Delta Tunnel Spending May Hit Taxpayers

You could end up paying for this at tax time. | Photo: Christina Hendricks, some rights reserved

A plan to build two huge tunnels to shunt fresh water around the Sacramento Delta is supposed to be funded entirely by the people who received the water. But taxpayers may end up paying a substantial amount of the tab.

That's according to documents obtained by the Stockton-based environmental group Restore the Delta that discuss the cost of the California WaterFix project, which is projected to cost at least $16 billion to build. According to an unpublished 2015 draft analysis obtained by the group, California WaterFix would require a federal subsidy of nearly $4 billion in order to be cost-effective for agricultural water users.

That runs counter to state promises that the tunnels project would be funded entirely by water users. And even with a federal bailout, most of the project's expenses may end up being paid for primarily by Southern California households.

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I believe that next to Delta people, Southern California people will be the most harmed [by this project], Restore The Delta's executive director Barbara Barrigan-Parrilla told KCET.

California WaterFix's hefty price tag comes as no surprise. The project would involve burying two 30-mile long, 40-foot wide tunnels as much as 150 feet under the Delta, bringing fresh water from intakes near Clarksburg on the Sacramento River to the State Water Project's Banks Pumping Plant near Livermore. There, the water would be pumped into the California Aqueduct for use by farms and cities, most of them in the Central Valley and Southern California.

The tunnels purport to address a significant problem with California's existing water delivery system by bypassing the Delta. At present, the Banks Pumping Plant and its federal counterpart, the Central Valley Project's Jones Pumping Plant, pump water directly from the southern Delta, reversing the flows of some rivers and sloughs, and causing salt water from San Francisco Bay to infiltrate the Delta's freshwater ecosystem.

The revised version of the Peripheral Canal, now an underground project called the California WaterFix, is still on the drawing board.

By shunting Sacramento River water directly to the plants through tunnels instead of through a circuitous network of Delta channels, California WaterFix would, in theory, provide benefits to Delta wildlife and cleaner water for Southern California farms and cities.

But critics charge that the tunnels, capable of diverting the entire flow of the Sacramento in dry years, would provide justification for increased water exports from an ecosystem already reeling from both exports and drought.

And while the state has long pledged that no taxpayer funds would go toward the project's construction costs, the November 2015 cost-benefit analysis obtained by Restore the Delta projects that making water users pay for the whole project could prompt agricultural users to opt out altogether.

The analysis, prepared for the state's Natural Resources Agency by U.C. Berkeley economist David Sunding for the consulting firm the Brattle Group, found that even with a $3.6 billion boost from the federal government or some other source, California WaterFix still didn't make economic sense for agricultural water users. Under the currently negotiated operating criteria, Sunding writes in the report, the WaterFix does not provide benefits in excess of costs for most agricultural water users.

While Sunding did find that the project made economic sense for urban water customers, dissatisfaction from ag water companies could make that a whole lot more complicated. Among the documents Restore the Delta obtained through its Public Records Act request was an April 8, 2016 email from David Sunding to the Hallmark Group, a financial services firm hired to act as program manager for the WaterFix project. In the email, Sunding mentions a draft exit ramp option available to WaterFix customers who choose not to stay with the project, and a discussion of which remaining customers would pick up their financial obligations.

Keeping the California Aqueduct full may not be easy from now on. | Photo: Wikimedia Commons

If disenchanted agricultural water companies merge onto that exit ramp, one company likely to be asked to pick up their share of the expenses is the Metropolitan Water District, the project's largest potential customer. MWD agreed in 2014 to bankroll the project's pre-construction expenses on behalf of other State Water Project customers.

A September 2014 memo detailing a draft agreement between MWD and the California Department of Water Resources (DWR) said that - at least in the draft agreement - MWD would be financing up to $400 million in pre-construction costs by issuing commercial paper, a finance industry term for short-term unsecured promissory notes.

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And that raises the possibility of another route by which taxpayers might end up footing some of the bill for the project: MWD has the authority to levy property taxes, the proceeds from which the company typically uses to fulfill debt obligations. In the 2014 draft agreement, DWR would collect money from other SWP customers to pay down those companies' share of MWD's debt. But if those companies are unable to pay, MWD property owners could end up shouldering that burden.

Metropolitan water users will pay for the tunnels four ways, Barrigan-Parrilla told KCET. Higher water rates, property taxes, state taxes, and federal taxes.

Unsecured commercial paper is an instrument available only to companies with impeccable credit. That opt

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