The CALFED Bay-Delta Program is behind schedule and lacks performance measures that provide real accountability and a long-term finance plan, which makes it more difficult to obtain federal funds to complete its work. A financial and performance audit of the program should be conducted that can be used as a basis for developing quantifiable performance measures and prioritized implementation actions with budgets tied to performance measures.

The CALFED Bay-Delta Program is a consortium of 24 state and federal agencies. The purpose of the CALFED Bay-Delta Program is to reduce water supply and environmental conflicts in the Bay-Delta water system that provides water to more than 22 million Californians and 7 million acres of farmland, as well as habitat for many threatened and endangered species. The program is charged with improving water supply reliability, water quality, levee system integrity and ecosystem health.

A 1994 Framework Agreement among state and federal agencies with management and regulatory responsibility in the Bay-Delta Estuary identified three categories of Bay-Delta management that needed improvement: water quality standards formulation; coordination of State Water Project and Central Valley Project operations with regulatory requirements; and long-term solutions to problems in the Bay-Delta System.

In December 1994, the agencies, working with agricultural, environmental and urban stakeholders, reached agreement on three categories of environmental issues, collectively known as the Bay-Delta Accord. The first category was water quality standards for the Delta that were put into regulation in the 1995 final Water Quality Control Plan for the Bay-Delta.

The second category of provisions reconciled operational flexibility of the State Water Project and the Central Valley Project and compliance with the federal Endangered Species Act (ESA) through real-time monitoring and operation.

The third category of provisions, referred to as "Category III," were meant to improve conditions in the Bay-Delta Estuary that are not directly related to Delta water outflow including screening water diversions, waste discharge control, and habitat restoration. Parties to the agreement committed to implementation and financing of such measures, and estimated that a financial commitment of $60 million would be required in each of the three years of the agreement (1995-1998).

From 1995 through August 2000, long-term solutions to the problems in the Bay-Delta were developed. A comprehensive program, implemented through a Record of Decision (ROD) and estimated to cost approximately $30 billion, was finalized at that time. The program is now in its fourth year of implementation. The plan failed to include in its scope various factors crucial in determining the ability of the program to meet many of its objectives. For example, the CALFED Ecosystem Restoration Program does not take into account the ocean environment in its plan to restore salmon and steelhead populations. These fish spend two-thirds or more of their life in the ocean. Ocean temperature, food availability and commercial fishing are all significant factors that impact these fish populations and can limit the ability to achieve population recovery goals. Achieving these recovery goals is necessary to assure operation of the Delta water supply system under the Endangered Species Act.

The primary value of CALFED to date has been the much improved coordination of the state and federal water project operators and the fisheries agencies to reduce the killing of fish due to Delta water operations, including pumping. Only through the initiative of the state and federal water project operators and their contractors has a south Delta water conveyance improvement plan started to move forward to improve water supplies south of the Delta.

Legislation (Chapter 812, Statutes of 2002, SB 1653, Costa), established a governance structure for CALFED. The most important element of this legislation was the creation of a new state entity within the Resources Agency-the California Bay-Delta Authority (CBDA)-to provide oversight, balance and coordination of implementation of CALFED Programs. The CBDA's many duties include the annual review and approval of long-term expenditure plans of the implementing agencies, and the preparation of a comprehensive program budget proposal. The Authority first met in July 2003.

Several interviews with stakeholders identified concerns with the Bay-Delta Authority's governance structure including the need for public members of the CBDA to actively participate in the decision-making process to provide the program with the guidance it needs. [1] Others expressed concerns that Bay-Delta Authority staff needs to better support members' participation.

Funded primarily by the state, the program cannot succeed in the long-term, without federal and additional financial participation from third parties such as water users, recreational interests, wildlife interests, and the general public. Federal reauthorization of the CALFED program with associated funding before the end of the year would demonstrate that the existing structure can work.

According to the Legislative Analyst's Office (LAO), since 2002 more than $2.6 billion has been spent to implement the CALFED Program. [2] Many land and water assets have been acquired and hundreds of research, demonstration and education projects have been funded. While the program publishes annual reports and work plans detailing the program's actions and expenditures, it has not clearly documented progress based on performance measures other than dollars spent, amount of land or water acquired, and the number of projects funded. There has been a lack of commitment to complete and implement a program evaluation based on quantifiable performance measures. [3] Although the CALFED 2003 Annual Report commits to the "Continued development of appropriate performance measures that will evaluate how well specific program elements are meeting the objectives of the . . . Program." There has been no clear link made to species recovery and actions taken by the program. There has been no clear demonstration of the added value of the coordination function of several of the CALFED programs including the Drinking Water Quality Program.

While a long-term finance plan has not been put forward, a Draft Finance Options Report was published in May. [4] The report provides information on program costs and benefits, a range of finance options, and tools to assist future decision-making, but makes no specific recommendations. The Bay-Delta Authority is not required to prepare a long-term financing strategy. The LAO and many of those interviewed stated that a long-term strategy is a necessary and crucial function for the Bay-Delta Authority. [5] It is imperative that remaining bond funds be spent on high-priority actions based on a strategic plan and performance-based monitoring. The strategic use of remaining bond funds can attract additional federal and nongovernmental matching funds. Expenditure of these funds can directly enhance local economies, and improve the long-term business climate of the state by improving water supply reliability and the environment.

