published on September 14, 2016 - 6:44 PM
Written by The Business Journal Staff

(AP) — Giant tunnels that Gov. Jerry Brown wants to build to haul water across California are economically feasible only if the federal government bears a third of the nearly $16 billion cost because local water districts may not benefit as expected, according to an analysis that the state commissioned last year but never released.

The findings counter longstanding state pledges that the districts that would get water from the tunnels would pay the full cost. Restore the Delta, a group opposing the project, obtained the fall 2015 cost analysis and subsequent state emails on revising the report through open record laws and released them.

The analysis and its new assumptions of shifting some costs to taxpayers are likely to heighten debate over Brown’s proposal to build two 40-foot-high (12.19-meter-high) tunnels to carry water from Northern California’s Sacramento River, just above its delta with the San Joaquin River, 35 miles (56 kilometers) south for use by politically influential agricultural and urban water districts, including in the state’s top population center of Los Angeles.

Conservation groups and project supporters disagree over whether the tunnels would hurt or help dozens of threatened native fish and other species in the delta, which leads to the San Francisco Bay and is part of the largest estuary on the West Coast.

The cost-benefit analysis by economist David Sunding of the University of California, Berkeley, for the first time raises the prospect that federal funding would be needed. U.S. officials have not publicly said they would share in the price tag.

Further, no local water districts have agreed to pay their slated share for the tunnels because of uncertainty over regulatory approval and whether it would be worth the expense for them.

With districts balking, the state for the first time is dipping into public funds — fees paid by users of existing state water projects — to get the project through the planning phase, state spokeswoman Nancy Vogel told The Associated Press last month.

Vogel said in an email Wednesday that officials still were sorting through the project’s costs, benefits and financing options. It became the subject this year of ongoing state and federal audits.

California’s Natural Resources Agency commissioned the study from Sunding, who works as an economist with Brattle Group consultants. It looked at the share of costs that rural and urban water districts would pay and whether they would get enough water consistently to make the project’s price worthwhile for them.

However, even if the federal government or another party steps in to pay a third of the costs, the tunnels as proposed now would pay off only for the urban water districts involved, not for the rural districts, Sunding wrote.

If the water districts have to pay all the costs, as the state has said it intends, “then the net benefits of the project are even more negative” for the rural districts that would help pay for it, Sunding wrote.

Brown’s administration is pushing for state and federal approval to build the tunnels, which would replace part of a half-century-old water system built by his father, Pat Brown, when the elder Brown was governor.

The report builds in an assumption that the delta in coming years will see a magnitude-6.7 quake, which Sunding predicts would knock out the current water system for up to 30 months but leave the tunnels, if they were built, untouched. Geologists and engineers differ on the impact of such a quake on the state’s water system.

Barbara Barrigan-Parrilla of Restore the Delta said the project’s sponsors “have to put inflated numbers in the economic analysis … to try to create the economic justification” for the tunnels.

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