Maven’s Minutes: Restore the Delta’s panel of experts discusses the costs of the tunnels
On May 28, the day prior to the release of the remaining chapters of the Bay Delta Conservation Plan, Restore the Delta held a call-in media event to discuss the upcoming release of documents, which will include financial details.
The call-in event was moderated by Steve Hopcraft from Restore the Delta; joining him on the line was Dr. Jeffrey Michael from the University of the Pacific’s Eberhardt School of Business, Carolee Krieger from the California Water Impact Network (C-WIN), Adam Scow from Food and Water Watch, and Barbara Barrigan-Parilla from Restore the Delta.
“As many of you know, the Governor’s proposal to build huge underground peripheral tunnels is one of the, if not the, largest ever public works proposed in California history; the other qualifier, of course, would be high-speed rail, which is on a similar path but a step ahead,” said Steve Hopcraft, pointing out that with all the information that has been released, the information still is lacking a comprehensive a benefit-cost analysis. “And so today as the Governor prepares tomorrow to release their financial information, we wanted to highlight for you some of the things that are lacking and some of the flaws that we see in the analysis and in the financing plan.”
DR. JEFFREY MICHAEL
Dr. Jeffrey Michael is the Director of the Business Forecasting Center at the University of the Pacific’s Eberhardt School of Business in Stockton, CA. He is also co-author of the Economic Sustainability Plan, and author of the Valley Economy blog. Dr. Michael began by saying he would be discussing the distribution of the costs of the tunnels among ag and urban users, the benefit-cost analysis of the tunnels, and earthquake economics.
Regarding the tunnels, “the 14+ billion tunnels cost estimate is simply too costly for agriculture, and urban users are going to have to pick up a much larger share of the cost then they have been told to date,” said Dr. Jeffrey Michael. “The Metropolitan Water District has an estimate of $5 per household per month, or $60 per year. That estimate is based on assumption that urban users would only pay 25% of the estimated $1.2 billion in annual debt service for the tunnels, and the agricultural users would pay 75%, or $900 million per year in debt service. For agriculture, the tunnel debt service costs are 9 times the revenue loss from Delta smelt regulations.”
“The tunnels are unaffordable. They are an irrational cost for a subset of San Joaquin farmers to bear, and this is a primary reason why the BDCP has not been able to develop a rational finance plan in seven years of development and has never released a detailed finance plan,” said Dr. Michael. “Ultimately the finance plan for the tunnel will require the costs to shift to urban users and/or a transfer or water from agricultural to urban users or to the state taxpayers. Urban users are going to pay much more for this than they’ve been told, and the usual cost overruns will just make the problem worse.”
“Using the state’s data, we issued a white paper last summer that found $2.50 in costs for every $1 in economic benefits,” said Dr. Michael. “Our findings using the state’s data and their optimistic $12.8 billion cost estimate, found the benefit-cost ratio of 0.4. Most infrastructure planning processes, any benefit-cost ratio less than 1 would eliminate the project from consideration.”
“With these dismal results using the state’s own numbers, it’s probably no surprise that the state has been refusing to conduct ordinary and routine benefit-cost analysis of alternatives because they say they are not required to by law, but they should be required to in the interest of good public policy,” he said.
[pullquote align=”left|center|right” textalign=”left|center|right” width=”30%”]“When pressed on the benefits-cost issue, the state says they’ve done lots of reports that look at various parts of the benefits and costs, but none of them are a comprehensive benefit-cost analysis of projects and alternatives that follows routine economic analysis guidelines.” — Dr. Jeffrey Michael[/pullquote]
“For comparison, benefit-cost analysis of high-speed rail has found a benefit-cost ratio of 2, five times higher than the economic justification for the tunnels. In addition, high-speed rail has released detailed financial plans and peer-reviewed benefit-cost analysis with each revision of its business plan, far more transparent and accurate with respect to economic and financial issues than the tunnels. It’s got a lot of heat from the press for its financial plans, but I think the tunnel plan should get more heat for not being as transparent and forthcoming with information,” said Dr. Michael. “When pressed on the benefits-cost issue, the state says they’ve done lots of reports that look at various parts of the benefits and costs, but none of them are a comprehensive benefit-cost analysis of projects and alternatives that follows routine economic analysis guidelines.”
