Thursday, February 10, 2011

A new term for subsidy

The latest Sac Bee op-ed promoting a peripheral canal (written by an infrastructure construction firm) contains a remarkable sentence.
At a time when public dollars are at a premium, all funding options should be on the table, including incentives for encouraging private investment.
Huh? Public dollars are at a we need "incentives".  That doesn't sound like it will cost taxpayers any money does it, but I haven't seen too many incentives that aren't taxpayer subsidies.

I also think they missed the mark on this statement.
It's safe to say the biggest roadblocks facing any potential solutions to the Delta's problems aren't related to engineering. We have the technical know-how. It's governance.
The roadblock isn't governance, it's finance. The water package put in a governance structure that will easily lead to their dual conveyance solution if they can figure out a way to pay for it.

If this project cost one or two billion it would be built, and we could afford to operate it in the environmentally friendly way that has been so alluring to many environmentalists. If that was the case, I would support it.

But it costs a heck of a lot more than that ($15 billion is the latest I have heard), and there are very good reasons to question whether the benefits (both private and public) exceed the costs. There may be more cost-effective ways to cope with the risks, and those who would benefit from these projects have been known to exagerrate the calamities that could result, while ignoring the very real calamities that will result from redirecting billions of public dollars in this direction.  Despite hundreds of millions on research and consultants, the one obvious research project you don't see is a cost-benefit analysis on the proposed conveyance. Why not?

All the evidence I have seen suggests that paying for this tunnel is going to require forgetting about one of the co-equal goals, the environment, an enormous taxpayer subsidy, and very likely both taxpayer subsidies and relaxed environmental protections.

Recent events have shown taxpayers are pretty disgusted with "bailouts." So, policy makers should be sure that any incentives in the form of public financing have terms at least as stringent as those given to Wall Street and GM, including reasonable interest rates and payback periods, and a taxpayer equity stake in the enterprises.

(minor edits Thursday at 10 P.M.)


  1. The roadblock isn't governance, it's finance.

    You are slowly convincing me of this, although the trust and governance problems haven't been resolved.


  2. Trust and governance are still problems, but I don't think they are the major obstacle to building the project.

  3. Jeff, great column as usual, but I am inclined to agree with our mutual friend OtPR. I would put trust and governance slightly ahead of finance. If there was more trust which led to an agrement on governance, like for instance a new JPA based on the Delta Counties Coalition, to construct and operate any new conveyance facilities delivering water to the CVP and the SVP on agreed terms, and if the economics of the higher cost of water deliveries could be accomodated, then raising the finance either in the form of municipal bonds or as a private investment from global banks specializing in infrastructure should be possible - maybe not right at this moment, but within a year or two. The hitch is whether agricultural water users can adjust to a higher cost of water in return for more reliable supply. It appeared that for a project cost of up to $12m, the agricultural water users thought they could adjust, as Westlands and SLDMWA have pulled out of BDCP, not because of the cost, but because they are not being offered what in their view are sufficiently reliable supplies.
    But maybe these are just two sides of the same coin? Just as finance and economics are two sides of the same coin? Regardless, as I think you have argued before, a proper economic analysis is badly needed. But then one of the questions is do do spread the new costs over only some increment in the delivered amount of water or over the total deliveries. I would, I think, argue for the latter as without a solution to the current problems exports will potentially be completely shut down as a result of the lack of incidental take permits. Any new costs are necessary to maintain exports above a zero base.

    Robert Pyke, a simple dirt engineer from Australia, but one who is connected to the folks that wrote the report that led to water rights and pricing reform in Australia.

  4. Good points, and two sides of the same coin is indeed the case. See the next to last paragraph.

    The point of this post is that we can expect the financing proposals to include all sorts of hidden subsidies that are rationalized in very creative ways.

    Just wait.