C-WIN: Big tunnel, big taxes: Newsom’s gigantic water project would spike property taxes

Rising costs are squeezing Californians. Groceries, rent, gas—everything—are on a skyward trajectory. And now, water costs are adding to the affordability crisis. In San Diego, cumulative drinking water and wastewater rates are going up 93%. Other communities across the state are not far behind. But the worst could be yet to come.

Governor Newsom has been pushing to build a $60-$100 billion tunnel to deliver more water from the Sacramento-San Joaquin Delta to Kern County agriculture and Southern California cities. However, the tunnel would likely end up as a “stranded asset”—a capital investment with no chance of fulfilling its goals or justifying its costs. It would fail to provide water during dry periods, and its deliveries would lack demand in wet years. Moreover, if this mega-project gets approved, it will be financed by bonds supported both by water rates and by spikes in property taxes for most Californians.

That’s because urban water agencies that contract with the State Water Project (SWP) are allowed to impose onerous property taxes to pay for their annual water deliveries. Typically, voter approval is now required for any increase above one percent for such “ad valorem” taxes.

But California’s courts have ruled that the SWP’s annual operating expenses—including delivery payments—are “voter-approved debt” since all construction, operation and maintenance costs were implicitly okayed by voters in 1960, when they cast their ballots for the SWP. Because that vote occurred prior to 1978, Proposition 13, which caps property tax increases, does not apply.

Relatively few people who voted for the SWP in 1960 may be alive today, but their children and grandchildren continue to pay for their decision through increased taxation on their homes. Agencies that rely wholly on property taxes to meet their existing SWP obligations include the Santa Clara Valley Water District, the Antelope Valley East Kern Water Agency, the Coachella Valley Water District, the San Bernadino Valley Municipal Water District and the Castaic Lake Water Agency. Many other districts rely on property taxes to pay from 10% to 85% of their SWP deliveries, including the massive Metropolitan Water District of Southern California (which supplies water to almost 19 million Californians, or about half of the state’s population); the Kern County Water District; the Mohave Water Agency; and the Zone 7 Water Agency.

These taxes constitute a water agency cash cow, and appeal to agency managers because they receive much less public scrutiny than water rate increases. The Metropolitan Water District of Southern California (MWD) doubled its “special property tax” in 2024, then quickly proposed to increase it by another 71% over three subsequent years. When annual increases in assessed property values are figured in, MWD’s property tax revenues will increase from $136 million in 2024 to $859 million by 2028—and almost $1 billion by 2030.

Such levies beg a question: Is all that money really necessary to service the SWP’s existing debt? The short answer: no. But those revenues will be necessary to fund the Newsom administration’s grandiose ambitions for its $60-$100 billion tunnel project.

Thankfully, in a resounding defeat for the Newsom administration, the California Court of Appeal for the Third Appellate District recently upheld a lower court ruling that the state’s Department of Water Resources does not have authority to issue bonds to build the tunnel.

Nevertheless, in a subsequent statement about the upcoming California state budget, Newsom reiterated his commitment to the tunnel project. Taxpayers and ratepayers should see this project for what it really is: a massive boondoggle that will push water costs through the roof when conservation and local supply projects have reduced the amount of imported water Southern California needs.

Taxes may be as inevitable as death, but taxpayers have a right to demand that their contributions are spent furthering the public interest. The proposed Delta Conveyance Project (aka the mega-tunnel) does not meet these basic metrics. Homeowners pay; corporate farms and wealthy Southern California developers benefit in the form of lavish deliveries of cheap water that swell their bottom lines. It may be a familiar story, one that skirts the boundary between patronage and outright corruption—but that doesn’t mean we should tolerate it.