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Issue Paper

A Perspective onthe Drought in California

EXECUTIVE SUMMARY

D espiteheavyrains inMarch 1991,California continues tofaceaserious near-termwaterproblem resulting from five years of drought. In fact, the amount ofwater in storageon October 1, 1991 was about equal to the amount in storage one year ago - a year

in which strict conservation measures were imposed in some areas and there were significantreductions in water suppliesfor manyagricultural users. In this paper, we provide backgroundinformation on California's water system, the impact ofthe drought, water needs in the future,and legislative options for coping with water supply limitations.

In a "normal" water year, approximately three-quarters of the developed water in Californiacomes from surface water supplies. Groundwater accounts for most ofthe remaining supplies.Agricultureuses about 80 percent ofthe developed water. In the 1991 water year (October 1990through September 1991) - thefifth year ofthe drought - overall usage was about 16 percent

.belowanormal year. Overall usagewouldhavebeen significantly lower were it notfor increasesin groundwater pumping to compensate for losses in surface water supplies.

In part due to the increases in groundwater pumping, the effect ofthe drought on agriculture,while negative, has been limited thus far. If the drought continues, the impacts will grow moresevere. The drought also has had negative effects on the environment, particularly on fish,sensitive ecological areas, and endangered species.

Our review ofthe water outlook indicates that the state faces both anear-term and along-termwater supply problem. We identify avariety ofwater supply, conservation and market optionsthe Legislature might consider in debating water policy. In our view, the Legislature shouldconsider implementingacoordinated mixofthese options due to the interrelationships betweenthem. For example:

• Construction ofsupply alternatives should be linked to watermarket reform to assureefficient use ofexisting and newly developed water.

• Market reforms should consider the interests of "third parties" - those who are notdirectly involved in the transaction but who feel its impact, such as other water usersand the environment.

• Either market reforms orconstruction ofnew supply facilities should beaccompanied byeffective management ofgroundwater resources.

Legislative Analyst's Office November 21, 1991

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INTRODUCTION

The state has experienced five conseCutiveyears ofdrought. Theamount ofwatercurrentlystored in 155 of the state's major reservoirs isapproximately 61 perce~toftheaverageamountstored. This is the same amount of water thatwas in storage one year ago despite heavy rainsin March 1991 (the wettest March on record).Consequently, thestatecontinues toface droughtconditions similar to conditions one year ago ­a year in which strict conservation measures .were imposed in some areas and significantreductions in water supplies were experiencedby many agricultural users.

This issue paper provides a broad overview ofthe state's water system and the impacts of thedrought. In it, we review: (1) California's watersystem as it would look in a "normal" wateryear, (2) the water supply during the currentdrought, (3) impacts of the drought onCalifornia's economy, (4) governmental re­sponses to the drought, and (5) implications forthe future and potential legislative options forcoping with a limited water supply.

CALIFORNIA'S WATER SYSTEM

Where Does California'sWater Come From?

The water Californiansuse comes from a vari­etyofsources. Chart1displays themajorsourcesof developed water during water year 1985­October 1, 1984 through September 3D, 1985­the most recent year of normal rainfall. (Thatyear was followed by an unusually "wet" year,after which the drought commenced.) Duringwater year 1985, these sources supplied about34.2millionacre-feet ofwater. Anacre-foot is theamount of water covering one acre of land to adepth ofone foot. An'acre-foot of water is aboutthe amount of water needed to supply a familyof five for one year.

Byfar themostimportantsourceofCalifornia'swater in a normal year (approximately 75 per­cent in 1985) is surface water projects - diver­sions of water from rivers and streams. Theseprojects are operated by local governments (30

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percent of total developed water in 1985), thefederal government (24 percent), or the state (7percent). Major local projects include HetchHetchy Reservoir (San Francisco) and PardeeReservoir (East Bay Municipal Utility District).Local agencies also operate the Colorado RiverAqueduct, which brings water from the federal­ly operated Colorado River Project (14 percent).The most important federal and state projects inCalifornia are the Central Valley Project (CVP)and the StateWater Project (SWP), respectively.These projects bring water from NorthernCalifornia through the San Francisco Bay/Sac­ramento-San Joaquin Delta Estuary to the SanJoaquin Valley and Southern California.

The second most important source ofCalifornia's water in a normal year is ground­water (24 percent in 1985) - water pumped .from underground basins. Water reclamation- the reclaiming and reusing of water - is aminor water source, accounting for less than 1percent of California's water.

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Water Year 1985

SurfaceProjects

FederalProjects

StateWater Project

WaterReclamation

Local SurfaceProjects

Groundwater

OtherWater Sources

Factors AffectingWater Delivery

There are many factors that affect the amountof water that is available for delivery to Califor­nians. These factors are summarized in Chart 2(next page). The most important ones are theamount, location, and timing of the precipita­tion thestatereceives. Inaddition to these, manyofthestate's surface watersystemsaresubject toenvironmental and system operation require­ments that limit the amount of water the sys­tems can actually make available to users.

First, diversions of water from rivers andstreams are limited due to environmental con­cerns. For example, the SWP and the CVP mustlimit their operations to meet temperature andsalinitystandards that havebeen imposed in the

San Francisco Bay/Sacramento-San JoaquinDelta Estuary to protect fisheries. Meeting thesestandards requires limiting diversions of freshwater.

Second, thereare a variety ofsystemoperatingconstraints. For example, (1) the pumps andaqueducts of the surface systems have limitedcapacity to transport water; (2) the storage ca­pacity of the systems' reservoirs is limited; and(3) some reservoirs have to release water atcertain times ofthe yearfor flood controland/orpower generation purposes.

Finally, groundwater pumping may be af­fected by contamination and/or previous over­draft of groundwater supplies. "0verdraft"isthe excess of the amount of water pumped overits replenishment from natural sources.Overdrafting may affect groundwater supplies

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in the long term by lowering the water table,allowing intrusion of saltwater or poor qualitywater, or causing land subsidence, which re­duces the capacity of underground basins tohold water. TheDepartmentofWaterResources(DWR) estimates that in recent normal rainfall

Chart 2

years, such as 1985, roughly 75 percent of theamount of groundwater pumped was replen­ished by rainfall or seepage from different wateruses (we discuss the long-term effect ofoverdrafting later in this issue paper).

