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The New Costs Triggered byThe Delta Legislation Are Simply Unaffordable

The legislature has embarked on a major reform of the state’s water system, heedless of the enormous costs involved, just when the state’s financial condition has never beenmore dire.

A realistic assessment of the total costs of the Delta legislation comes to $52B to $78B ormore.

This $52B to $78B range of costs is the sum of three major components:

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$18B–$44B for conveyance;

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$16B for new programs and projects in the Delta; and

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$18B in new statewide costs associated with a proposed $12.375B bond measure plus requiredmatching.A series of huge capital projects would be initiated by the Delta legislation including: new Deltaconveyance, construction of several new surface storage reservoirs, construction of other local watermanagement and delivery projects, Delta levee strengthening, ecosystem restoration, and creation of three new state agencies and expanded state programs to prepare and implement the Delta Plan.

The exporters have repeatedly stated they will pay the cost of new conveyance.

The $18B - $44B Delta conveyance cost estimate is based on “

The Sacramento San Joaquin Delta – 2009, An Exploration of Costs, Examination of Assumptions and Identification of Benefits

,” by Steve Kasower. These costs include the construction cost of building a canal ortunnel on an eastern or western alignment, plus necessary levee upgrades to continue throughDelta operations, new rights of way, mitigation and relocation of impactedfacilities/infrastructure.

The reason for the wide range of estimated costs ($18B-$44B) is that atunnel will be substantially more expensive than an open canal.

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The $18B estimate comes from information in Table 1, second column:

$4.2B for Isolated Conveyance (eastern alignment) based on DWR work in 2008; plus

$9.8B for Through Delta Conveyance based on DWR work in 2008; plus

$4B for Mitigation Costs characterized as “mid-range.”

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The $44B estimate comes from information provided in Table 1, third column:

$9.8B for Through Delta Conveyance (DWR); plus

$33B for Tunnel Conveyance based on actual construction costs for the London– ParisChannel Tunnel or “Chunnel;” plus

$2B for mid-range Mitigation Costs.

All users of water from the Delta watershed will have to pay the $16B cost of newprograms and projects in the “Delta Plan.” It is expected that the $16B cost of newprograms and projects in the “Delta Plan” will be funded through a surcharge orfee on water use.

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$16B in state water fees spread over 30 years is approximately $530M per year in new statewater fees, not counting the likely fee increases over time.

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For the same urban customers south of the Delta who are financing the new Delta conveyance,this fee would come to $11B more on their water bills. $11B is approximately 70% of $16Band represents the share of new Delta costs attributable to urban users south of the Delta.This $16B would provide:

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$14B in levee repair and strengthening, plus new staffing costs for the Delta Plan.

The estimated cost for Delta levees is based on preliminary work conducted under the

Delta Risk Management Strategy

where costs for improving Delta levees to a variety of standards were estimated in 2008. The cost to improve the Delta levees to a seismicallyresistant standard is $13.812B in 2008 dollars.

Sections 85305(a) and 85306 of the Delta bill, AB 68, direct the Delta Plan to promotestrategic levee investments and to recommend priorities for state investments in leveeoperation, maintenance, and improvements in the Delta, including both project andnonproject levees.

Levee repairs and maintenance will be necessary in order to maintain and protect costlyecosystem restoration projects, especially those projects that will be implemented onDelta islands.

The costs for new agencies and staff can be tabulated by reviewing the enacted budgetsof current agencies such as the CALFED Bay Delta Authority, the Water RightsDivision of the State Water Resources Control Board and the California IntegratedWaste Management Board.

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$2B for ecosystem restoration not included as part of the new Delta conveyance.

The $2B for Delta ecosystem restoration is the amount not accounted for when the $2Bproposed under a $12.375B General Obligation Bond (draft SB 371 – 9/3/09) issubtracted from the $4B estimated cost of restoration presented by Kasower (2009),Table 1 - second and third columns, Restoration line item.

A General Obligation bond of $12B has been proposed which has been linked to the“Delta package” but the actual price tag of the water projects identified in this GObond measure is an additional $18B.

The proposed $12.375B bond measure (Cogdill, draft SB 371 9/3/09) contains several chapters wherenew costs and matching requirements are identified for delta improvements and infrastructurethroughout the state:

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Chapter 6 - $2.325B for water supply reliability that would fund water supply managementprograms in hydrologic regions throughout the State with a required match of $1.19B in non-state funds.

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Chapter 8 - $3B for Delta Sustainability, including $2B for ecosystem restoration and $1B forlocal improvements, including levee improvements.

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Chapter 9 - $4B for the public benefit portion of qualified storage projects and groundwaterprojects. Matching is required by SB 371 and draft AB 893 (9/11/09, Sec. 79745) requires it tobe at least 50% (i.e. $4B for $8B of total costs).

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Chapter 10 - $1.5B for watershed and coastal protection throughout the state.

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Chapter 11 - $1.05B for groundwater cleanup and water quality improvement. Of this amount$0.3B devoted to stormwater quality may require matching of up to $0.3B.

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Chapter 12 - $0.5B for water recycling projects and requires non-state matching of at least$0.5B.Due to the local match requirements of the bond bill, water customers will also have to payanother $6B to be eligible for state assistance in three major categories set forth in the bondmeasure. Therefore,

the actual cost of the various proposed water infrastructure projectsidentified in the existing bond measure is $18B.

This bond measure would provide:

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Over $2B for local water supply reliability projects, requiring a local match of up to 50%.

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$3B for Delta sustainability, including projects to improve water quality, and protect andrestore fish and wildlife.

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$4B in continuous appropriations for surface water storage. This funding is for the publicbenefit portion of any project and requires a $4B match.

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$1.5B for conservation and watershed protection (including outside the Delta), and protectthe Delta from invasive species.

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Over $1B for groundwater protection and water quality.

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$0.5B for water recycling and advanced treatment technologies, requiring a local match of at least 50%.

The State Treasurer has recommended user fees as the preferred financing tool,which is the method of financing used over the last hundred years to construct andoperate California’s water storage and delivery infrastructure.

The State Treasurer has recently issued a report concluding that general obligation bonds are notthe appropriate financing tool for new water infrastructure. Some of the financing for these$12B in water projects identified in the GO Bond measure may instead be paid for withadditional user fees.