Financing Delta Improvements and Environmental Mitigation

Resolution of the Delta’s water supply, water quality, and fish problems may involve building various structures, possibly including gates, pumps, canals, levees, and dams, and undertaking landscaping rearrangements to improve habitat for several species of flora and fauna. Resolution also involves changing water flow regimes in ways that would make more or less water, but probably less, available for human uses. This work and these changes will cost serious money. Cost estimates for many of these actions have not yet been developed.

This paper explores approaches to financing these “improvements” and “mitigations.” While a little abstract, this is abstraction that matters. It will determine from whose pockets a good deal of money will come.

California has a long history of financing water projects. The first section of this paper reviews this history, in hopes of identifying water-financing principles that might be adapted to Delta improvements and mitigation. Some deep-seated controversies about how Delta improvements should be financed have roots in this history, and it may be helpful to point them out.

A core idea in California’s approach to financing water projects is that beneficiaries should pay for them. Decades ago, this was a straightforward proposition – people or water districts should pay for the necessary dams, canals, and pumps and the costs of operating them in proportion to the amount of water they received. In the current age of rising environmental sensitivity, it is a little muddier. An alternative formulation that applies, at least crudely, to housing developments and highway projects, is that project proponents should pay to mitigate at least some of the environmental harm that their project is likely to cause. The second section of this paper explores this controversial subject. It seems unlikely that any consensus can be reached about how to finance facilities in the Delta without reaching some agreement about how to deal with this matter.

This paper was first issued in July, 2008. This version contains a few clarifications made in response to the Blue Ribbon Task Force’s reviewers. The author is grateful for their suggestions.