WEATHER

~JStorage capacity and requirements III

• Transfer capacity of surface systems ,.

Flood control requirements IiiPower-generating requirements ..

x:::::~·:::·:::::,.·:~:::::::::::<:::::::,::::::::::::::::::::::::,,:::::::~*::l'i:::<:~:::::::::::::::<x~.,:~::::':~:::::::":,::::::::::::::::::::::::,:::::.~::.,~~: ::::::<::::::Jii

Water table level (affects pumping costs) i~i• Contamination from toxic chemical disposal, ~

• ~~:v~:~:~~~:r:~~::~lt~~~I~~~o:~~::~~~ Itables, intrusion of poor quality water, and/or f:land subsidence ~

;;

0.:.:.:.:.:.:.:.:.:.:.:.;.:.:.:.:.:.:.:.:.:.:.:...:.:.:.:.:-:.:.:.:.:.:.:...:.:.:.:.:.:.:.:.:.:.....:•••:.:.:.:.:.:.:.:.x.":".:-:-:.:.:.:.:.:.:.:".:.:.:.:-:.:.:.:.:.:.:.:...:.:.:.:.:.:.:.:.:.:.:.:-:-:.:.:.~~

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PageS

THE CURRENT DROUGHT IN PERSPECTIVE

Water Supply and Usein a Normal Year

As indicated earlier, the total water used inwater year 1985, the most recent year of normalrainfall, was approximately 34.2 million acre­feet (MAF). The major water source for Califor­nia is surface water projects, which normallyaccount for about three-quarters ofall waterused.

Water Years 1985 and 1991

Approximately 80 percent of the water fromsurface water projects was used by agriculturein 1985. The remaining 20 percent was used bythemunicipal and industrial sectors (l6percent)and for wildlife, recreation and energy produc­tion (4 percent). Data are not available on thebreakdown of groundwater use. Chart 3 showsthe usage ofwaterfrom eachmajor watersourceby municipal/industrial and agricultural users.

1985Groundwater

1991

Local 1985Surface Projects 1991

1985Federal Projects

1991

Colorado River1985

1991

State 1985

Water Project 1991

Water 1985 :

Reclamation 1991 ~

•~

Municipal/ industrial

Agriculture

Combined municipal/industrialand agriculture a

3

aBreakdown of water use by sector is not available.

6 9

Million Acre Feet

12 15

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Major Water RegionsAnd Percentage of Total Statewide Water Use

Water Year 1985

NC - North Coast

SF - San Francisco BayCC - Central CoastSC - South CoastSR - Sacramento RiverSJ - San Joaquin RiverTL - Tulare LakeNL - North LahontanSL· South LahontanCR - Colorado River

Regional Water Use

Chart 4 shows the major water regions in thestateand, for each region, the percentage of totalstatewide water use in 1985. Chart 5 shows theusage of water in each region for municipal!industrial and agricultural uses.

AsillustratedbyChart5, theSacramentoRiver,SanJoaquin, and TulareLake regions accounted

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for approximately two-thirds of the state's wa­ter use in 1985. In contrast, the two regionscontaining the largest urban areas, the SanFran­cisco Bay and South Coast regions, accountedfor only 15 percent of these types of water use.These figures reflect the land use patterns in theregions: the first three regions are primarilyagricultural while the latter two regions areprimarily urban.

ChartS

Water Year 1985

Percentage of TotalStatewide Water Use

Tulare Lake 24%

Sacramento River 22%

San Joaquin 18%

Colorado River 12%

South Coast 11%

San Francisco Bay 4%

Central Coast 3%

North Coast 3%

North and South Lahontan 3%

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Ij~jtj~j~j~J Municipal! industrial

• Agriculture

2 4 6Million Acre Feet

8 10

Estimated Water Supply andUse in Water Year 1991

The DWR estimates that the total water sup­ply for water year 1991 was approximately 28.6MAF, which is over 5 MAF less than a normalyear's supply.

As illustrated in Chart 3, three of the majorsurface water supply sources (local surfaceprojects, federal projects, and the SWP) weresignificantly down from 1985 levels. However,the DWR estimates that groundwater pumpingincreased 63 percent, from 8 MAF in 1985 toapproximately 13 MAF in 1991, to partiallycompensate for the shortfall in the other supplysources. This usage of groundwater is abouttwice the amount that would be replenished ina normal rainfall year. In addition, the state'sColorado River allocation increased slightly in1991. The DWR and the Bureau of Reclamation

estimate that approximately 81 percent of thestate's water from surface water projects wasused by agriculture and 19 percent by otherusers. There are no reliable data on estimatedgroundwater use by sector for 1991.

Outlook for the1992 Water Year

No Change in Storage Levels. According toinformation from the DWR, carry-over storagein 155 major reservoirs on October 1, 1991 (thebeginning of water year 1992) was approxi­mately equal to the 13.6 MAF in storage onOctober 1, 1990. This is approximately 61 per­cent of the historical average amount stored.Consequently, California is in the same situa­tion at the beginning of the 1992 water year thatit was at the beginning of the previous year.

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Impacts. Differ Widely Between GeographicAreas. Although the statewide 1992 water out­look is poor, the prospects differ somewhat bygeographic area. The impacts in some regionsmay be mitigated to some extent due to (1) thedistribution of the March 1991 rains (the wettestMarch on record), (2) the redistributionof waterby the state's water bank (discussed later), and(3) increased groundwater pumping.

For example, in the Central Coast, which hasbeen the area most affected by the drought, theMarch rains raised reservoir storage levels fromunder 10 percent to 41 percent of average. Thisreliefallowed: (1) the CityofGoleta to stopplansto import water from Canada and (2) SantaBarbara to ease severe water rationing restric­tions.

