On August 10, 2010, Governor
Schwarzenegger signed AB 1265, removing the $11 billion bond
measure passed as part of the “comprehensive” water package
in 2009 from the November 2010 ballot, delaying the bond
vote until 2012. In addition to many other projects that
would be funded by the Bond, $2.25 billion in appropriations
were identified for Delta sustainability, including funding
for activities contemplated by the Bay Delta Conservation
Plan (BDCP) and implementation of other projects consistent
with the Delta Legislation enacted last year. While there
has been much discussion of the affordability of the Bond
and the likelihood of its passage, there has not been a
great deal of discussion of the potential implications of
delaying the Bond. In particular, a delay in the Bond will
likely have implications for the BDCP and may result in
legislative authorization for “fees” to pay for Delta
restoration.
Background
In November 2009, the California Legislature enacted five
bills intended to promote a comprehensive solution to State
water supply reliability and ecosystem restoration in the
Sacramento-San Joaquin River Delta. Among the five bills
was the Safe, Clean, and Reliable Drinking Water Supply Act
of 2010 (Bond). That bill authorizes the issuance of
$11,140,000,000 in bonds for various water-related projects
throughout the State, including $2.25 billion in funding for
“Delta Sustainability.” (Wat. Code, § 79730 et seq.) The
bill was conditioned, however, on approval at the November
2, 2010 general election. AB 1265, enacted on August 10,
2010, removes the Bond from the November 2, 2010 ballot and
places it on the general election ballot for November 6,
2012.
Much of the $2.25 billion in the Bond was likely going to
provide the necessary funding for what is thought to be the
“public portion” of the costs of implementing the BDCP. The
Bond specifies that $1.5 billion of the Bond funds be
allocated to projects to protect and enhance sustainability
of the Delta ecosystem, including projects for the
development and implementation of the BDCP. (See Wat. Code,
§ 79731(b)(1).) Given that substantial funds contained in
the Water Bond are set aside for Delta sustainability, and
specifically the BDCP, the delay of the Water Bond raises a
question about the future of funding for restoration and
other activities contemplated by the BDCP.
The BDCP as a Habitat Conservation Plan
The BDCP, under development for the past few years, would be
a multispecies Habitat Conservation Plan (HCP) as authorized
by Section 10 of the federal Endangered Species Act (ESA).
Section 10 of the ESA allows the issuance of permits for
“incidental take” of threatened and endangered species based
on an approved HCP. If approved and implemented, the BDCP
will provide broad habitat restoration and ecosystem
conservation in the Delta to allow certain federal, state
and local agencies to conduct activities in the Delta,
including operation of the State Water Project (SWP) and
Central Valley Project (CVP), and allow for the construction
of any proposed alternative conveyance structure that might
otherwise conflict with current laws pertaining to
endangered and threatened species. The HCP may also serve
as a Natural Communities Conservation Plan (NCCP) under
California State law.
HCPs cannot be approved without identification of secured
funding sources for activities contemplated by the HCP. In
particular, an HCP must ensure that there is adequate
funding and specify the sources of funding available to
implement the HCP’s steps to minimize and mitigate impacts
to its covered species. (16 U.S.C. §§ 1539(a)(2)(A), (B).)
Thus, an HCP must detail the funding sources that will be
available to implement any proposed mitigation program. For
large-scale HCPs, funding issues become complex because of
the geographic scope of the area and because the number and
scope of the activities contemplated typically require
substantial budgets. Where perpetual funding is required to
implement any mitigation measures, the HCP must establish
programs or mechanisms to generate those funds.
Importantly, an applicant for a permit cannot rely on the
speculative future actions of others to fund activities
related to an HCP. (Southwest
Center for Biological Diversity v. Bartel (S.D. Cal.
2006) 470 F.Supp. 2d 1118, 1155, citing
National
Wildlife Federation v. Babbit (E.D. Cal. 2000) 128
F.Supp. 2d 1274, 1294-1295, and
Sierra Club v.
Babbit (S.D. Ala. 1998) 15 F.Supp. 1274, 1280-1282.)
The lack of adequate funding to ensure implementation of
mitigation and other conditions of an HCP can be a fatal
flaw and, in fact, the lack of adequate funding and
appropriate funding assurances has resulted in the
invalidation of HCPs. Courts have been cautious when
considering the source of funds identified for the
acquisition of property and for long-term mitigation
management associated with HCPs. While there is no
requirement that an applicant acquire all land required for
an HCP up-front, or that there be some form of permanent
endowment funded prior to the issuance of the incidental
take permit, an HCP must include a funding plan that
outlines mandatory funding measures and provides for
potential future adjustments to account for increased
costs. (Southwest
Center for Biological Diversity v. Bartel, supra, 470
F.Supp. 2d at p. 1156.)