“The state apparently has a new report on the economic impacts of natural disasters, and I say that because the Governor has recently started using a $100 billion economic loss figure that I can’t find substantiated in any studies released to date,” said Dr. Michael. “I expect that tomorrow’s news conference in the Silicon Valley or in the coming weeks, we’re going to see a new economic impact study of earthquake costs focusing on the Silicon Valley that could be released that contains this figure. But whatever scary number they release regarding the costs of an earthquake only reinforces the argument for alternatives, particularly for seismic levee grades, sometimes called a Dutch solution, which is a better alternative to the tunnels, and that brings me to my third point, earthquake economics.”
“A rational response to earthquake risk is to make an investment that simultaneously protects all economic assets against the risk of the earthquake and provides public safety benefits as well. This earthquake scenario in the Delta would put far more at risk than just export water supplies,” said Dr. Michael. “The risks include statewide energy and transportation infrastructure, in-Delta homes, businesses and farms, local water supplies in Northern California around the Delta region, and recreational facilities enjoyed by millions of Californians. Compared to the tunnels, the seismic levee upgrade strategy is faster, cheaper, protects more economic assets and saves lives from the flood risk.”
“The primary argument for the tunnels that you always hear is about the earthquake, a scenario that is frequently compared to Hurricane Katrina by the Governor and others,” he said. “Katrina was an American tragedy; it killed over 1200 Americans, caused over $100 billion in insured property losses and other economic disruptions. When the state studied the potential impacts of a Delta earthquake in 2007 after Katrina, they estimated that a catastrophic flood scenario that could disrupt water export for 2 years would also kill 600 Californians in the Delta, harm the Delta environment, and that the majority of the estimated $40 billion in economic loss would come from in-Delta impacts, such as the loss of homes, businesses, and farms, the loss of state highways, and critical natural gas and electricity infrastructure that criss-crosses the Delta.”
“Now the Governor is a great humanist, so I continue to be puzzled that he uses the risk of natural disaster to promote a strategy that does nothing to save lives or property of the most impacted community, and instead focuses on an enormously expensive strategy to serve a single wealthy economic interest,” said Dr. Michael. “Multiple reports, including the Delta Protection Commission’s Economic Sustainability Plan that I led, have found that seismic levee upgrades are less expensive and provide greater benefits than the tunnels. Yet the state has refused to consider seismic levee upgrade scenarios as BDCP alternatives; they say they have considered hundreds of alternatives, but they’ve refused to consider any seismic levee upgrade alternatives.”
In closing, Dr. Michael ran down the reasons why seismic levee upgrades were a better strategy than tunnels: “First, they are much faster, to be completed in a few years, not a few decades. Second, they are cheaper. Estimated costs are $2 to $4 billion, more than one study, as opposed to 14+ billion for the tunnels, so levee upgrades would free up billions for alternative water supplies throughout the state. Third, they provide more economic benefits because they protect all economic assets, including export water supplies. And fourth, levee upgrades provide public safety benefits, they could save hundreds of lives from flooding; the tunnels provide no public safety benefits at all.”
CAROLEE KRIEGER, PRESIDENT OF THE CALIFORNIA WATER IMPACT NETWORK
Steve Hopcraft then introduced Carolee Krieger, President of the California Water Impact Network (C-WIN), as the next speaker. “The Coastal Branch of the SWP was sold along similar lines: water reliability, predictability and affordability, and voters of the area did approve that project,” said Mr. Hopcraft. “Carolee has studied that and has estimates of what that has cost the average Santa Barbara/Central Coast family. Carolee, could you talk to us about that project?”
“Santa Barbara has a very unique experience because our connection to the SWP was decided back in the 60s, but because we had to build a special 144-mile pipeline at our own expense from Kettleman City to Lake Cachuma here in Santa Barbara, it required a vote of the public,” Carolee Krieger began. “Like the peripheral canal and the peripheral tunnels we’re facing now, we had to have two votes in order to get this done. The first vote was in 1979, and the reason this is important is at that time, the voters were told the truth about how much that additional pipeline was going to cost, the Coastal Branch, phase 2, and they were told the truth that it was only about 50% reliable. And they voted it down by 70% margin.”
