Experts say the eye-popping costs of Governor Brown's plan to build two giant water tunnels far outweigh the financial benefits. And taxpayers could be left holding the bag. Published in the East Bay Express 5/13/2014

The small town of Byron is one of the last rural outposts of the East Bay. While its neighbors in east Contra Costa County — Brentwood, Oakley, and Antioch — have grown rapidly over the years, Byron has more or less stayed the same. "By Nebraska standards we're not rural, but by California standards we're very rural," said Cathy Leighton, a local historian whose family has lived in the small town for seven generations. "Most people here have a horse in their backyard."

Yet while Byron might be easy to miss, it is by no means insignificant. Located in the southern portion of the Sacramento-San Joaquin River Delta, the town of 1,000 is next to the epicenter of California's water system. Just outside the town's limits is the C.W. "Bill" Jones Pumping Plant, a feat of engineering that propels trillions of gallons of Delta water into aqueducts that irrigate more than 3 million acres of the San Joaquin Valley. Also close is the Clifton Court Forebay, a massive reservoir that stores freshwater for 25 million Southern Californians. If the state were a living animal, the immense facilities in and around Byron would be its heart; without them, water would stop flowing.

The town and the state's water infrastructure have peacefully coexisted for decades, but that could change dramatically if California moves forward with Governor Jerry Brown's Bay Delta Conservation Plan (BDCP). The $25 billion public works project includes two giant water tunnels that would tap into the Sacramento River and ship its water south. The plan, which also calls for the creation of more than 100,000 acres of wetlands in the region, is designed to address myriad problems plaguing both the Delta and the state's water system as well.

The Delta's ecosystem has been in an environmental free fall since the state and federal water projects were completed in the 1960s and early '70s. Since then, fish species have gone extinct, and geologists now worry that an earthquake or rising sea levels could topple levees in the area and contaminate the state's freshwater supply with saltwater. In addition, state and federal officials often must halt water deliveries to agricultural interests and Southern California residents in order to protect fish that have been decimated because of the lack of freshwater. The BDCP, in theory, would solve these problems, while ensuring that farms and residents receive a more consistent supply of water.

Byron, though, could be severely impacted. The state plans to construct a new water forebay near town, as well as a cement-mixing facility, in addition to the tunnels. Both would require a massive fleet of heavy machinery that would operate for up to ten years, causing noise pollution and potentially filling the region's air with diesel particulates. Air quality could become so bad that being outside would pose a cancer risk to children and the elderly, along with people with existing health problems. Nancy Vogel, of the Department of Water Resources, said only one household would be asked to move, but some think that number could quickly inflate. "Air moves pretty swiftly with our Delta winds," said Contra Costa County Supervisor and Bay Area Air Quality Management District board member Mary Piepho, who represents the region. "I can't see how Brentwood and Discovery Bay wouldn't be impacted as well."

Leighton lives a stone's throw away from the Byron Highway in an area that's expected to be heavily affected by air pollution. But she said she won't move without a fight. "This house has been in the family for over one hundred years," she explained. "I'm pretty dedicated to it."

The potential impacts of BDCP on Byron are representative of what the plan would do to the Delta region as a whole. The tunnels would unearth a roughly 40-mile long, 150-foot deep fissure that could cut off groundwater to scores of people. Tens of thousands of acres of fertile farmland would be converted to habitat, potentially devastating the area's economy. Highways would be completely rearranged and waterways polluted. "We will be left with an industrial eyesore," said Barbara Barrigan-Parilla, executive director of Restore the Delta, a group adamantly opposed to BDCP. "The area would essentially become an environmental wasteland."

The project — along with the costs of mitigating the damage wrought by it — also promises to be hugely expensive. Two water agencies — the Westlands Water District, which services about seven hundred farms in a vast strip of desert in the western San Joaquin Valley, and the Metropolitan Water District, which supplies 19 million Southern Californians with water — plan to cover the majority of the costs of the tunnels, an estimated $15 billion, along with any economic damage they cause to the Delta.

But even as the project's public comment period draws to a close next month, the state has yet to develop a clear financial plan for the tunnels. Moreover, the relatively few financial facts that do exist are hotly contested. The Department of Water Resources, for example, often states that the entire plan will cost a total of $25 billion, yet many economists think that, when interest on the bonds is factored in, the true figure will run closer to $70 billion.

