The Legislative Analyst’s Office told a Senate panel Tuesday that the projected economic benefits of a $16 billion plan to build twin tunnels to route water around the Sacramento-San Joaquin Delta are “fragile.”
Tuesday, August 13, 2013
SACRAMENTO — The Legislative Analystʼs Office told a Senate panel Tuesday that the projected economic benefits of a $16 billion plan to build twin tunnels to route water around the Sacramento-San Joaquin Delta are “fragile” and could be wiped out by cost overruns or future water demands that are lower than anticipated.
“There remain a lot of questions,” deputy analyst Anton Favorini-Csorba said at a joint hearing of two Senate committees. A report he distributed to senators included a bullet point headlined, “Unclear whether benefits of tunnels will outweigh costs.”
The testimony came a week after state officials released an economic analysis that concluded the proposed Bay Delta Conservation Plan would generate a net economic benefit of about $5 billion over the 50-year life of the project. Over that time period, the analysis said, customers in Southern California and the Central Valley would pay $17.4 billion in increased water rates.
The projected economic benefit is largely in the form of jobs that would be saved as a result of more reliable water deliveries from the delta to the Silicon Valley and to Southern California.
The issue is critical to ratepayers in Southern California, as water contractors — including the Metropolitan Water District of Southern California — have committed to pay for the entire cost of the tunnels. Metropolitan supplies imported water to the Calleguas Municipal Water District in Thousand Oaks, which serves most of Ventura County.
David Sunding, a UC Berkeley economist who produced the stateʼs economic analysis, disputed the analystʼs assessment that the benefits were “fragile,” but agreed the margin for error is small.
“The deal canʼt get much worse for the contractors and have it make sense,” he said. “Itʼs a pretty close call.”
Sen. Fran Pavley, D-Agoura Hills, noted that it is incorrect to say that “contractors” are at risk for the costs, when in fact all those costs would be passed along to customers. “I wear the ratepayer hat in the room, being from Southern California,” she said.
Pavley said she fears that the “sticker shock of the BDCP” would deprive water agencies of sufficient resources to invest in local and regional projects “that might be in the best interest of ratepayers.”
Pavley is chairwoman of the Natural Resources and Water Committee, which joined with the Governance and Finance Committee to conduct Tuesdayʼs hearing.
Concerns about costs dominated the three-hour informational hearing on the status of the Bay Delta Conservation Plan, which seeks to attain the co-equal goals of improving the reliability of water exports from the delta and restoring delta ecosystems.
The entire project is estimated to cost $25 billion, with about two-thirds of the costs associated with construction of the tunnels. The remaining third of the costs would be for ecological improvements and would be funded by taxpayers through federal subsidies and state bonds.
The Legislative Analystʼs report also noted the status of that funding is uncertain, given the risk of voter rejection of any water bond the Legislature puts on the ballot.
The Delta Plan was created as part of a water deal approved by the Legislature in 2009. It gives the state Natural Resources Agency, working in partnership with federal environmental agencies, authority to craft a plan to meet the co-equal goals.
Federal agencies charged with protecting endangered fish species in the delta must grant permits to allow any project to proceed.
The Natural Resources Agency released an administrative draft of an environmental impact report earlier this year, which identified the construction of two, 35-mile-long tunnels as the preferred alternative. Resources Agency Secretary John Laird testified Tuesday that he expects the actual draft EIR to be released in the fall, probably in October.
Gov. Jerry Brown has asserted his administration has the authority to proceed with the project without the need to go back to the Legislature for approval. Last week, Assembly Speaker John Pérez disputed that assessment and Senate President Pro Tem Darrell Steinberg said that while Brown may have the legal authority to proceed, the project would likely be doomed politically unless lawmakers are involved in the final decision.
The cost-benefit issue has emerged as a central concern. University of the Pacific economist Jeffrey Michael testified that other alternatives, perhaps one as simple as widening and shoring up levees around the delta, could produce significant benefits at a far lower cost.
“There isnʼt a shortage of less costly alternatives than the tunnels,” he said. “There are alternatives that are better for all parties.”
Michael said the stateʼs analysis misstates the true cost of the twin-tunnel plan by overestimating future population growth in the Metropolitan Water District service area, assuming greater-than-likely reductions in water flow under the status quo and by projecting that urban water demand will grow at a faster rate in the future than it has in recent years.