[pullquote align=”left|center|right” textalign=”left|center|right” width=”30%”]“We believe that urban rate payers in Southern California are being asked to subsidize agricultural interests in the Central Valley and speculative real estate development in Southern California and we don’t think that’s fair.” –Carolee Krieger[/pullquote]
“At the height of the next drought, which started in 1988, the same people who tried to get the SWP voted in the Santa Barbara in 1979, came back, but they had learned from their past experience and so what they did in 1991 was they did not tell us the truth about the costs or about the reliability of the SWP,” said Ms. Krieger. “In 1991, before the vote, we were told that the connection from the Kettleman City to Lake Cachuma would cost $270 million. The truth that we have found out since is that, and it was completed in 1988, that with interest, it has cost our ratepayers here in Santa Barbara, $1.76 billion. That is a huge difference. And it makes me not trust the DWR when I hear cost figures because it was DWR who gave us the $270 million cost figure.”
“As to the reliability, we were told in 1979 that it would be about 50% reliable which is closer to the truth. In 1991, we were told it would be 97% reliable. And what has actually happened for our four major south coast water agencies is that we have only received 36% of our Table A entitlement allocation,” she said.
“Now how does this fit into the peripheral tunnels? Santa Barbara ratepayers and water agencies are in so much debt for the Coastal Branch Phase 2 which got voted in on what we believe was false pretenses in 1991, that if we were to take on any more debt, especially for no more water … we don’t actually need any more water and we certainly don’t need any more debt,” said Ms. Krieger. “My fear is that our four south coast water agencies in Montecito, Carpenteria, the city of Santa Barbara, and Goleta, will face dire financial consequences and could go bankrupt.”
“If you look at the numbers, they are very close to being in financial trouble right now just trying to pay the Coastal Branch off. Where I live in Montecito, last year our water agency had to pay $4.9 million to the DWR for our share of that Coast Branch expense and did not order 1 drop of water. Now, our total budget is approximately $12 million, so that is a huge chunk of the budget for no water,” she said.
“What we have found also from our analysis from EcoNorthwest, that in Santa Maria, which is in the north part of Santa Barbara County, it could cost as much as $4000 to $8000 per year per family, and they can’t afford that. So my worry for the urban rate payers … it could get much worse, and we’ve used very conservative numbers to run all of these to try and make sure that what we are doing is accurate, because we don’t want to be in the situation that we’re in now with the Coast Branch Phase 2 with the peripheral tunnels. That would just be a disaster for Santa Barbara,” said Ms. Krieger.
“We believe that urban rate payers in Southern California are being asked to subsidize agricultural interests in the Central Valley and speculative real estate development in Southern California and we don’t think that’s fair,” she said.
ADAM SCOW, FOOD AND WATER WATCH
“For those that don’t know, Food and Water Watch is a national public interest consumer group that has been working to protect water as a public resource and to prevent privatization of water,” began Adam Scow. “We believe water is a human right, and it’s those values that guide our opposition to BDCP and the tunnels.”
“The tunnels are fundamentally unnecessary to securing urban water needs, particularly in Southern California,” said Mr. Scow. “The best example of this is to look at the existing water plans for cities such as Los Angeles, Santa Monica, Long Beach, who are all planning to reduce the amount of water they import from the Delta, and not increase it as is a common misconception, even from our friends in the north who think that Southern California wants to take all the water. It is not a north versus south issue.”
“Why is this happening? Well, we’re seeing rising energy costs, the rising costs of imported water, Metropolitan’s rates have doubled in the last 10 years, and indeed the general manager has said that the rates will have to at least double again to meet their future costs, and I’m sure he was including the tunnels when he was saying that,” said Mr. Scow. “So recognizing those skyrocketing costs, cities that buy water from Metropolitan are saying wait, is this the most cost-effective source of water for us?”
“Southern California is not a desert. There are local water resources. Some of them are polluted, in particular there is a large groundwater aquifer in the San Fernando Valley that is being targeted for cleanup and storage,” he said. “There is a common consensus among water experts around the state that the best way to store water for a long-term situation is underground. You don’t lose water from evaporation and it’s a local resource there for LA.”
“Other solutions include rebuilding the existing infrastructure. Our existing network of pipes, water mains and water treatment plans are all aging and crumbling, and it will cost significant money to fix those,” he said. “Those repairs are absolutely necessary because that is the crucial infrastructure that delivers the water to our homes on a day to day basis, so there is no debate on the need to fix that, and that will cost billions of dollars.”