Also, the March rains in combination with thewater provided by the drought bank allowedthe Metropolitan Water District of SouthernCalifornia (among others) to ease water restric­tions placed on its customers due to the lack ofprecipitation and limits on the SWP water.

By contrast, the Colorado River desert region(parts of San Bernardino, Riverside, and Impe­rial Counties) has not been affected by thedroughtbecause the region has received allof itsallotted water from the Colorado River project,

which accounts for approximately 96 percent ofthe region's water use. The Sacramento regionhas also fared relativelywellduring thedroughtbecause there has been sufficient water in theseveral rivers and underground basins fromwhich it gets its water.

. While increased groundwater pumping hashelped supplement the watershortfall through­out the state, many regions have reported drop­ping water tables. For example, there have beendrops of (1) 25 feet in Madera County, (2) anaverage of 25 feet to 30 feet in the WestlandsWater District in Fresno, and (3) 70 feet in KernCounty..

Future Reductions in SWP Water Would Af­fect the Urban Sector. According to contractprovisions for SWP water, following a year inwhich agriculture has a 100 percent reduction insupplies, urban areas must share equally in anyrequired reductions. SWP agricultural deliver­ies were reduced to zero in 1991. Therefore, if1992 is another dry year, urban water agenciesreceiving SWP water will experience increasedreductions in their supply. Any reductions ofthis type will likely affect Southern Californiathe most because thatregion is the largesturbanuser of SWP water.

IMPACTS OF THE DROUGHT ON CALIFORNIA'SECONOMY

Many of the state's key industries, such asagriculture, semiconductors, defense-related,refining, and food processing, depend on ad­equate water supplies. Although reductions inwater supplies have caused problems in certainareas and regions, particularly some agricul­tural regions, theapparentnet overall impact onthe state's economy has thus far been relativelyminor over the five-year period of the drought.However, if the drought continues, its adverseimpacts can be expected to becomemoresignifi-

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cant. Below we discuss those industries that aremost significantly affected by drought condi­tions.

Effects on AgricultureAre Mixed

As agriculture uses over 80 percent of thedeveloped water in thestate, it is the sectoroftheeconomy most directly affected by the drought.

The net impact of the drought on current fannincome and profits, however, is unclear. Whilethe drought generally has increased costs andreduced fann acreage and production, thesenegative factors have been mitigated by thefollowing:

• Continued Availability of SWP and CVP Sup­plies Until Recently. The SWP and the CVPhad enough water in storage to make nor­mal deliveries to their contractors throughOctober 1989 (the first three years of thedrought>. It has not been until the last twoyears that SWP and CVP deliveries havebeen significantly cut back. In 1990 the SWPcut deliveries to fanners by 50 percent andthe CVPcutdeliveries byup to 50 percent. In1991 the SWP suspended deliveries to agri­cultural customers and the CVP reduceddeliveries by 25 percent to 75 percent of thecontract amounts.

• Availability of Groundwater. In general,groundwater is widely available through­out California. Because most fanners canobtain groundwater supplies simply by in­creasing pumping at existing wells or drill­ing new wells, the loss of (less expensive)surface water deliveries can be made up, toa substantial degree, by additional (thoughmore expensive) groundwater pumping.Primarily as a result of increased agricul­tural pumping, the DWR estimates thatgroundwater use has increased in 1991 byapproximately 5 MAP (compared to 1985levels). As a result, the most affected areashave been those parts of the San JoaquinValley that lack good quality groundwaterorhavelowwater tablesdue to overdrafting.These areas depend heavily on the SWP andthe CVP for water deliveries.

• Flexibility of Agriculture. California fannershave shown considerable ability to changecrop patterns and adopt new water conser­vation techniques (such as drip irrigation) toreduce their water needs without signifi­cantly reducing production levels.

• Offsetting Price Increases. Although it is diffi-

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cult to determine the effect on prices of thedrought versus other factors, it is likely thatprices for crops have increased due todrought-relatedproductioncutbacks (reduc­tions in supply typically result in price in­creases as consumers "bid up" the costs onremaining goods). Other factors affectingprices during this period have been highnational and global demand for many ofCalifornia's 250 crops and the December1990 freeze.

As a result of these factors, total fann incomehas increased during the last four years, despitethe drought, from $14.5 billion in 1986 to $18billion in 1990. Adjusted for inflation, fann in­come has remained relatively constant. Despitethis, fann profits may have been reduced be­cause increased reliance ongroundwaterpump­ing and use of new conservation techniquesraise production costs. In addition, reduced har­vestscanresultinagriculturaljoblossesandhigherproduct prices leave consumers worse off.

Given the size of the state's agricultural sector($18 billion in direct fann income and approxi­mately $70 billion when fann-related industriesare included, compared to over $700 billion forthe entire state economy), it is likely that anylosses to agriculture will have a relatively lim­ited influence on the overall economic perfor­mance of the state. The drought, however, canhave significant effects on specific crops or re­gions.

Near-Term Impacts onManufacturing Thus Far Minor

The state's manufacturing sector contributesover $130 billion to the state's economy andemploys over two million people. As statedearlier, many manufacturers are dependent onplentiful water supplies. For example, the semi­conductor industry uses large quantities of wa­ter to manufacture microchips. Due to aggres­siveimplementationofwaterconservationmea­sures by this sector, manufacturing productionshould not be significantly affected by the

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drought, at least in 1991. Despite these conser­vation efforts, however, if the drought contin­uesinto asixthyear(andespeciallyifmanufactur­ing demand increases significantly as the statemoves out of the current recession), inadequatewater supplies could result in increased costs orproduction losses, and could affect investmentdecisions on whether to expand existing or lo­cate new production facilities within the state.

Impacts on Other Industries

Drought conditions affect a number of otherindustries. Specifically:

• The Timber Industry. The Department ofFor­estry and Fire Protection (CDF) estimatesthatdryconditionsanddrought-relatedpestinfestationswilldestroyoversixbillionboardfeet of timber in 1991. This amount is overseven times the amount of timber killed in anormal year. Although this will likely havelong-term negative effects on the timber in­dustry, in the short run it has resulted inincreased activity to "salvage" as much ofthe "tree kill" as possible. For example, thenumber of fast-track timber harvest plansapproved in 1989-90 by the U.S. Forest Ser­vice (USFS) increased by more than 300 per-

cent compared to the number in 1987-88.According to the COF, "salvaging" repre­sents virtually all the current logging activi­ty on USFS land.

