Delta Voluntary Agreement Costs Soar from $1.1 billion to $5.3 billion

The first update of the Delta voluntary settlement agreements (VSA) last winter had an estimated cost of $1.1 billion over 15 years.  In the latest update, the cost of implementing the voluntary agreements has soared by over $4 billion to a whopping $5.3 billion.  Governor Newsom failed to mention the enormous and growing costs in his oped praising the voluntary agreement framework.

The delta water users contribution has increased from about $300 million to $2.34 billion.  On one hand, I am happy to see the extra $2 billion given that I previously ridiculed how cheap the water agencies initial offer was compared to the enormous benefits they receive from this agreement compared to the alternative. This additional $2 billion from water users only accounts for half of the cost escalation, the government negotiators also "volunteered" an additional $2 billion in taxpayer funds for a total of nearly $3 billion from federal and state governments.

Over $5 billion in taxpayer and ratepayer funds is a lot for a 15 year Delta operations agreement.  Taxpayers and ratepayers should be asking whether these $5+ billion is better invested on developing alternative local water supplies and new technologies that will provide benefits far beyond the 15 years of this agreement.

The $3 billion in state and federal funding deserves the most scrutiny.  It seems that most of the funding for habitat in these agreements appears to come from existing state bonds dedicated to environmental enhancement - meaning that habitat investment is going to happen anyway with or without this voluntary agreement.  I have heard that many of the specific projects were already required.  So are the habitat improvements in the VSA any different than would occur without the VSA?  If they are the same, then they should be in the baseline and their benefits not attributed to the VSA deal.  If they are different, then we need to consider what other habitat projects are lost to support the VSAs.

The spending plan summary also says that about $1.2 billion of the funds would go to water purchases which would average less than 200,000 af per year over 15 years.  That's a pretty good price for irrigation water, I wonder how they determined the amount.  Another $456 million for paid fallowing that would presumably provide some of the other flows from the Sacramento and San Joaquin Valley. 

I find it interesting that if water supplies and fallowing is the result of regulation, the focus of the anti-regulatory protests (as well as the Governor's explanations for not suing the Trump administration over weakened environmental regulatons) are the low-paid farm worker jobs that could be lost if water diversions are curtailed.  However, the VSA deal pays $1.6 billion to landowners (farmers) to reduce farm water supplies and fallow fields, and $0 to farm workers and communities that these politicians and landowners say are harmed the most by land fallowing.  I wonder if the environment and Central Valley communities wouldn't both be better off if the state stuck with the original regulations and directed $1.6 billion in public funds to other economic and community benefits in the Valley.
   
I am not opposed to the concept of a voluntary agreement, but it should have a simple structure in which water users only provide funding for environmental goals in return for a lower regulatory burden - rather than the needlessly complicated VSAs that mix in lots of funding and projects that do not depend on the VSA.  A simple structure is very common in a variety of regulatory settings.  A common example is a developer paying a fee to satisfy a regulatory requirement rather than direct action by the developer to set aside land or housing units for other social/environmental needs. 

Delta Tunnel EIR Scoping Comments Part 1: Finance drives operation, so feasibility study should come first not last

The EIR scoping meetings for the single-tunnel delta conveyance facility (DCF) began this week.  My comments focus on two critical areas where DWR appears to be repeating their mistakes of their past despite the Newsom administration's stated intention of taking a fresh approach: 1) postponing financial feasibility and benefit-cost analysis to the end instead of the beginning, and 2) ignoring known alternatives with higher and more broadly distributed benefits and likely lower costs.

Point 1:  Finance drives operational and sizing decisions, and thus must be considered up-front.

This is hardly a controversial point for water infrastructure planning.  Feasibility studies, which include financial plans informed by benefit-cost analysis at their core, are typically conducted in tandem with environmental impact reports for water infrastructure.  This is common sense as financial considerations have important consequences for project design, sizing and how infrastructure is operated.  If financial feasibility analysis and environmental impact analysis are not done together in an integrated fashion, it is the EIR that should follow after feasibility, because the EIR guidelines frequently refer to feasibility as a factor in the development and consideration of alternatives.  DWR itself has stated this principle,

The most efficient way to prepare environmental documentation may be to initiate the process in the second half of the feasibility study process or immediately after the feasibility study is completed, when alternatives are clearly formulated and analyses and adequate information are available to informatively discuss the project and its impact and benefits to the stakeholders.(Guidance for a state-led feasibility study, page 26) 

However, DWR appears to be doing it backwards for the single-tunnel plan and risks repeating the mistakes of the WaterFix experience.  The notice of preparation for single-tunnel delta conveyance doesn't mention that it will be doing feasibility or economic analysis, and in an accompanying FAQ document states that it will do this analysis after a preferred alternative has been selected.

There will be a cost estimate, as well as both a Benefit-Cost Analysis and a Financial Analysis, developed during the planning process. At this point, the NOP is a start of the environmental review, which focuses on the relative environmental impacts rather than economic issues. Cost analyses will come later in the process, after a preferred alternative has been selected (Delta conveyance NOP Q&A question 17, page 4)

What's wrong with doing it backwards?  The most obvious problem is that stakeholders and agencies, both proponents and opponents of the project, can waste enormous amounts of money and time analyzing an infeasible project.  Another problem is that rushed last minute project changes can occur when financial problems finally emerge that do not receive adequate scrutiny.  We certainly saw both of these problems with the twin-tunnel WaterFix.

Another serious problem with this backwards approach is that it makes it easy for a project proponent to make claims and promises to operate in an environmentally friendly way in a report, just to get environmental approval and permits to build it.  Feasibility analysis can tell you whether those promises are likely to be kept, or whether the operation of a facility like the tunnel is likely to be changed later in response to financial needs as well as economic and political pressure.  Like a politician who makes promises they won't keep while they are trying to get elected, DWR appears to be making environmental promises they won't keep to get their permit to build.

To be fair, I should mention the NOP says that it will consider the results of contract negotiations that are related to financing the project.  That's at least a small step in the right direction, and the latest developments in those contract negotiations are a perfect example of how finance can change the operation and description of a project.  Of course, starting with the feasibility study would have helped inform those contract extensions too.

Governor Newsom's administration says this is a new project and he is taking a fresh perspective, but this is starting to look like the same people, repeating the same mistakes, and destined to fail in the same way on a slightly smaller version of the same project.  A fresh approach would mean looking at a much broader set of alternatives - which is the subject of my second point and a future post.