In terms of benefits, state officials say the tunnels will generate an overall net gain of roughly $5 billion for California's economy. But other water experts contend the plan could actually result in an annual net loss of about $100 million a year for water contractors backing the project.

Some experts, in fact, predict that the BDCP is destined to become a financial boondoggle, and that certain public agencies — namely San Joaquin Valley water districts like Westlands — would have an especially hard time meeting their debt obligations since the cost of the tunnels could make water prohibitively expensive for farming most crops. "I'm not sure how they would cope with the financial burden," said Jeffrey Michael, director of the Business and Forecasting Center at University of the Pacific in Stockton. "It's fairly predictable they won't be able to."

If the water districts default on what they owe for the BDCP project, taxpayers may be forced to shoulder the multibillion-dollar bill. And if that were to happen, the plan that is supposed to keep California's aging water system from crumbling could not only steamroll the Delta, but also swamp the state in debt.

 

Most of the snowmelt and rainfall in the Sierra Nevada and the Trinity Alps drain into the Delta via the Sacramento River in the north and the San Joaquin River in the south, creating a labyrinth of waterways, islands, and levees. This veritable water world has made the Delta an ecological and agricultural wonder. The estuary is a crucial spawning ground for salmon, sturgeon, and bass and a key stopover for millions of migratory birds traveling the Pacific flyway. The Delta itself also includes an agricultural industry, consisting primarily of small farms, valued at nearly $800 million a year. Certain Delta towns are known as the pear or asparagus capitals of the world thanks to their continuously replenished aquifers.

The abundance of freshwater has also made the Delta the wellspring for California's water system, and since the 1940s the state and federal government have redirected rivers of water from the estuary to San Joaquin Valley growers and Southern California city dwellers. That massive removal of fresh water has taken its toll on the Delta's ecosystem, contributing to the decimation of 12 of the area's 29 native fish species.

Environmental problems in the Delta also have a ripple effect on California's water users. When protected fish get sucked into the water pumps and pulverized, regulatory agencies halt water deliveries and send billions of gallons of freshwater through the bay to the Pacific Ocean in an attempt to maintain the health of the estuary. And if the Delta's ecosystem continues to deteriorate, the water supply for Central and Southern California could diminish by roughly 25 percent in the next half-century. "The current system is failing everybody," said UC Berkeley professor David Sunding, who's working closely with the state to develop the plan, "and BDCP points the ship in a different direction."

The project is ambitious. In fact, it's hard to overstate its grandeur. Building the tunnels is expected to cost roughly five times as much as the construction of the Hoover Dam when adjusting for inflation, and nearly a quarter of the Delta's mostly fertile farmland would be seized and literally turned upside down to create tidal wetlands. Despite its magnitude, however, a significant portion of the water project isn't subject to voter approval: The fate of the tunnels rests largely in the hands of a few water districts — a fact that frustrates many environmentalists. "We wouldn't ask oil companies to determine if fracking is safe for the environment," said Doug Obegi, an attorney with the Natural Resources Defense Council. "Should we really be asking Westlands if pumping is safe for the environment?"

Because farmers need a reliable water supply to maintain crops, San Joaquin Valley growers arguably have the most to gain from the water tunnels. The Westlands Water District, which irrigates a large swath of land on the arid west side of the San Joaquin Valley, has long sought access to more Delta water. As the Express previously reported, Westlands has seen an explosion in highly profitable, water-intensive crops like almonds in recent years (see"California's Thirsty Almonds," 2/5). While such crops bring in hefty financial returns, they can wither and die if water is cut off for even one year, meaning they're risky to grow in areas with an unsteady supply of irrigation.

Because of the current drought, some 200,000 acres of Westlands farmland — about one-third of the area — could be fallowed this year, causing hundreds of millions of dollars in economic losses. "Just like you need a consistent paycheck to make your house payments," said Mike Wade, director of the California Farm Water Coalition, "farmers need a consistent water supply." And as the Delta becomes an increasingly unreliable spigot, Westlands is looking to the BDCP for relief.