[pullquote align=”left|center|right” textalign=”left|center|right” width=”30%”]“It is an unfair project that is benefitting corporate interests who are driving this project. They are calling the shots, determining the size, the amount of water they want to get, and the money, and so it’s an unfair project. It is simply a way to funnel more water to special interests at the expense of ratepayers, taxpayers and the environment.” –Adam Scow[/pullquote]
“A few years ago, LADWP identified that on average, there are 1500 water mains break per year in LA; it’s not just a water pipe problem, but it can lead to flooding and home damage, and so that needs to be dealt with and prioritized,” he said.
“There are ways to capture rainwater and stormwater; many other countries are doing this in an advanced way, and LA is recognizing the smartness of that, both in terms of the cost solution and as an environmental solution,” he said. “Nonpoint water pollution is the biggest source of water pollution in the country. And our cities have become places for water to become polluted and then run off into the oceans, streams, and the bays. It’s a big water pollution can be prevented with local harvesting of water. These are long time solutions that we’ve known about but are now making more sense to diversify and make the water supply more reliable.”
On the issue of costs: “We now have established that citizens and cities in Southern California are going to be using less water, yet they are going to be on the hook to pay for it. We did a study with our friends at EcoNorthwest that studied a range of options looking at $20.6 billion on the low end for construction costs and the operating and maintenance cost on an annual basis,” he said. “Oftentimes you hear the Governor say $14 billion; well that’s an outdated low estimate for only the cost of construction, and any reasonable correct estimate needs to include the annual operating and maintenance costs, the cost of inflation, and the cost of interest, because this will be paid for by bonds.”
“So we looked at the way water and money is distributed through the SWP, through Metropolitan Water District and passed on to the cities, and we found that there was a range that LA will be on the hook – just the city of LA alone, not all the other cities in SoCal – LA alone is looking at a range of $1.6 billion to $7 billion in total as their cost share for the tunnels. When you break down in an average way per customer, it works out to between $2000 on the low end, $9000 on the high end per water connection or household or businesses.” (Maven’s note: click here for the EcoNorthwest study Mr. Scow is referring to.)
“It’s funny that Governor Brown, the biggest proponent of the tunnels, when he was first elected said that it’s time for California to live within its means, because this would do exactly the opposite,” he said. “Particularly at a time when the economy is bad, we simply do not have money to waste on new tunnels for special interests. The special interests of course, we see them frequently whining that they want more water, and that’s the Westlands Water District, and the interests of Kern County Water Agency.”
“Not only are we talking about the biggest agricultural interests in the country, we’re also talking about the oil interests who are now seeking more water for fracking. Indeed, oil companies have targeted the Monterey shale, a rock formation that stretches from the LA Basin to the Bay Area, as a potential place to frack for oil, and one of the facts we can all agree on about fracking is that it uses lots and lots of water, millions of gallons per well,” said Mr. Scow. “And that water is going to have to come from some place, and some of that water already comes from the KCWA, which is the single biggest water contractor in the SWP.”
“It is an unfair project that is benefitting corporate interests who are driving this project,” said Mr. Scow. “They are calling the shots, determining the size, the amount of water they want to get, and the money, and so it’s an unfair project. It is simply a way to funnel more water to special interests at the expense of ratepayers, taxpayers and the environment, and that is why we are opposed to the project.”
BARBARA BARRIGAN-PARRILLA, RESTORE THE DELTA
“The BDCP’s approach to economic analysis is not even-handed as the impact on Delta water quality is a direct economic issue for the 4 million people who live in the five Delta counties, as well as for residents in the Bay Area and coastal communities,” began Barbara Barrigan-Parilla from Restore the Delta. “The BDCP presently includes modeling to take up to 8 million acre-feet of water, with an average take of 6.5 million acre-feet; that’s more water, not less compared to what is currently being exported.”
“Yet the true economic impacts on the Delta and the San Francisco Bay are not being discussed or analyzed in the BDCP. I am going to touch on three areas of direct impact on Delta and Bay Area economies, as well as talk about those alternatives to managing the Delta in a more cost-effective way,” said Ms. Barrigan-Parilla.
