When it comes to state funding for water and natural resource projects, California has typically turned to general obligation bonds as the first resort. These bonds enable the state to borrow funds and pay them back over many years using General Fund dollars. The historic budget surpluses of recent years have shaken up this long-standing arrangement: awash in tax revenue, the state seized a rare opportunity to directly allocate large sums of General Fund dollars for water and natural resources. After two years of largesse, however, that funding source may be drying up—and we may see a return to general obligation (GO) bonds.
In the past two fiscal years, California took advantage of budget surpluses to allocate more than $12 billion from the General Fund to multi-year water and natural resource investments. With the recent budget shortfall, the state made some modest cutbacks (7%). Here’s the current breakdown:
Water: In fiscal years 2021–22 and 2022–23, the state allocated $8.7 billion through 2025 to support various projects, including dam safety, flood protection, water recycling, restoration of freshwater ecosystems, drought resilience, and implementation of the Sustainable Groundwater Management Act. This year’s budget retains $8.1 billion of this funding, with cuts ($632 million) to drinking water and wastewater, water recycling, Salton Sea restoration, and water conservation.
This year’s budget also repurposed some funds from previous years. This includes a one-time allocation of $436 million for flood management in the Tulare Basin and flood resilience for at-risk communities. Other new and repurposed funding includes lead in school water supplies ($25 million), stream gage maintenance and reactivation ($24 million), and fish screens ($17 million).
Forests and wildfires: In 2021–22 and 2022–23, the state committed $2.8 billion (including $755 million from the Greenhouse Gas Reduction Fund) over four years to forest resilience and wildfire intervention. The funds are for new programs, like post-fire reforestation, as well as ongoing programs, and they represent a significant increase for forest health and wildfire resilience (in contrast to wildfire response). In this year’s budget, this funding was reduced by 2%, with minor cuts to the Climate Catalyst Fund, land stewardship programs, and green workforce training.
Nature-Based Solutions: The Nature-Based Solutions budget packages in 2021–22 and 2022–23 allocated $1.6 billion in funding to new initiatives such as climate-smart land management, youth and tribal programs, and ongoing programs such as conservancies, land acquisition, and wetland and floodplain restoration efforts. This year, the budget was reduced to $1.4 billion (–10%), with cuts to climate-smart land management and conservation programs and conservancies.
Thus, for now, the state budget for water and natural resources seems to have weathered the storm of economic uncertainty and continues to be a funding priority. Additional federal funding for drought resilience in California and the western US—particularly from the Bipartisan Infrastructure Law and the Inflation Reduction Act (totaling $15.4 billion)—is also providing a temporary boost to water-related investments. Looking ahead, there are signs that both the Newsom administration and the legislature are pivoting back to using GO bonds as the main state funding instrument. There are currently two water and climate bonds in the legislature, SB 867 ($15.5 billion) and AB 1567 ($16 billion), which will likely be consolidated before being put to a vote by the legislators. If a consolidated version is approved by two-thirds of legislators in both chambers by end of session (September 14th), the bond would appear on the March 2024 ballot. Both the latest state budget and discussions about a new bond signal that water and climate issues continue to be top of mind for state policymakers.