• Electric Utilities. Lack of adequate rainfall,low rivers, and depleted reservoirs have allreduced the amount of hydroelectric poweravailable to thestate'smajorelectricutilities.As a result, utilities have substituted moreexpensive energy supplies (primarily natu­ral gas) to meet electricitydemand. This hasresulted in increased costs to consumers inthe form of higher utility rates.

• The Building Industry. In reaction to thedrought some cities, especially in southernCalifornia, have adopted measures limitingnew water hook-ups to residential and non­residential customers. By limiting construc­tion,such measures notonlyhurtlocalbuild­ing industries, but they can also increasehousing prices and hinder local economicdevelopment.

• Leisure and Recreation Industries. Industriesthat depend heavily on adequate snowfall,rainfall, or runoff levels, such as fishing,white water rafting, skiing, and boat rentalshave also been hurt by the drought.

IMPACTS OF THE DROUGHT ON THE ENVIRONMENT

The drought has negatively affected the envi­ronment in a variety of ways. Below we discussthe effects on (1) fish and wildlife, (2) groundwa­ter basins, and (3) forest lands.

Fish and Wildlife

Five years ofbelow-normalsnowand rainfall,in combination with current policies related towater diversion, have resulted in lower waterlevels in rivers, lakes, and wetlands. The cumu­lative impact has been especially severe on fish,

LegislaNve Analyst's OtrlCe

endangered species, and sensitive ecologicalareas. Specifically:

• Impacts on Fish. As a result of five years oflow stream flows and warm water tempera­tures, fish populations have declineddramatically. For example, the populationof the fall chinook salmon run in the SanJoaquinRiverhasdeclinedfrom 70,000adultfish in 1985 to only 600 in 1990.

• Bay-Delta Estuary. Over 70 percent of thestate's water flows through the San Fran­cisco Bay/Sacramento-San Joaquin Delta

Estuary. In recent years, a number of fishspecies-includingstripedbass,Deltasmelt,and tidewatergoby-havedeclined to "dan­gerously low" levels according to the De­partmentofFishand Game(DFG). Althoughthe drought is not solely responsible forthese declines in fish populations in theBay/Delta estuary (salinity standards andwater diversion policies may also contributeto these problems), the lack of water hasmagnified many of the estuary's environ­mental problems.

• ThreatenedorEndangered Species.Otherthreat­ened or endangered plant and animal spe­cies are also being negativelyaffected by thedrought (for example, many native Califor­nia plant species). Given their limited num­bers, these species are especially vulnerableto the lack of adequate water.

• Migratory Waterfowl. Declining wetland lev­els have reduced wintering habitat (espe­cially in the Central Valley) essential to Pa­cific Flyway bird populations.

Groundwater Basins

California has large groundwater basins. As aresult, water users have been able to replace -

Page 11

to a great extent - the lack of surface watersupplies by groundwater. In some instances,overdrafting (pumping more water than is re­charged) of groundwater basins has led to landsubsidence(forexample, inSanJoaquinCounty)or salt water intrusion in coastal areas (for ex­ample, inMontereyCounty). Based on the DWRestimates, groundwater pumping in 1991 in­creased by approximately 5 MAF compared tothe 1985 levels and resulted in overdrafting inexcess of 7 MAF. However, given the lack ofgood information on (l) the size and geology ofmany of the state's groundwater basins and (2)the extent ofgroundwater pumping by basin, itis not known what the long-run impact of thedrought will be on this resource.

Forest Lands

As indicated earlier, the drought and relatedpest infestations havekilledmanytrees. Thedryconditionshave also resulted in extremefire riskthroughout the state's forest lands. However,thanks to a relatively mild summer there havebeenrelativelyfew forest fires to date. (Approxi­mately 12,000 acres have burned this year com­pared to 174,000acres at this time in 1990-91 and51,000 at this time in 1989-90).

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GOVERNMENT RESPONSES TO THE DROUGHT

a All dollar amounts are from the General Fund.

To date, the water bank has purchased ap­proximately 835,000 acre-feet of water. (This

$11 million (General Fund) for waterreclamation projects and to expediteapproval of water transfers.Status: No action taken.

$16.4 millionto maintain fishery produc­tion, increase water supplies availablefor fish and wildlife (through water pur­chases or groundwater pumping), andincrease monitoring of water quality.

Status: Chapter 11, Statutes of 1991(AB 12X, Costa), appropriated $15.3million.

$23.7 million to increase baseline firesuppression activities to respond to theincreased fire threat as a result of thedrought.

status: Chapter 43, Statutes of 1991(AB 208, Vasconcellos), the omnibusdeficiencybill, appropriated $3.3 millionfor the 1990-91 portion of the request.An $18.3 million deficiency request for1991-92 was approved by the Depart­ment of Finance on August 29, 1991 tofund most ofthe remaining costs of thiSproposal.

$2.3 million to add 300 corpsmembersto assist other departments with theirdrought-related activities.

Status: Chapter 7, Statutes of 1991(SB 11X, Rogers). appropriated the fullamount requested.

Department of Fish and Game(DFG)

iii

Department of Forestryand Fire Protection (CDF)

n

California Conservation Corps(CCC)

mState Water Resources ControlBoard (SWRCB)

Ii

State Response to the Drought

Water Bank. Accompanying the drought leg­islation, the administration established a waterbank to purchase water (primarily from farm­ers) for sale and transfer to cities, districts, andindividuals most severely affected by thedrought. Only municipal areas that are receiv­ing less than 75 percent of their normal watersupplies and agricultural areas where thedrought may cause a permanent loss of produc­tion are eligible for allocations from the waterbank. Initial funding for the water bank wasfinanced by a start-up loan of $10 million fromthe SWP. Ongoing funding for the water bank isto be generated by water sales.