[pullquote align=”left|center|right” textalign=”left|center|right” width=”30%”]Delta agriculture is a $5.2 billion a year economy that will be destroyed by the construction of the project as a result of tunnel muck and large-scale construction rendering roads in the Delta unusable. Farming operations will be interrupted or brought to a complete stop. … Agriculture in several of the Delta counties is the primary industry and this would have a drastic ripple effect on the entire region.” — Barbara Barrigan-Parilla[/pullquote]
“First, fresh water flows support a coastal fishing economy that is worth $1 to $1.5 billion annually, yet the BDCP shows that the transfer of fresh water out of the area through the project will have a negative impact on winter and spring summer runs of Chinook salmon, even leading to the death of those runs, so we are questioning where is the economic analysis of the impacts of coastal salmon fishing,” said Ms. Barrigan-Parilla. “The USGS reports for the last 20 years show that crab, herring, and halibut fisheries whose nurseries are in the San Francisco Bay are also tied to Bay Delta water quality, and that less freshwater has had a negative impact on the health of the bay. There has been no economic analysis in the BDCP as to the impact on these Bay fisheries with greater freshwater diversions.”
“Second, according to the Delta Protection Commission’s Economic Sustainability Report, Delta agriculture is a $5.2 billion a year economy that will be destroyed by the construction of the project as a result of tunnel muck and large-scale construction rendering roads in the Delta unusable. Farming operations will be interrupted or brought to a complete stop. After completion of the project, if family farms could survive the ten years of construction, the water quality and quantity will be so degraded with salt water intrusion further and further into the Delta and the increase in concentrated pollutants that farms that would not be taken by eminent domain or habitat projects will be limited as to the types of crops they would be able to grow, and will be rendered not profitable in a competitive world market,” she said. “Agriculture in several of the Delta counties is the primary industry and this would have a drastic ripple effect on the entire region.”
“Third, Delta recreation from boating and water skiing to recreational fishing is a $700 million per year economy. The tunnels with their surrounding easements during construction will quickly decimate recreational boating as boating access will literally be blocked and the impacts on Delta fisheries during construction and operation of the project will lead to their final collapse,” said Ms. Barrigan-Parilla. “So we’re looking at an $8 billion annual economic hit or possibly even higher to the Delta region, yet none of these figures are part of the analysis.”
“What’s worse is that our urban neighbors in the area and in Southern California will not be receiving any additional water as already mentioned by other speakers for higher water rates and taxes, because 70% of the water taken from the Delta will go to support corporate agribusiness on the west side of the San Joaquin Valley, which only contributes 3/10ths of a percent to the state’s GDP.”
“That’s why we believe there is a better solution for protecting and restoring the Delta while providing sustainable water exports from the Delta and making new water for our urban neighbors,” said Ms. Barrigan-Parilla. “First, as discussed by Jeff Michael, the levees need to be upgraded. If we were to spend what has been suggested as the maximum, $4 billion, it would be much more cost-effective investment than the tunnels, and it would also provide for an opportunity to create habitat for fisheries on broad levees without having a direct negative impact on Delta farms.”
“Second, we believe we need to reduce exports from the Delta to sustainable levels. Those levels were determined in 2010 by the State Water Resources Control Board to be an average export level of $3 million acre-feet per year and that’s enough water to support our urban neighbors,” she said. “We could do that two ways: … we believe that the toxic lands that do not drain properly and spit pollutants back into the Delta from the Westside of the San Joaquin Valley should probably be retired. But more importantly, with proper public investment, we could invest in a myriad of local water projects throughout the state that can actually make more water. Recycling, conservation, groundwater clean-up, cisterns … there are reports that have been produced by the NRDC, the Pacific Institute, and it looks like with proper public investment, we have the opportunity to create between 7 and 13 million acre-feet of new water in California.”
“We believe that is a much more cost-effective way to meet the water needs of our neighbors, it would also protect the Delta by reducing the amount of water taken,” said Ms. Barrigan-Parilla, adding “these types of projects make about 10 to 20 jobs per million dollars spent, whereas the current tunnels will only make about 6 to 7 million dollars spent.”
- Click here to listen to a recording of the event.
- Click here for Restore the Delta’s press release.
- Click here for the EcoNorthwest study, Analysis of the Cost of a Bay-Delta Conveyance Structure: Rate Impacts to Los Angeles.