For example, the City of Sacramento’s HCP for the Natomas
area was invalidated due, in part, to inadequate funding
assurances. (National
Wildlife Federation v. Babbit, supra, 128 F.Supp. 2d
1274.) There, the HCP’s funding mechanism depended on
continuous infusion of new “developable” land to providing
funding for mitigation for past development. The problem
inherent in this funding scheme was that the mitigation fees
imposed on land under development might not be sufficient to
purchase the required mitigation lands, leaving the burden
of covering the potential cost increases on future
development. If lands were developed too rapidly, there
might not be any lands left to which an increased fee could
apply. Thus, the HCP lacked adequate assurances that the
City of Sacramento would mitigate the effects of urban
development occurring within its permit area.
Further complicating the matter, the City of Sacramento had
rejected the United States Fish & Wildlife Service’s (USFWS)
proposed change to the HCP, that the City of Sacramento
would simply “ensure” funding would be available. Instead,
the City of Sacramento created a funding scheme that was
“projected” to be adequate, without any assurances. (National
Wildlife Federation v. Babbit, supra, 128 F.Supp. 2d
at p. 1294.) The court found that this proposed funding
scheme frustrated the ESA’s requirement that funding for
mitigation be ensured.
The City of San Diego prepared an HCP that met a similar
fate. (Southwest
Center for Biological Diversity v. Bartel, supra, 470
F.Supp. 2d 1118.) There the City prepared an HCP that
needed funding for two categories of expenses. First, the
City needed funds to acquire land for the preserve
contemplated by the plan. Second, the City needed funds to
administer the plan for the life of the incidental take
permit. The City’s proposed source of funding relied on
future actions, consisting of future regional plans with
other local jurisdictions, raising the sales tax, or issuing
bonds, which would require voter approval.
The uncertainty over guaranteed funding was evident in the
administrative record, which revealed that the City could
not guarantee that funds for the purchase of lands in the
preserve would be available beyond those obtained through
the mitigation process. While the City promised to use its
“best efforts” to implement the financing and land
acquisition components of the plan, the court nonetheless
found that the City’s unwillingness to ensure funding for
the plan was fatal. The court found that the proposed
funding source was unreliable and speculative and that the
USFWS could not rationally conclude that the City would
“ensure adequate funding” as contemplated by the ESA.
For the Water Bond and the BDCP, the question is what impact
the Bond delay will have on the development and approval of
the BDCP. Without question, the delay of the Bond presents
challenges to the BDCP. The Draft BDCP is currently
scheduled for release in November 2010, with a final version
expected in early 2012 — well ahead of the November 2012
vote on the Bond. As such, and as currently scheduled, the
BDCP cannot rely on the Water Bond alone as funding for
restoration activities contemplated by the BDCP, at least
not if the BDCP remains on its current schedule.
Other Potential Sources of Funding for the BDCP
The delay in the Bond vote and, frankly, the uncertainty of
the ultimate fate of the Bond, results in a quandary for the
BDCP, and calls into question the ability to complete the
activities contemplated by the recently enacted water
package. There has been a move afoot for some time to
identify other sources of funding, not only for some Delta
restoration activities, but also to fund long-term Delta
governance.
There is a bill currently under consideration, AB 2092
(Huffman), that seeks to identify those that benefit from,
or cause a negative impact to, the Delta, including all
water users and dischargers in the larger Delta watershed,
those benefitting from Delta flood protection, those who
benefit from Delta recreation, and commercial fishing
interests. Under AB 2092, the Delta Stewardship Council
would make recommendations regarding fees, but could not
adopt fees without express legislative authorization. The
purpose of this exercise is to identify potential funding
sources, under a “beneficiary pays” principle, for
implementing the “Delta Plan.” The Delta Plan, a component
of the water package, is currently being developed by the
Delta Stewardship Council. If successful, the BDCP will
become part of the Delta Plan. Many have expressed concern
about parties not participating in the BDCP being otherwise
required to provide financial and other support to make the
BDCP a success. AB 2092, as currently drafted, perpetuates
those concerns.
In addition to these concerns, the legitimacy of user fees
imposed on water rights is still in question. In 2003, much
of the financial support for the State Water Resources
Control Board’s Division of Water Rights shifted from
General Fund revenue to fees imposed on appropriative water
rights issued by the State. Those fees were the subject of
litigation that is still pending before the California
Supreme Court. Without a decision from the California
Supreme Court on this question, relying on user fees imposed
on water rights throughout the Delta watershed could be a
fatal flaw in a financing mechanism for Delta restoration.
Conclusion and Implications
Delaying the Bond until November 2012 presents some
challenges for the BDCP and for Delta restoration
generally. Given the legislative directive to manage
towards the coequal goals of providing a more reliable water
supply for California and protecting, restoring, and
enhancing the Delta ecosystem, it is almost certain that
there will need to be some funding mechanism identified to
move forward with Delta restoration. The concern is that
parties outside of the BDCP will be burdened with the cost
of paying for Delta restoration, restoration that many see
as the responsibility of those who move water through (or
around) the Delta and those who are more directly
responsible for the physical modification of the Delta. The
delay of the Water Bond is certainly not the end of the road
— and it might just be one of the many forks in the road to
solving the Delta’s problems.
Somach Simmons &
Dunn provides the information in its Environmental Law &
Policy Alerts and on its website for informational purposes
only. This general information is not a substitute for
legal advice, and users should consult with legal counsel
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