Funding Water in Times of Financial Uncertainty: The Case for a Public Goods Charge in California

Funding for water-related public purpose projects has become increasingly scarce in California. Utilities are facing new challenges that require additional capital while the state’s legal system has restricted the ability of local governments to raise funds. This fiscal landscape requires the water sector to find new ways to finance water-related public interest projects, including conservation and efficiency programs, monitoring and evaluation, and infrastructure maintenance and modernization. California must also generate supplementary funds for new water technology research, development, and dissemination if the state is to continue to grow despite dwindling water supplies. In recent decades, California has relied heavily on general obligation (GO) bonds to finance a variety of water-related projects. GO bonds, however, are unreliable funding mechanisms as they require voter approval if they survive the legislative process, and they can be costly in the long run as they are repaid with interest. Additionally, GO bonds violate the beneficiary-pays principle as the entire state repays a debt that benefits taxpayers in certain regions more than others.

This research paper looks at a supplemental funding mechanism, a Public Goods Charge (PGC), as an additional way for California to provide for water investment in the future. In a PGC scheme, ratepayers are charged a small, usage-related fee, and the funds are subsequently allocated to public interest projects at the local, utility, state, and broader scales. This method was used to fund electricity public purpose programs in California from 1998-2011, resulting in over $5.8 billion collected by the state’s three main Investor Owned Utilities (IOUs), with additional funds collected by local Publicly Owned Utilities (POUs), for energy innovation over 14 years. Utilities and the state as a whole benefitted economically and environmentally from the increased funding for energy efficiency, renewables, and research and development. The electricity PGC helped to transform California’s energy landscape into one that includes more modern and sustainable infrastructure systems. Significant energy savings were also achieved during the PGC era.