Follow the money: A look at the massive Delta project

Fixing the Delta is necessary, say officials, but it won’t be cheap. The costs to build and operate Gov. Brown’s twin-tunnels plan are estimated to cost $24.54 billion over the 50 year term of the project.

Where will the money come from?

Documents provided by the Brown administration from the Bay Delta Conservation Project (BDCP) say water contractors are expected to pay the estimated $17 billion for construction and operation of the new facilities with the $8 billion remainder, mainly to ease the impacts of the huge project on the environment, being split between the state and federal governments.

The majority of state funding is expected to come mostly from future water bonds, including the bond currently slated for the 2014 ballot. At least one more bond and up to three more may be necessary to complete the habitat restoration during the 50-year life of the project. Federal funding is expected to come mostly from existing sources that historically have provided funding to support Delta restoration and monitoring in the past, although officials concede some new federal funding authorities may be needed.

But nothing is certain until it happens, and that’s the problem: Will there really be enough money, particularly from the state and federal governments, to get the job done? The issues were aired at a recent hearing.

“Some people might claim that is a deficiency, but we cannot guarantee those public funds,” said David Zippin, a state consultant. “There are state and federal laws that prevent us from doing that. We’re limited in how far we can go, but we can certainly demonstrate a history of similar kinds of funding, and we can describe the federal authorities that the funding can come from to demonstrate the likelihood of that funding.”

That lack of certainty is raising questions, especially in the Delta.

“I lost track of the number of times I read the words assumed, expected, anticipated or potential funding sources, which seems counter to what I understand or my definition of assured adequate funding to carry out conservation actions,” said Melinda Terry, North Delta Water Agency. “But in particular, relying on 14 percent to come from two water bonds thinking that they’ll pass is like me saying I’m going to retire early because I’m going to win the Powerball this week. It’s a nice little dream but I can’t take that to the bank.”

The Bay Delta Conservation Plan (BDCP) is the Brown administration’s effort to fix the ailing Delta by constructing new water facilities in the North Delta while simultaneously restoring more than 100,000 acres for fish and wildlife. The centerpiece of the project is a pair of tunnels, 40 feet in diameter and buried 100 feet below the Delta, that will carry water 35 miles from the Sacramento River to existing facilities in the South Delta.

State officials say the huge costs involved – it will be the costliest public works project in the nation’s history, by far, and four times the cost of the Bay Bridge construction – are reasonable to shore up existing supplies, move more water to thirsty Southern California and avert a catastrophe that would devastate California’s economy. The sharpest critics include people who live in the Delta, who contend the plan is too expensive and that urban ratepayers will end up bearing most of the costs.

At the end of May, the Brown administration released the final administrative draft documents for the ambitious plan, outlining how much the project would cost and how it would be paid for along with an analysis of the benefits and costs of the project to the water contractors. Recently, a meeting was held to present the documents to the public.

According to the draft documents, the capital costs for the BDCP total just under $20 billion with annual operating costs of $107 million per year adding another $5 billion over the life of the project. Nearly three-quarters of the capital costs are for construction of the new facilities and would be incurred in the first 10 years. The capital costs for acquiring, restoring and protecting the 100,000 acres amount to roughly 21 percent of the total.

The federal Habitat Conservation Plan, an environmental protection document that is required for many major projects, requires that builders analyze such things as the benefits to species, the non-biological impacts, technological feasibility and economic feasibility. The analysis should show that the project is the superior choice for conservation of the species as well as be economically feasible for the water contractors.

UC Berkeley economist David Sunding conducted the economic portion of the analysis for the state, calculating that the benefits of increased water supply reliability, improved water quality and seismic benefits outweigh the costs to the contractors by $4.7 billion.

The vast majority of these benefits – nearly 90 percent — are attributed to water supply reliability, a complex analysis that involves estimating the effect of the BDCP on the project’s ability to deliver water supplies under high and low export scenarios, with or without the project.

Sunding found that implementation of the BDCP would prevent a deterioration of 40 percent in the current average water deliveries. “The analogy that I use a lot is that BDCP is like fixing the foundation of your house – it keeps your house the way it is, but that’s the point,” Sunding said. “It prevents a disaster from occurring, so this 40 percent reduction in state water project deliveries is what we’re valuing.”

Water-quality benefits amount to about 10 percent of the total benefits of the project, with the lower salinity having measurable, positive impacts to both urban and agricultural customers.
However that improved water quality would come at the expense of some in the Delta, according to Terry.

“If you are in the south or western Delta, it gets worse for salinity and it’s called an unavoidable significant impact,” said Terry. “It doesn’t seem appropriate that the water contractors get better water quality but somehow for two portions of the Delta, it’s ‘sorry Charlie, it’s unavoidable.’ It is avoidable – you can modify or mitigate by changing the project.”

The analysis valued the seismic benefits at only 2 percent to 3 percent of total benefits to water contractors, and yet seismic benefits have been touted as a major reason to build the project, especially in the southern part of the state, with some suggesting that project proponents have been exaggerating the risk.

Sunding noted that the analysis only considered a one-year outage and did not consider the full range of consequences of a large seismic event. “A large earthquake with a one year or longer duration outage occurring in dry conditions will have impacts that are in magnitude greater.”

While the released documents answer some questions, they left many others unanswered, most notably how those costs would be divided among the state and federal projects and how then costs would be allocated between the contractors within each of those projects. For the purposes of the analysis, the costs were presumed to be equal for each acre-foot of water for all participants, but discussions are continuing, and in the end, the cost allocations to each individual contractor could be far different.

Jeff Michael of the University of the Pacific wondered whether the finding that the project was economically feasible was premature.

“My training in financial feasibility and the clear reading of the Department of Water Resources guidelines says that the financial feasibility criteria is that it requires every participant to have greater benefits than their allocated costs,” said Jeff Michael. “Without a cost allocation, how can you evaluate financial feasibility?”

“The analysis isn’t really to that point yet,” countered Sunding, “but at the same time, it is saying something significant to say that in aggregate, the benefits are greater than the aggregate costs, and that’s the point to which we’re at now. The next step in the analysis is to divide up the costs and divide up the benefits for each entity.”

With the majority of the water going to irrigate Central Valley farmland, some question the ability for the agricultural water contractors to pay their fair share. So far, farmers have been reserved in their support of the project.

“We have a model of anticipated deliveries,” said Jason Peltier of the Westlands Water District. “Frankly, if we come up on the low end of the range and that’s all the project can produce, I don’t see a sane farmer in the world saying I’m going to pay a whole lot of money for less water than I am getting today. There are fiscal realities that we face. It’s not ‘we’re just going to do it no matter what it costs.’”

The analysis of benefits in the plan documents was narrow, examining only the costs and benefits to participants to fulfill regulatory requirements. The state will be presenting the results of a broader statewide economic impact study at a public meeting this week that will focus on the economic impacts of the BDCP on various interest groups such as the Delta farmers, commercial fishing interests, boating and recreational interests. The study will also look at the economic impacts to the state as a whole in an effort to assess the broader social impacts of the proposed project.

If you go: The draft Statewide Economic Impact Study will be presented at a public meeting on Thursday, August 8, 2013 from 9 a.m. to 12 p.m. at the West Sacramento Galleria. For more information, click here. http://baydeltaconservationplan.com/news/news/13-08-01/Finance_Working_Group_Meeting_on_August_8.aspx
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Ed’s Note: Chris Austin, the founder and former editor of Aquafornia, is the publisher of Maven’s Notebook, which deals with state water issues. Austin is a regular contributor to Capitol Weekly.