Modernizing Federal Efficiency Policy: California Should Not Be Penalized for Good Stewardship

Californians use approximately half the electricity per capita of the national average. Our water productivity, economic output per unit of freshwater consumed, has improved dramatically over the past three decades through investment in recycled water systems, precision irrigation, and building efficiency standards. These gains required on-going public and private investment. In-turn, they generated real economic returns: lower consumer costs, reduced infrastructure demand, and stronger export markets for the technologies developed in the process.

It is therefore poor federal policy, and a fundamental misalignment of incentives, when allocation formulas penalize California’s efficiency rather than rewarding it. Per-capita federal infrastructure allocations that ignore conservation investment effectively transfer resources from states that have done the hard work of demand reduction to states that have not. The criticism that Democrats are not pragmatic about economic growth misses what California’s record demonstrates: efficiency investment is growth investment. It reduces operating costs for businesses and households, frees capital for productive use, and develops technology sectors with strong export value. The goal is not stewardship at the expense of growth - it is stewardship as the mechanism of growth.

This is not an argument for special treatment. It is an argument for updating a distribution methodology that was designed for a different era. The per-capita model made sense when population was a reasonable proxy for infrastructure need, when states of similar size had broadly similar resource demands and investment profiles. That assumption no longer holds. A state that has invested decades and hundreds of billions of dollars in efficiency infrastructure has a materially different infrastructure need profile than one that has not. Failing to account for that difference does not produce neutral outcomes; it produces systematically perverse ones, rewarding inaction and penalizing investment. Updating the model is sound policy methodology that would benefit any state based upon actual results rather than population size.

Proposed Action: Congress directs DOE, EPA, and the Bureau of Reclamation to develop a modernized Federal Infrastructure Efficiency Index — a transparent, biennially updated methodology that incorporates per-capita and per-GDP water and energy efficiency metrics alongside population when allocating federal infrastructure and water program funding. The index should be open to all states and designed as a positive incentive: states that lead on efficiency are producing national public goods and deserve commensurate recognition in federal funding formulas.