But the plan also involves substantial risks for Westlands and other San Joaquin Valley farmers, because it doesn't guarantee a more dependable — let alone a more plentiful — water supply. According to the current draft proposal, the tunnels would only operate when water flows on the Sacramento River reach a certain threshold. During extremely dry years like the current one — which many climate scientists predict will become more common in the decades to come — the state and federal water projects would still reduce the region's water supply to a trickle or cut it off completely.

That fact troubles many San Joaquin Valley growers, who worry they could continue to face crippling water cutbacks even if the tunnels are constructed. "Our costs are somewhat nebulous, but [estimating the benefits of the project] is impossible to do," one grower said at a Westlands board meeting in January, according to a transcript of the meeting provided to the Express by Gary Lasky of the Sierra Club. "I want to be damn sure we have the right to get off the bus." Another farmer asked at the meeting whether the district could guarantee a stable water supply even if the Delta's ecosystem continues to deteriorate. "What happens if smelt and salmon continue to decline?" he said.

Westlands' general manager Tom Birmingham was unable to answer most of the farmers' questions head on, stressing that negotiations with the state and other water agencies that would benefit from the giant water tunnels were still ongoing. He was clear about one thing, however: Westlands will only move forward with BDCP if the project guarantees a steady and sizable water supply. "How in the world do you expect to ever cover the capital costs associated with this project if you can't deliver water to the only contractors who pay for it?" Birmingham said, referring to a past conversation he had with members of the Bureau of Reclamation. He later added: "There's a point at which we have to say, 'No, we're not going forward.'"

 

Westlands' lukewarm support for the water plan is understandable. Building the tunnels is expected to cost San Joaquin Valley water districts an estimated $800 million a year in debt payments, with Westlands covering between 50 and 65 percent of the total, according to Westlands officials. Meanwhile, farmers would only see $134 million in increased agricultural revenues a year from the plan, according to BDCP documents, leaving a glaring $660 million financial shortfall.

"The tunnels don't generate a water supply that's nearly as valuable as the costs," explained the University of the Pacific's Michael, one of the leading economic forecasters in the state. "I don't see how anyone who actually has the interest of the ag industry in California at heart can be supporting this project .... It will strangle farmers with debt."

Michael has strong opinions about the economic pitfalls of the tunnels. Paying for them, he said, could make the cost of irrigation water "crazy," "nonsensical," and "absurd." He estimates that water prices in parts of the San Joaquin Valley could increase five-fold — to roughly $1,000 per acre-foot — if the plan moves forward. During some years that number could climb as high as $2,000 an acre-foot — a rate that would make the farming of most crops financially impossible.

Why, then, does Westlands continue to back a plan — albeit tentatively — that could put its farmers out of business? While district officials did not respond to repeated requests for comment, Westlands representatives have said that the region's tenuous water supply is unsustainable and that something needs to change. "We cannot live in a world that has 40-, 60-, 90-percent reductions in water supply on a regular basis," Jason Peltier, Westlands' chief deputy general manager, said in an interview last year.

Yet while it's true that the BDCP could make water cutbacks less severe, many economists and environmentalists are troubled by what might happen if the plan doesn't pan out financially. Under the BDCP, bonds would likely be floated to pay for the construction of the tunnels. But if Westlands or other water districts were to later default on the debt payments, it's not exactly clear what would happen. The state and the water districts have not yet hammered out the legal terms of who would be liable to pay back the bonds. Some legislators fear it could turn out to be state taxpayers.

"If costs significantly increase, as I believe they will, water contractors and ratepayers may not be able to carry the financial burden," warned Contra Costa County Assemblymember Jim Frazier at an Assembly oversight hearing earlier this year. "This puts us, the taxpayers, at risk."

Furthermore, Westlands has a history of not paying its bills. For example, as of 2008 (the latest year for which data is available), Westlands still owed about 80 percent of its $350 million debt on the federally run Central Valley Project, which broke ground three quarters of a century ago.

Some observers of the process, meanwhile, speculate that San Joaquin Valley farmers might not end up using the water on crops at all, but instead would sell it at higher prices to urban users and oil companies. As odd as that might seem, arcane state laws and recent legislation allow farmers to purchase subsidized water intended for agriculture and put it on the open market for sizable profits. Such revenues, in turn, could then help pay the bond debt from the construction of the tunnels.