Drought Legislation. In the spring of 1991 theGovernor proposed a $53.4 million (GeneralFund) legislative package in response to thedrought (the specific proposals and their cur­rent status are summarized in Chart 6). Most ofthe funding was targeted on increased fire sup­pression activities and reducing the drought'simpact on fish. To date, approximately $39.2million in funding has been made available fordrought-relatedactivities ($20.9 million throughlegislation and $18.3 million through the defi­ciency process).

In addition to the administration's proposals,the Legislature introduced a number of otherwaterpolicybills in response to the drought. Wediscuss the most important of these bills in alater section on the Legislature's options in ad­dressing the state's short- and long-term waterneeds.

As indicated in the previous section, the pri­vate sector has taken significant steps to adjustto or mitigate the adverse impacts of the currentdrought. In addition to these private-sector re­sponses, state, federal, and local governmentshave also responded in a variety of ways to thedrought.

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represents about 2.5 percent of the total waterdelivered during a nonnal year.) A majority ofthis water comes from fanners in the Sacra­mento-San Joaquin Delta. The DWR estimatesthatasa resultofthesewatersales,approximately150,000 acres of farmland will be taken out ofproduction. As of October 24, 1991 approxi­mately 435,000 acre-feet had been allocated. Ofthis total, approximately 50 percent has beenpurchasedbythe MetropolitanWaterDistrict ofSouthern California primarily for residential,commercial, and industrial usage.

"(In 1991) the SWP suspended waterdeliveries to agriculture and reduced

deliveries to cities by over 50percent."

Fish and Game Proposal. In addition to thepackage ofproposeddroughtlegislation, inMaythe administration proposed $8 million from theGeneral Fund to offset potential DFG revenuereductions attributable to the drought. The Leg­islature rejected this proposal.

State Water Project. The drought has forcedthe SWP to reduce its water deliveries. On Feb­ruary 4, 1991 the SWP suspended water deliver­ies to agricultureand reduced deliveries to citiesby over 50 percent. As a result of the Marchrains, reservoir storage has increased substan­tially. However, because reservoir levels con­tinue to be low, theSWPhas not increased waterdeliveries.

TheSWPhas also responded to thedroughtbymodifyingitsoperations to facilitatewater trans­fers and to assist fish and wildlife. For example,in 1988 the SWP and federal water agenciesassisted in transferring 45,000 acre-feet of waterpurchased by the DFG for this purpose from thefederal NewMelonesReservoirontheStanislausRiver. This waterwasused to (1) increasesalmonspawning habitat on the Stanislaus River in thefall of 1988, (2) flood approximately 12,000 ofwetlands in the winter, and (3) increase riverflows to benefit salmon in the spring of 1989.

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Federal Actions

To date, the direct federal response to thedrought has been limited primarily to technicalassistance and coordination with state and localefforts. Although there has been some move­ment on a fann disaster assistance bill (includ­ingdroughtassistance to eligibleCaliforniafann­ers) in the United States House of Representa­tives, a similar bill remains stalled in the U.S.Senateand PresidentBushhas threatened a vetoif it should pass.

Federal Water Projects. Similar to the SWP,the drought has forced federal water projects tocut water deliveries. The federal Bureau ofReclamation reduced water deliveries from theCVP on average approximately 60 percent in1991 compared to 1985 levels.

In addition, as stated earlier, federal agencieshave worked with the DWR, the DFG, and localagencies to facilitate water transfers and tomodify their operations to assist fish and wild­life. For example, they have changed the timingof water releases to increase river flows duringsalmon runs in the fall.

"The federal Bureau ofReclamation reduced water

deliveries from the CVP

on average approximately60 percent in 1991."

Federal Farm Assistance Programs. Livestockproducers that have lost 40 percent of their on­farm feed production are eligible for assistancefrom the federal Department of Agriculture(USDA). In 1990 the state's livestock producersreceived approximately $9 million in this assis­tance. California fanners adversely affected bythedroughthavenotbeeneligiblefor theUSDA'sother disaster assistance programs for a varietyof reasons. For example, the federal crop insur­ance program does not cover losses due to re­duced water deliveries. Fanners have not re-

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Page 14

ceived emergency disaster assistance loans be­cause no federal disaster areas have been de­clared as a result of the drought.

Local Government Responses

Based on information provided by the DWR,we estimate that water supplies for municipaland industrial users in water year 1991 wereapproximately 32 percent less than 1985 levels.The specific responses by cities, counties, andother local water agencies to these reductionsvaries significantly depending on local circum­stances. In general, their responses can begrouped into two categories: (1) efforts to in­crease available water supplies and (2) efforts toreduce water use.

IncreasingLocal WaterSupplies. Local effortsto increase local water supplies include:

• Groundwater Pumping. Similar to the state'sfarmers, many local water agencies haveincreased groundwaterpumping to replacelost surfacewatersupplies. Forexample, theCity ofFresno isadding 25 new wells in 1991to increase local water supplies and addresslocal water quality problems.

• Water Transfers. Other local agencies arepurchasing water (from the water bank orother sources) for transfer to partially com­pensate for loss of surface water deliveries.For example, in 1989 theSanta ClaraCountyWater District purchased 90,000 acre-feet ofwater from the Yuba CountyWater District.

• Desalination Projects. The drought has alsohighlighted the need for more secure futurewatersupplies. As a result,a numberoflocalagencies (for instance, Santa Barbara andSanDiego Counties) are conducting feasibil­ity studies into the construction ofdesalina­tion plants to convert sea water into drink­ing water.

