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Oregon Legislature Passes Landmark Water Supply Funding Bill
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This article is intended to inform the reader of general legal principles applicable to the subject area. It is not intended to provide legal advice regarding specific problems or circumstances. Readers should consult with competent counsel with regard to specific situations.

By Steve Shropshire
Summer 2013

On July 7, 2013, in the waning hours of the legislative session, the Oregon Legislature took a historic step forward by passing Senate Bill 839. SB 839 creates a new state water investment fund called the Water Supply Development Fund ("WSDF"). The WSDF is a new tool to help the Oregon Water Resources Department ("OWRD") fund multi-purpose water development projects.

The bill represents the culmination of work by a diverse stakeholder group assembled by the Governor. With nearly unanimous approval by both the Senate (29-1) and House of Representatives (60-0), the legislation now moves to the Governor's desk for signature.

Overview
SB 839 creates a new fund from which OWRD will award grants and loans to water development project applicants. The WSDF will initially receive a $10 million appropriation from lottery-backed bonds (appropriated under SB 5533-A). Additional appropriations may be made in the future, with the intent to bring Oregon more in line with states like Washington, which has a $250 million water project development fund. The range of eligible projects is large, and includes among other things: new or expanded above or below ground storage facilities; infrastructure expansion, improvement, or replacement; efficiency improvements; streamflow protection and restoration; and conservation and reuse.

The goal is to provide a steady and reliable stream of funding for projects that generate public benefits. The bill was designed to correct the shortcomings of HB 3369 (2009), which was widely viewed as too complicated, expensive, and onerous to be of use.

SB 839 encourages the development of water projects that will return multiple benefits to both consumptive water users and to instream interests. Climate change models predicting reduced winter snowpack across Oregon helped drive this bill forward. With the loss of critical natural water storage in the form of high mountain snow, low summer flows are a looming problem for all of Oregon's citizens. Passage of this bill signals the legislature's commitment to begin playing a more active role in our water future.

Next Steps
Once the Governor has signed the bill into law, it will take immediate effect. The bill contemplates extensive rulemaking on a short time frame (adoption and implementation by January 1, 2015). OWRD will commence rulemaking in short order. The first funding will be available sometime in early 2015, after the state issues the WSDF bonds.

For a more detailed explanation of SB 839, read on.

Key Components of SB 839
Note: Section numbers below refer to the sections in SB 839

Establishment of the Water Supply Development Account. Section 3 establishes the WSDF to receive money appropriated to fund the evaluation, planning, and development of instream and out-of-stream water development projects through grants and loans. The types of eligible projects include those that will:
  1. Repair or replace infrastructure to increase the efficiency of water use;
  2. Provide new or expanded water storage
  3. Improve or alter operations of existing water storage facilities in connection with newly developed water;
  4. Create new, expanded, improved or altered water distribution, conveyance or delivery systems in connection with newly developed water;
  5. Allocate federally stored water;
  6. Promote water reuse;
  7. Promote water conservation;
  8. Provide streamflow protection or restoration;
  9. Provide for water management or measurement in connection with newly developed water; and
  10. Determine seasonally varying flows in connection with newly developed water.
Significantly, section 3(a) provides necessary state matching funds for immediate and direct support for ongoing studies conducted by the United States Army Corps of Engineers to allocate stored water (the Willamette Basin Project water reallocation study), and comprehensive basin studies conducted by the United States Bureau of Reclamation (the Deschutes Basin planning effort). Neither of these direct expenditures is subject to the process requirements or substantive requirements of the bill.

Public Benefits Scoring and Ranking Criteria. Section 8 provides that project funding applications will be scored based on the relative public benefits created by the proposed projects in three equally weighted categories — economic benefits, environmental benefits, and social or cultural benefits. The bill provides specific examples of types of benefits that would qualify under each of these categories.

Twenty-Five Percent Instream Requirement. Section 10 requires that any grant recipient for the construction or expansion of an above-ground water storage project dedicate twenty-five percent of newly developed project water to instream use if that project (a) impounds surface water on a perennial stream; (b) diverts water from a stream that supports state or federally listed sensitive, threatened or endangered fish species; or (c) diverts more than 500 acre-feet of water annually. Any instream water dedication required by federal, state, or local permits may be counted toward the twenty-five percent dedication requirement.

Instream Flexibility. To the extent a project is required to dedicate water instream, section 12 allows the project proponent to place water at either the location of the water development project or elsewhere in the steam system if an alternate location provides similar or greater environmental benefit without injuring existing water rights.

Seasonally Varying Flows. Section 13 requires the protection of wintertime (outside the basin's official irrigation season) flows needed to maintain the biological, ecological, and physical functions of the impacted stream. Seasonally Varying Flows ("SVF") are defined in Section 1 of the bill:
"Seasonally varying flows" means the duration, timing, frequency and volume of flows, identified for the purpose of determining conditions for a new or expanded storage project, that must remain in-stream outside of the official irrigation season in order to protect and maintain the biological, ecological and physical functions of the watershed downstream of the point of diversion, with due regard given to the need for balancing the functions against the need to store water for multiple purposes.
The SVF requirement is triggered if a funded project will require a new water storage or aquifer recharge permit or limited license for water storage outside the official irrigation season for a basin, and (a) impounds surface water on a perennial stream; or (b) diverts water from a stream that supports state or federally listed sensitive, threatened, or endangered fish species; or (c) diverts more than 500 acre-feet of surface water annually. Once OWRD determines SVF requirements for a stream, any subsequent WSDF-funded winter water storage project will be subject to the same requirements unless the initial SVF determination is shown to be incorrect.

SVF Rulemaking. Section 20 requires the Water Resources Commission to adopt rules establishing a methodology to be used to determine SVF requirements. The SVF rules must take effect by January 1, 2015. In the interim, no projects may be funded that would trigger the SVF analysis (see Sections 25 and 26). Section 19 calls for the Governor to appoint a rulemaking task force, which will advise OWRD on the functional needs of watersheds for seasonally varying flows and the financial feasibility of new water storage projects. The bill requires the task force to recommend a science-based methodology for determining seasonally varying flows requirements no later than July 1, 2014.

Umatilla Basin — HB 3369 (2009) Flexibility Fix. The Umatilla Basin aquifer recharge project funded under HB 3369 (2009) has been unable to meet the required twenty-five percent net environmental public benefit condition imposed by HB 3369. Section 16 of SB 839 amends that law to allow the Umatilla project to meet its net environmental public benefit requirement in a more flexible manner. It also places a cap on the total amount of instream water that must be dedicated to instream flows.

Repeal of HB 3369 (2009). Due to concerns about conflicting water funding programs, the legislature repealed the water project funding provisions contained in HB 3369 (2009). The repeal becomes effective on July 1, 2015 (see sections 29-41).