Over the years, one of the biggest beneficiaries of farm-to-city water sales has been San Joaquin Valley farming magnate Stewart Resnick. One of California's largest growers, Resnick has made a fortune, not by tending his 115,000 acres of almonds, pistachios, and pomegranates in Kern County, but by selling taxpayer-subsidized water to the highest bidders. "I don't like to go to the Chinatown conspiracies," said Jon Rosenfield, a conservation biologist with the Bay Institute and a critic of the BDCP, referring to the classic 1974 film about California's water wars. "But the only thing that makes sense at this point is if [farmers] turn around and sell their water to urban users at a higher price."

 

The Bay Delta Conservation Plan is often compared to public works projects from past eras, when engineers built first and asked questions later. "It's a 20th-century planning process in a 21st-century world," said Rod Smith, a water economist for the consulting firm Stratecon Inc. For example, not only is the financing of the project still in doubt, but federal biologists warn that because the tunnels would divert so much freshwater from the Delta, the habitat restoration plan might actually do little to benefit certain endangered and threatened fish species, resulting in continued water cutbacks in years to come.

And while the benefits of BDCP remain murky, the costs to the Delta — both physical and economic — are crystal clear. If the plan moves forward, the region would turn into a construction zone for at least a decade. Thousands of dump trucks would transport tons of tunnel muck in and out of the area daily, clogging the two-lane levee roads. The quiet Delta nights would be interrupted by round-the-clock pounding of pile drivers. Dozens of homes and businesses would be relocated, and tens of thousands of acres of Delta's farmland would be sacrificed.

Opposition in the Delta, not surprisingly, is reaching a fever pitch. Signs demanding that the state "Stop the Tunnels" and "Save Our Delta" blanket roads and highways, protestors rally at Department of Water Resources meetings, and some residents want to put the project on a referendum ballot (the tunnels plan, though, was crafted so that it would be very difficult to place it on a ballot).

One of the biggest fears is that the plan could ruin the Delta's culture and way of life. "All you need to do is take a canoe down one of the sloughs, and just take your time and watch and experience it," said Tim Neuharth, a pear farmer whose family has tilled the north Delta's soil since the gold rush. "You'll see how beautiful it is here."

Neuharth works 260 acres of pears, stone fruit, and wheat on Sutter Island, one of sixty small islands in the Delta. The mineral-rich soil (the byproduct of eons of decaying swamp vegetation), abundant water, hot days, and cool nights make the area perfect for growing pears, and a few of Neuharth's trees have been alive for more than a century. Most of Neuharth's neighbors also operate on a fairly small scale, practice ecologically friendly farming practices, and have lived and worked in the region for generations. "People have put a lot of blood, sweat, and tears into farming and maintaining this place," he said, "so it's a little hard to let go."

But if BDCP moves forward, Neuharth might be forced to let go. To construct the tunnels the state would have to remove water from the land surrounding its forty-mile path, causing groundwater to sink ten to twenty feet in some areas. If water tables drop, people could lose their supply for years. Since the tunnels would weaken flows on the Sacramento River, seawater from the Pacific could also creep into the estuary. In a worst-case scenario, the freshwater channels could become so saline that they would contaminate water tables and kill crops, including Neuharth's pear orchards. "People ask, 'What happens if your water goes elsewhere?' And the answer is, 'We're out of business,'" he said. "The area will all go up into smoke, turn into something vastly different, and it will never come back to the way it was."

Although BDCP's proponents often accuse the plan's critics of resorting to hyperbole and say the financial questions will be addressed after an operating permit is secured, it's hard to overlook the fact that the project could choke taxpayers with debt while simultaneously damaging the Delta region. "It's a back-of-the-envelope diagram blown up to full size," said Rosenfield of the Bay Institute, referring to the fact that the plan, although sweeping, does not appear to have been well thought out. "It doesn't make sense economically. It doesn't make sense legally. It contradicts the state's policies. It's hugely expensive. And it's incredibly uncertain. I can't see how this plan as currently drafted goes forward because it doesn't provide anyone with what they want."