Reducing Water Use. In addition to seekingways to increase water supplies, most local wateragencieshavebeenforced to implementprogramsto reduce water use. These programs include:

Legislative Analyst's Office

• Price Incentives. A number of local agencieshaveincreased waterprices ordevised otherpricing schemes to motivate end users toconservewater. Perhaps themost importantof these types of plans is the one adopted bythe Metropolitan Water District ofSouthernCalifornia(MWD), which provides water toapproximately 15 million water users insouthern California. The MWD set 1990-91water delivery targets for its member agen­cies at approximately 70 percent of their1989-90 usage level. A local agency thatexceeds its target pays twice the normalwater rate for this additional water. Con­versely, an agency that uses less than itstarget receives a rebate equal to half of thenormal water rate applied to the amountreduced. (As of October I, the MWD hasdiscontinued the rebate portion of this pro­gram due to its costs.)

I'IWater supplies for municipaland industrial users in water year

1991 were approximately 32 percentless than 1985 levels."

• Voluntary Water Conservation. As stated ear­lier, most water agencies have adopted anumberofvoluntarywaterconservationpro­grams. Although these programs vary sig­nificantly between local agencies, they gen­erally include public awareness campaigns,suggestions on ways to reduce water useand voluntary conservation goals.

• Mandatory Water Conservation/Water Ration­ing. Finally, due to the severe shortages,some local agencies have adopted manda­tory water conservation plans. These plansalso varygreatlyfrom localagencyto agency.For example, the City of Santa Barbarabanned all water sprinkling and stoppedissuing newwaterhook-ups. TheCity ofLos

.Angeles has mandated 10 percent reduc­tions in per household water consumption.

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IMPLICATIONS FOR THE FUTURE: WHAT ARE THELEGISLATURE1S OPTIONS?

As indicated earlier, the March 1991 rains,while alleviatingseverewatershortagesinsomeareas, did not end the drought. Absent normalrainfall during the coming year, there will be acontinued need for strict measures (such aswater supply cutbacks and mandatory conser­vation efforts) in order to bring water suppliesand demand in balance. In short, the state con­tinues to face a serious near-term water prob­lem.

Butwhilehealthyrainfallcanresolve theshort­run problem, it willnot necessarily help addressthe state's longer-run ability to meet its demandfor water. According to 1987 projections by theDWR, the state will need approximately 35.6MAF by the year 2010 to meet its water needs.This is about 1.4 MAF more than the state usedin 1985 (again, its last "normal" water year),with most of the increase attributable to theresidential and industrial sectors. This is dueprimarily to the expected growth in the state'spopulation.

While any water use forecast for that far in thefuture is subject to considerable error, there arereasons to be concerned about the ability of thestate to provide for future water needs. Forinstance, the DWR estimate may significantlyunderstate future demand as it does not reflect(1) the higherstate populationfigures containedin the 1990 census and (2) the growing demandsfor more water to address environmental con­cerns. In addition, there are constraints on someof the state's current water supplies due tocontinued overdrafting of groundwater basinsand the eventual loss of Colorado River waterdue to increasing needs in Arizona.

In the sections that follow, we briefly identifyand discuss the Legislature's basic options foraddressing this potential longer-run imbalancein the state's water situation. These options fallinto two general categories: (1) water supplyand conservation alternatives and (2) watermarket options.

Water Supply andConservation Alternatives

Many possible water supply options havebeen forwarded as means of addressing watershortfalls. Chart 7 (next page) summarizes anarray of possibilities for the Legislature to con­sider. As indicated below, several of these op­tions, although they are being actively studied,may be infeasible due to economic or environ­mental constraints.

"While healthy rainfall canresolve the short-run problem, it

will not necessarily help address thestate's longer-run ability to meet its

demand for water."

Storage and Transfer Capacity. Increasingstoragecapacityis onewayto increase thestate'sdependable water supply because it allows thestate to save water in wet years to use in dryyears. Constructingadditionalcanalsandpump­ingfacilities is anotherway to increase thestate'sdependable water supply because it allows ar­eas to receive water from outside sources andnot rely exclusively on local sources. For ex­ample, Santa Barbara has not been able to re­ceive emergency water supplies from the SWPbecause it has no canal in place.

A major constraint to constructing new surfacestorage systems and transfer facilities is that thebestsites have alreadybeen developed and poten­tial future projects may be infeasible due to highcosts and environmental concerns. As an alterna­tive to traditional surface storage, undergroundfacilities like the Kern WaterBankare beingdevel­opedand studied because they have less evapora­tion, lower capital costs, usually do not reqUIre anextensive distribution system, and generally haveless impact on the environment.

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Page 16

Possible Options For Maintaining AndIncreasing Water Supply

use of groundwater and surface water - thepractice ofstoring water in underground basinsduring wet (surplus) years in order to pump outfor use during dry years. The DWR Kern WaterBank, currently beingconstructed, will have the

Mandatory conservation goals for urbanand agricultural users.Water-efficient technologies in newconstruction.

• Water-efficient landscaping for all publicagencies as well as private businesses.

• Financial assistance to needy farmers forefficient irrigation systems.

Collect information on groundwater use and ~study the effects of overdraft in major basins. .~...:.;SWRCB regulation of groundwater pumping.

• Additional projects for use of surface water inconjunction with groundwater

• ReservoirExpansion t:::.

• Aubum Dam ~:::.• Peripheral Canal ~

;:::• Canal covering/lining ~:

.:.:.:.:-:.:.:.:-:.:.:.:.:.:.:.:.:.:.:•••:.:.':.:.:.:.:.:•••:.:-:.:.:.:.:.:.:.:.:.:...:-:.:.:.:.:.:.:.:.:.:.:-:.:••':':':"':',:':':''':.:-:.:.:.:.:.:.:.;.:.:..0:':':':':':':.:v:.:-:...:.:.:.:.:-:••••:.:.:.f~·

• Funding for loans or grants (bonds). ..• Study of the potential environmental effects :f

on the coast. ~:,........ :-:-:.:.:"'.:.:-:.:.:.:.:.:-:.:.:....:.:.:.:.:.:.:-:-....:.:.:·:·:·:·:-:·:(·:..·:·:·:·:·:·:·;·;·:-;·;·:..·:·:-·x·x·;·;·;·:·..:·:·:···:···.·X("'·:-:-:·:·:·;(·...·:·:-:"'.... ·;·:·:"'(·:·:'".:. (::.

