There is a multibillion-dollar hole in the delta tunnels funding plan

The decision by one of the state’s major water players to opt out of California’s $17-billion replumbing project was a surprise to many. The reasons for it were not.

California WaterFix’s financing plans have assumed that the Westlands Water District and other agricultural districts would cover a large funding gap that has hung for years over the proposal to build two massive tunnels under the center of the state’s waterworks.

The Westlands board uttered an emphatic no to that idea last week, voting 7 to 1 not to join a project the district has long supported.

The move by California’s largest irrigation district threw the future of the tunnel proposal into question and placed enormous pressure on proponents to devise another financing plan to lure Westlands back.

It also underscored the degree to which Central Valley growers — who have enjoyed more than half a century of cheap, federally subsidized water deliveries — are loath to jack up their irrigation costs.

Planned for a decade and backed by Gov. Jerry Brown’s administration, WaterFix is intended to halt a decline in southbound deliveries from the Sacramento-San Joaquin Delta east of San Francisco.

From the beginning, planners have said the largely urban customers of the State Water Project and the largely agricultural customers of the federal Central Valley Project that get delta supplies would pay for the tunnels.

But there have always been two exceptions on the CVP side: Wildlife refuges that under the law receive delta deliveries. And a set of irrigation districts — known as the exchange contractors — that hold senior water rights and receive delta water to replace deliveries they lost when the CVP dammed the San Joaquin River in the 1940s.

More than a fifth of the average delta exports go to those two groups, leaving a gaping hole in tunnel funding that a 2015 consultant’s analysis pegged at nearly $4 billion.

The U.S. Reclamation Bureau, which manages the Central Valley Project and delivers water to the refuges and senior contractors, has said it will not cover that tab.

“We do not have the legal authority to fund the construction of [WaterFix],” David Murillo, the reclamation bureau’s regional director, said in a statement after the Westlands vote.

That means “somebody has to subsidize” the refuge-senior contractors share,” said Doug Obegi, an attorney with the Natural Resources Defense Council, an environmental group that opposes the tunnels.

“The way Westlands was looking at it, they were going to be on the hook for it,” he said.

In a report to the board, the Westlands staff argued that tunnel costs should be spread across all of the CVP deliveries south of the delta — including the refuges and the senior rights group.

“I think they’ve got a fair point. This shores up reliability for everybody,” said Jeffrey Kightlinger, general manager of the Metropolitan Water District of Southern California, whose board is scheduled to vote early next month on a $4.3-billion tunnel buy-in.

But the Westlands approach is a non-starter for another set of CVP contractors.

“We would not support that proposal,” said Jason Phillips, chief executive officer of the Friant Water Authority.

Friant represents irrigation districts that get dammed San Joaquin River water, so they are required to pay for the exchange contractor deliveries.

In the event of a steep cut in delta exports, Friant is also obligated to supplement the exchange deliveries with its own supplies from Millerton Lake.

To avoid that, Phillips said, the authority may be willing to “invest in a small fraction of the tunnels.”

Paying for more than that “is completely off the table for us,” he said.

In an interview a few weeks before the board vote, Westlands general manager Tom Birmingham suggested another funding source.

“I think it would be a perfectly legitimate public policy decision for taxpayers’ dollars to be used to design and construct this project,” he said.

But that would abandon the user-pays premise that has driven WaterFix.

Regional reclamation bureau officials say they are not asking for funding authority to help pay for the tunnels, and Phillips said he knew of no such proposal in Congress.

Still, Westlands has a reputation as a tough negotiator with ample political connections in Washington.

“I’m not sure to what extent [the board vote] is really a rejection of the project versus a tactical decision to try to get more money and try to pay less,” Obegi said.

State officials have argued that Westlands can’t afford not to join WaterFix because declines in delta exports have hit the district especially hard.

“I don’t see a path forward for Westlands to function absent” the tunnels, Kightlinger said. “You’d have to have a dramatic reduction in [crop] production. I don’t see another solution for them.”

If more money doesn’t materialize on the federal side, Kightlinger said there are two options. Let WaterFix die or turn it into a smaller project that would solely serve the State Water Project districts who pay for it.

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