California Department of Water Resources

The California Department of Water Resources (DWR) engaged ERA Economics to review and develop strategies for improvements for financing and funding water projects in California. ERA, working with DWR staff and other economists, developed a comprehensive review of funding and financing approaches, with particular emphasis on multi-benefit water supply projects. Multi-benefit projects are those that provide non-water social or private benefits in addition to primary water benefits.

ERA reviewed current financing approaches across selected state, local, and federal agencies, summarized advantages and drawbacks, and developed recommendations. This included exploring incentives to use state-sponsored financing from the perspective of project proponents, agencies, and the public.

ERA prepared a white paper describing concepts for a multi-benefit revolving fund (MBRF) that would be able to finance a wider set of water and water-related projects and benefits. An MBRF would specifically address the perceived inflexibility of programs that only finance certain kinds of projects or water-related benefits. The paper also presented a set of recommendations that could be implemented either as part of an MBRF or within an alternative structure for water project financing, including the existing programs run by the State.

The recommendations from the analysis were to increase the flexibility of funding options available to project proponents and address gaps in current funding opportunities, such as grant funding for capital projects, but not for project planning and operations. Multi-benefits are realized after the project begins operations, and these benefits are typically non-reimbursable through traditional means (e.g., rate payers). Therefore, expanded funding options that encourage these types of project outcomes could lead to an expansion of these broader public benefits.