Water rights fund projected to run a deficit without fee changes; staff offers two increase scenarios

State Water Resources Control Board staff told stakeholders on July 30 that the water rights fund will face a funding shortfall in fiscal year 2026–27 unless fees are adjusted.

Cassandra White of the board’s Fee and Revenue Branch said the current fee-setting budget is $38.3 million and the governor’s May revision for FY26–27 is just over $39.1 million, a net difference of about $738,000. She identified employee compensation, processing costs through the California Department of Tax and Fee Administration and a CalEPA consolidated administration budget change proposal as the main cost drivers.

White outlined three scenarios for FY26–27. Under a “no fee change” forecast, staff estimated revenues of about $34.9 million against budgeted expenditures of roughly $40.1 million, producing an approximate $5.2 million deficit and reducing reserves from an estimated $14.3 million to about $9.1 million (about 23.4%).

Staff characterized Scenario A as a moderate approach: a roughly 5% revenue increase to about $36.5 million would cut the annual deficit to about $3.6 million and leave an ending balance near $10.8 million (about a 27.5% reserve). Scenario B would raise revenue approximately 10.5% to match the $40.1 million in expenditures, producing a near break-even year with a small surplus and preserving reserves at roughly the mid-30s percentage.

“Without the fee adjustment, the fund remains operational but continues to draw down the reserves,” White said, framing the choices as a tradeoff between preserving near-term reserves and limiting fee impacts on regulated parties.

Stakeholders urged caution. A participant identified as Stephen recommended presenting the no-fee-change forecast to the board, citing the fund’s existing reserves and current economic strain on ratepayers. Noel Kramers of the Wine Institute and a self-identified California grower similarly urged the board to avoid raising fees now.

Staff also highlighted a newly shown $2 million application filing set-aside that represents application fees in the review process; the set-aside is intended to ensure funds are available to refund portions of fees if an application is denied, and accepted applications would be moved into regular fee revenue.

White and other staff said they will continue to refine the fund condition based on enacted budgets and plan further stakeholder discussion at the July 30 meeting. They emphasized monitoring expenditures and budget change proposals that could add costs to the water rights fund.

Next steps: staff will update the fund condition once the enacted state budget and related BCPs are finalized and continue stakeholder outreach before any formal fee recommendation is made to the board.