Again, the LAO identified that program implementation is hindered by lack of financial support for the Levees Program and for the Drinking Water Quality Program. Improvements in these areas are needed to protect Delta islands and water quality when water pumping increases after modifications to Delta channels, or any other conveyance improvements are put in place.

The CALFED Program is often bogged down by a cumbersome process to select and contract for projects. While there is general support for the competitive grants process, it can result in long implementation delays of eighteen months or more. Once contracts are in place, projects are not adequately managed and performance is not well documented. One urban water contractor representative rated the Ecosystem Restoration Program as a "6 out of 10" based on the lack of documented results and the contracting delays. [6]

According to the 2002 CALFED Annual Report, "Significant funding reductions have severely delayed all aspects of the Levee Program, including efforts to improve Delta levees to a base level of protection." The report also states that for drinking water quality, "Lack of funding and contracting issues have affected implementation of projects. Delays in assessing options to reduce bromide and total organic carbon impacts could have implications for other areas of the CALFED Program." Regarding the Water Use Efficiency Program (WUE), the report states that, "Contract delays have affected awarding of grants, and a lack of resources for defining performance measures and monitoring local water use efficiency projects is affecting CALFED's ability to evaluate the overall effectiveness of WUE actions." [7] The 2003 CALFED Annual Report states that, "contracting constraints have delayed preparation (of plans) and implementation aspects . . . for restoration activities." [8]

Some reporting requirements have never been met, including mitigation monitoring. A requirement of the Record of Decision is that projects will be monitored to ensure that mitigation strategies are considered, adopted and implemented. [9] CALFED agencies are required to provide annual written reports and summaries on mitigation efforts. To date this requirement has not been met.

The implementation of the CALFED Bay-Delta Program relies primarily on general obligation bonds, non-state cost sharing made up of private water user funds, and some federal funds. Program implementation relies on some direct general fund support, $10.9 million in FY 2004- 2005, and potentially $8.245 million in FY 2005-2006 through FY 2007-2008. General obligation bond funds from California Propositions 204, 13, 14, 40 and 50 specifically supporting CALFED implementation total about $1.625 billion. There is another $2.43 billion in CALFED-related funding.

Proposition 50 specified $825 million for implementation of the CALFED program. Other CALFED-related Proposition 50 funds, including $500 million for the Integrated Regional Water Management Program and $200 million for water quality improvement programs, will be available for the next two to three years as shown in the chart below. Given the current fiscal condition of the state, it is uncertain whether new bond measures will be brought before the voters.

The following chart shows that while substantial funds have been obligated to date, an audit can identify cost savings through contract cancellations and identification of unused assets. By basing funding decisions on quantifiable performance measures, and prioritizing how funds should be spent, remaining funds can be better utilized.

Several state water contractors commented that prioritization and performance measurement are key to the future success of the CALFED program. [10] A representative from the Kern County Water Agency believes one basic question should be asked when CALFED is considering any action, "Does the action reduce conflicts in the Delta?" [11] In addition, Tim Quinn of the Metropolitan Water District of Southern California said that in his opinion, the bottom line for CALFED should be "Rather than just trying to get money out the door, it is important to get it right." [12]

Recommendations
An independent financial audit of the entire program should be conducted by a private auditor under contract with the California Bay-Delta Authority. Based on audit results, quantifiable performance measures should be developed and implemented for contract management, oversight and reporting.

The audit should include a status review, reporting review, and performance review of each project funded in whole or in part with CALFED funds to meet CALFED Program goals. The audit should include a review of project solicitation and selection processes with recommendations for efficiency improvements and a review of the contracting process for consistency and efficiency.

The Governor should direct the adaptive management-or technical performance- analysis be conducted under the direction of the CALFED Independent Science Board.

This is a performance review of the program in its entirety after the first four years of implementation (seven years for the Ecosystem Restoration Program) that includes specific quantifiable performance measures. The review should be conducted in the context of the Record of Decision (ROD) and indicate potential changes to the program implementation to bring it into compliance with the ROD, or changes to the ROD, recognizing adaptive management results, for consideration.

The California Bay-Delta Authority (CBDA) should have approval authority for all strategic plans, quantifiable performance measures, prioritized implementation actions and budgets.

Based on the adaptive management analysis and updated strategic plans, implementation actions should be prioritized within each CALFED Program, and then on a program-wide basis. Each program should use specific quantifiable performance measures. Budgets should be tied to performance measures.

A long-term financing plan should be completed by December 2005 by leadership of the CBDA.

This is important to assure successful and balanced program implementation.

Recommendation A requires an estimated one-time expenditure of $300,000 to fund a financial audit by the Bureau of State Audits, or another independent entity. The audit would reveal the amount of obligated funds. Estimates indicate that an audit could possibly identify costsavings of 5 percent of obligated funds through contract cancellations and identification and disposal of stranded assets. It is anticipated that the return on the audit expenditure may be at least tenfold or $3 million. [13]

Process re-engineering for project selection and contract administration could save an estimated 15 percent of administrative costs, or $400,000 per year.

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