Governor Schwartzenegger proclaimed a statewide drought and issued an Executive Order directing immediate state action to deal with the crisis June 4, 2008.

California Governor Arnold Schwartzenegger last week declared the state's first official drought since 1991, the result of two consecutive years of below-average rainfall.

Schwartzenegger is urging state legislators to pass his proposed $12 billion plan to improve statewide water management systems. The announcement fueled continued interest in water technologies. The sector has been been booming—particularly in California, thanks to a series of reports and funding announcements from the Environmental Protection Agency and the federal government. Cleantech investors have longed talked about an interest in water technologies, and recent action from state and local governments is attracting real money to the space.

"Water is definitely a space we're expecting to pop any day now," says Tim Carey, PriceWaterhouseCoopers' U.S. cleantech leader. "Up to this point there has been a lot of talk but no major investments. I expect that to change by the end of the year."

California-based water technology companies hoping to cash in on cleantech investor interest in the space include desalination companies such as San Leandro, Calif.-based Energy Recovery, which has developed a technology it claims reduces the energy required to desalinate water. Energy Recovery filed for its $175 million IPO in April 2008 and hopes to be floating stock by the end of the year. Companies with water treatment and purification technologies, such as Irvine-based Sionix and Fremont-based PurFresh, also stand to gain investment dollars, as do companies with water quality monitoring technologies, such as Sensicore, which is currently collaborating with IBM (NYSE: IBM) on a large-scale pilot test of its water quality sensors and monitoring software.