~:"~..................................................................................................................................................................................·.·.·.·.·.·.·.·.·.·.·.·x

• Funding for loans or grants (bonds). ~:~• Continued study related to the use of "

reclaimed water. §

• Information campaign on the use of ~reclaimed water. ~

::<::::<::::«::::::::::::::<~::.::~:.~::::'f.::~::~:::: :.::::::::::::::::::'$::::::::::::*.:.::::::~::;.:'" ••::*<::•••:::~::::::«:: ...:~:::::-:;::::::::::::::::: ....:::.:(:::::*:*::?::::~

:,$:::::::~:::::::::~:::::::::(:...:.:::::;"': ••'!,.:::•••:::::::•••::::::::::~:::.::::::::(:?:.~.:*~:::~ ~*::·::::x~..:?::::••·::::::::::'§:;:::'$;.·'!,.::.x::~~· ,,: ••••:.:•••:.:«:

STORAGE ANDTRANSFERCAPACITY

CONSERVATION

Currently, the DWR is pursuing four majorprojects to increase storage and one to increasetransfer capacity. Of those projects, only theAuburn Dam would require legislative fundingauthorization. The other projects, in variousstages ofdevelopment, are beingsponsored by the DWR and SWPcontractors and willbefunded bythecontractors. ThesearetheKernWater Bank, Los Banos Grandes,the Coastal Aqueduct (Phase IT),and reservoir expansion.

Groundwater Pumping. Insome areas, it is feasible to in­crease groundwater pumping.However, increasing groundwa­ter pumping in otherareas mightlead to or exacerbate overdraftproblems. Statewide there hasbeen overdraft of groundwaterbasins on an average of about 2million acre-feet per year. Over­draft in some areas has led todeclining water tables, which in­creases pumping costs becausemore energy is required; landsubsidence;seawaterintrusion incoastal basins; and movement ofpoorqualitywaterintootherpartsof a basin or into an adjoiningbasin.

There is no way to determinethe extent of problems withgroundwatersupply because thestatelacksinformationonground­water levels, use, and overdraftproblems. With the exception ofafew adjudicated basins (basins inwhichthecourtshavedeterminedpumpingrights,mainlyinSouth-em California), there are no con-trols or restrictions on theamounts ofgroundwater thatcanbe pumped.

A promising strategy for im­proving the management ofgroundwateris the "conjunctive"

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capacity to add approximately 50,000 acre-feetannually to the SWP supply.

Reclamation. The DWR estimates that thestate currently reclaims 300,000 acre-feet of wa­ter each year. This water is used for a variety ofpurposes including crop and landscape water­ing, industrial cooling, groundwater recharge,and office plumbing (in high rises in the city ofIrvine). The DWR estimates that water reclama­tion could reach 400,000 acre-feet by the year2010. There are two major constraints to widedevelopment of reclaimed water use: (1) highcosts involved in building reclamation plantsand distribution systems and (2) concerns of thepublic and health authorities regardingsafe useof the water.

Currently, the Department ofHealth Services(DHS) is in the process of updating regulationsthat specify allowable uses of reclaimed water.

Desalination. Desalination projects have notbeen developed on a large scale because thelarge amounts of energy required for desalina­tion make the projects very expensive. Never­theless, this technique is beingused on a limitedbasis to reclaim brackish groundwater, desaltsea water, and treat water for industry. Cur­rently, the County of Santa Barbara is studyingthe development ofa permanent sea water de­salinationfacility. SantaCatalina Island recentlyconstructed a desalination plant to supplementits drinking water supply. There is, however,very little information available on how wide­spread desalination would affect the environ­ment. For example, there may be significantimpacts on the marine environment due to (1)disposing of large quantities of salt and (2) theaction of intake pipes and pumps.

Conservation. As already indicated, manycommunities have imposed conservation mea­sures during the drought and have ongoingconservation,retrofit,and educationalprograms.

Inaddition, the DWRand many irrigationandresource conservationdistrictsareworkingwithfarmers to improve water management tech­niques. Forexample, to conserve water, farmerscanwaterin the evening,shortenfurrowlengths,

Page 17

reduce the number of times crops are irrigated,and improve water application uniformity. Inaddition, many farmers have installed drip irri­gation and sprinkler systems to reduce wateruse. A majorconstraint to the widespread use ofthese systems continues to be the high costassociated with installation.

Water Market Options

One way of reallocating existing water sup­plies is to establish a water market. A watermarket would have two essential characteris­tics: (1) watercould be transferred freely amongusers and (2) pricesfor water wouldbesetby themarket. Below we discuss these characteristics,and theadvantagesanddisadvantagesofimple­menting a water market.

Water Transfers. The ability to transfer watermeans that a water rights holder can trade, sell,or lease the right or the water. Current lawallows the voluntary transfer ofwaterand waterrights and directs state water agencies to en­courage them. Transfers that involve changes inpurpose or place of use require the approval ofthe State Water Resources Control Board(SWRCB). The Legislature in recent years haspassed several measures clarifying the ability ofrights holders to negotiate or enter into transferagreements without fear of losing their rights.

The ability of an individual water user totransfer water obtained through the SWP or theCVP is limited because the individual mustobtain approval from two intermediaries in ad­dition to the SWRCB. This is because (1) thewater rights are held by the project operators,either the state DWR or the federal Bureau ofReclamation, not individuals and (2) waterwholesalers, generallyspecial districts, contractfor the water from the SWP and the CVP. AB2090 (Katz), considered by the Legislature thisyear, would have allowed consumers of SWPwater to participate in the state water bank,discussed earlier, without obtaining these ap­provals.

Pricing. Water resources are more likely to be

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Page 18

used most efficiently if prices charged for waterand water-relatedservicesare set by the market.For example, pricing water to reflect its value asa commodity might encourage some farmers totake marginal land out of production and usethe water for more valuable crops or sell it toanother user willing to pay a higher price.

At a minimum, proponents ofa water marketbelieve that government water agencies shouldcharge prices that at least reflect the cost ofproviding the water. For instance, users fartherfrom the source of supply and at an elevationrequiring pumping would pay the extra costsimposed on the system. Users who require extracapacity in the system for peak periods of usewould pay the incremental costs of providingincreased capacity.

