Water Board forced to raise fees again, but ag groups see hope

The State Water Resources Control Board has again bumped up fees on agricultural stakeholders within its regulatory programs, following multiple years of increases. While the fees are a comparatively minor burden to farmers, the overall cost of compliance for the regulatory programs has been difficult to shoulder.

Momentum is gathering for a more collaborative approach that would streamline the programs, cut down on staffing costs and ease the burden for stakeholders.

The board’s authority is limited when it comes to deciding the actual fees. The governor’s January budget proposal pitched several new staff positions for the agency. After the economic reality of the pandemic set in, the May Revision for the budget cut those positions, along with billions in spending across the state government. Yet the final budget signed by the governor brought back the positions. That required the State Water Board to raise fees to pay for the staff.

The only options they had were to continue the fee increases as originally planned or avoid some or all of those increases until next year. Pausing the increase would lead to an even larger jump in fees in 2021—of nearly 10%.

“If these fee increases are inevitable, and they seem to be every year,” said Danny Merkley, a water policy advocate for the California Farm Bureau Federation, “it is very important to have incremental increases that actually make it easier for our members to budget, instead of a seesaw of huge increases and then hold off for a number of years.”

The board also adjusted some of the permits under the water rights program for the first time in nearly 20 years, leading to a 600% increase for some permit holders. Fee payers asked that the permits be adjusted every year to prevent such sudden changes.

They are already dealing with so many other uncertainties at the moment.

“Fee payers, in their diverse communities, are reeling from the historic impacts of a pandemic, firestorms, air quality, revenue cuts and now probably a zombie apocalypse,” joked Bob Gore, a policy advocate for the Gualco Group, which represents several irrigation districts as well as winegrape growers.

Gore has often pointed out that the Irrigated Lands Regulatory Program does not account for farmland fallowing due to the implementation of the Sustainable Groundwater Management Act. With fewer farmers to cover the regulatory costs, fees could rise dramatically.

For a decade the conversation about the Water Board’s regulatory programs has largely centered on the rate structure for the fees. For Gore, this ignores the broader, less tangible issue of the cost of compliance.

The fee system is the backup plan the state established during the economic fallout of the Great Recession. Rather than taxpayers funding the regulatory programs, the stakeholders have shouldered the costs through fees, a switch the State Water Board and many regulatory agencies undertook during the Brown administration. Over the years, the Water Board programs have grown as new programs were added, requiring more staff at the state level as well as at the nine regional water quality control boards that perform the monitoring and enforcement.

Each year staff at the State Water Board assess how much money is needed to cover costs, and the process has evolved into a dialogue. Following the release of the January budget, staff share their best estimates for the fee structure for the coming year and take feedback from stakeholders. They meet again after the May Revision and after the final budget is approved in June, presenting options and a recommendation to the board in September.

This year staff assured stakeholders as late as June that fees would stay flat this year. But with the Legislature adding the new positions back into the budget, money had to come from somewhere.

“What we finally ended up with in the adopted budget was, frankly, a very good budget for us,” said John Russell, a deputy director at the State Water Board. “Unfortunately, that translates into some negatives for our fee programs.”

This put Russell and the rest of the staff in the position of recommending a fee increase to the board after all, walking back earlier messaging. The stakeholders recognized the fees had to rise this year. The board ultimately approved an increase, though not as much as the staff recommended. Yet the main concern for Gore was not the fees.

“For the past three years, I've been talking to board members and senior staff about a process that would engage fee payers a little bit differently,” said Gore.

The process would bring to the table the individual water rights holders (like farmers), utilities and districts to work directly with staff on ways to reduce staff costs, such as taking over some of the duties for monitoring and reporting. Some regulatory programs require the same reporting, which could be consolidated. Growers who have a strong track record for water quality compliance could report less frequently. Fewer reports translates to less work for staff.

In the meeting last week, all five board members expressed interest in this approach, with three in strong support, including Vice Chair Dorene D'Adamo, who farms in the San Joaquin Valley. Board member Tam Doduc also recognized the burden the fees and cost of compliance place on farmers.

“Having gone through this more years than I want to recall, it is always extremely difficult,” she said. “I would often welcome the opportunity for the board to exercise some measure of discretion in terms of looking at the bigger picture of where our fees are coming from, what our priorities are, how that fits into that greater societal picture.”

Doduc cautioned that this is an uncertain time for the state budget. Deciding to lower the fee increases this year would not guarantee the exact fee increases for next year, since that is the decision of the Legislature and administration.

Interested in more coverage and insights? Receive a free month of Agri-Pulse West.

The state and regional water boards have already been dealt a 10% cut to salaries from the state’s taxpayer fund. According to Russell, the finance department warned to expect a further 5% reduction to the overall budget in the upcoming January proposal.

With unfilled vacancies and staff recruited for contact tracing efforts for COVID-19, the Central Valley Water Quality Control Board is already facing a 35% reduction in productivity this year. This led to some infighting between staff and State Water Board members on where to make further staffing reductions—at the state or regional level—to make up for the gap in fee increases.

Board members also disagreed on whether to dip into the reserve fund to balance the budget. The small pot of cash has been set aside to account for years when fee revenues come in lower than projected. This happened with the new cannabis program in 2019, when it faced expenditures of $18 million but fee revenues of just $5 million, since the state approved far fewer growers for cultivation permits than expected.

After tense discussions, staff agreed not to add the cannabis fees into the agricultural programs to make up for the shortfall. Instead, the size of the cannabis program has remained small, with positions staying vacant and staff being moved to other programs.

Even more fiscal uncertainty is around the corner for the state. If Congress does not act on a coronavirus relief package before October, drastic cuts will be triggered across agencies in order to fill a $10 billion hole in the current budget. The state had already scraped funds from nonpriority programs as part of its triage in June.

In January even more difficult decisions will be made. State tax revenue will likely come in much lower next year, since so many Californians have been out of work in 2020. Without federal aid, this would lead to further cutbacks to state worker salaries and more creative ways of shuffling money around at the State Water Board.

Top photo: State Water Board Chair Joaquin Esquivel