the full financing.

The bond was initially expected to cost the state roughly $230 million annually over 30 years to pay off, according to the state legislative analyst.

But borrowing the money will now be tens of millions of dollars more expensive than it would have been last year after a recent spate of downgrades to the state’s credit rating, which is just above junk-bond status.