Some water supplies in California, particu­larly for agricultural use, are priced well belowthe actual cost of providing the water. Taxpay­ers subsidize at least 80 percent of the costs ofirrigation water provided by the federal CVP.We estimate that the SWP has received subsi­dies of at least $1 billion (1991 dollars) due tointerest-free General Fund loans.

"A market system would promoteefficiency by providing incentivesfor conserving water and offeringcompensation to those willing to

transfer the amount they conserve.The system (also) would provide

incentives to develop otherinnovative arrangements. .."

Some cities do not meter water deliveries andothers that do meter do not base water chargeson the cost of service. Therefore, the level ofwateruse is not responsive to the cost ofprovid­ing the water. The Legislature recently enactedlegislation requiring meters in new construction- both residential and commercial (Ch 407/91- SB 229, Boatwright).

Legisla"ve Analyst's Office

Advantages ofa Market System. Reallocatingthe current water supply through a market sys­tem may be less expensive and less destructiveto the environment than increasing the watersupply with dams and other large constructionprojects. A market system would promote effi­ciency by providing incentives for conservingwater and offering compensation to those will­ing to transfer the amount they conserve. Inaddition, the system would provide incentivesto develop other innovativearrangements, suchas water banking, purchase of dry-year options(arrangements in which one party pays for theright to use another party's water in a dry year),andconjunctiveuse ofsurfaceand groundwatersupplies.

Problems with Implementing a Market Sys­tem. Federal contracts offer the greatest oppor­tunity for reforming waterusepracticesbecauseof the highlysubsidized rates, the greater quan­tity of water involved, and the expiration ofcontracts over the next 20 years. (State watercontracts, by comparison, will not begin to ex­pireuntil2035). However, uncertaintyand com­plexity in several areas offederal policy and laware potential barriers to transfers of federal wa­ter. For example, federal reclamation law andthe legislation that established the CVP Jackexpress language regarding water transfers.

Within the framework of existing contracts,state law and administrative practice are morestraightforward and provide few barriers towater transfers involving SWP water. The DWRhas statutory authority to help negotiate trans­fers and transport transferred water. However,contractors can impede transfers (1) with poli­cies that prohibit transfers outside the waterdistrict and (2) by opposing transfers of SWPwaterbyanothercontractor. Although the DWRhas final authority over the allocation of projectwater, the contractors have a great deal of influ­ence over DWR decisions.

In addition to these legal problems, there aremajor practicalproblems thatwould result frommarket reforms. Forinstance, transferringwaterraises concerns for protection of the interests of"third parties" - those who are not directly

involved in the transaction but who feel itsimpact. These interests include other water us­ers who hold rights to the runoff or return flowof th~ water to be transferred; fish, wildlife andother "instream" users; and the economy of thearea from which the water is transferred. Watersupplies for fish, wildlife, and other instreamuses areparticularlyvulnerablebecause (1) mostwater rights decisions were made beforeinstreamusesbecamea priority for the stateand(2) current law prohibits establishment of anexplicit right to keep·water instream. The waterboard can provide water for instream uses onlyby (1) issuing a permit for diversion for thispurpose or (2) restricting individual water rightpermits.

#All Western states, with theexception of Texas and California,

have established state groundwatermanagement programs."

In addition, a market system would providegreater incentives for groundwater pumping,thereby exacerbating the state;s overdraftingproblem. Currently, in most basins there are norestrictions on pumping groundwater. In orderto protect this resource, the state would need toestablish restrictions on pumping in conjunc­tion with market reforms. All Western states,with the exception ofTexas and California, haveestablishedstategroundwatermanagementpro­grams.

Options for Legislative Action. The role stategovernment could play in a water market sys­tem would depend on the degree to which theLegislature wants government to control wateruse. The role of government could be that of apassive facilitator, the implementor of a quasi­marketsystemoverseenbya centralizedagency,or the protector of interests not reflected in themarket, such as water qualityand "third-party"interests. To facilitate water marketing and pro­tect third-party interests, the Legislature couldamong other things:

Page 19

• Seek changes in federal law and/or deci- .sions by the Bureau of Reclamation that (1)state law generally governs the transfer offederal project water and (2) alter federalpricing policy to reflect the full cost of waterdeliveries.

• Require the DWR to act as the state's centralwater broker.

• Require that prices charged by governmen­tal agencies for water and water-related ser­vices fairly reflect their cost. Alternatively,require governmental agencies to charge a"market price" for water.

• Establishrestrictionsongroundwaterpump­ing in conjunction with market reforms.

• Tax use of water and use the revenue tocompensate third parties during the transi­tion to a market system for water.

• Adopt legislation to permit public orprivateentities to obtain water rights for mainte­nance of flows without physically divertingthe water.

• Help preserveflows byprohibitingtransfersof water unless the water is made availablethrough reduction of consumptive use (theamount of water actually consumed).

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Page 20

CONCLUSION

Ourreview of the water outlook indicates thatthe state faces both a near-term and a long-termwater supply problem. The five-year droughtprovides an impetus for legislative action on thestate's water supply needs. In our view, theLegislature should consider implementing acoordinated mix of the water supply, conserva­tion, and market options we have identified,due to the interrelationships between them. Forexample:

• Construction of supply alternatives shouldbe linked to market reform to assure efficientuse of existing and newly developed water.

• Market reforms should consider the inter­ests of"third parties," including otherwaterusers and the environment.

• Either market reforms or construction ofnew supply facilities should be accompa­niedbyeffectivemanagementofgroundwa­ter resources.

This Issue Paper was prepared by Rene Mendez, Nick Gustilo, and Carol Daniel, under thedirection ofCarol Bingham. For additional copies, please contact the Legislative AnalystOffice, State ofCalifornia, 925 LStreet, Suite 670, Sacramento, California 95814, (916) 445­2375. Permission is granted to reproduce this study as needed.

Legislative Analyst's Office