California’s social and economic well-being is directly tied to financing for reliable, sustainable water. A new study from the Pacific Institute explores stable and sustainable sources of funding for water projects as a key to long-term solutions, and finds California’s increased dependence on general obligation (GO) bonds in funding water systems is unreliable and costly to both the state and taxpayers.

Current water rates often do not fully cover the cost of providing water services and rarely reflect the full costs of the water itself, such as the ecosystem impacts related to extracting water. California ranks at the top of the EPA’s survey of infrastructure needs in terms of the investments required to maintain aging water systems over the next two decades. Climate change, continued population growth, and restoring critical ecosystems will add further to these costs.

“Various financing options are used to invest in existing water systems and services, develop new ones, and mitigate environmental impacts, but there are serious economic and financial challenges,” said Dr. Newsha Ajami, lead author of the report. “The water sector needs a more comprehensive and stable financing portfolio.”

According to the California Department of Water Resources, nominal annual debt service for outstanding general obligation water bonds in California has increased four-fold since 2000. This shift to greater use of bond funding can be linked to the decreased ability to raise government revenues through taxes and fees as a result of voter-approved initiatives like Proposition 13 and 218. General obligation bonds, however, are not a steady and reliable source of funding for long-term planning and decision-making because they require voter approval if they survive the legislative process, which is sensitive to economic ups and downs.