Dr. Sunding’s Comments to San Diego County Water Authority Board Meeting
Dr. David Sunding, chair of the UC Berkeley’s Department of Agricultural and Resource Economics, offered comments to the Board regarding his draft economic analysis of California WaterFix.
Thank you for the opportunity to present to you today and for inviting me back to speak on California WaterFix. Before we go through today’s presentation, I would like to formally summarize what we will go through today for both those here and those listening.
As you know, California WaterFix is an evolving planning process that has yet to produce a final project and a final cost allocation mechanism that I or any economist could approach with a formal cost benefit analysis. This presentation along with previous presentations and drafts represent a snapshot in time based on information available.
After looking at this over many years, what is increasingly clear about California WaterFix is the very substantial benefit in investing in this project as compared to the status quo, which would lead to continued deterioration in water supply reliability over time. The information and environmental analysis to date suggests an improvement in water supply reliability for the State Water Project and Central Valley Project from WaterFix in the range of a million acre feet per year. A further decline in reliability appears to be foreseeable given how both projects are under a formal re-consultation under the Endangered Species Act.
From either an urban or agricultural perspective, California WaterFix will cost approximately $400 for every acre foot of improved water supply. From an urban water supply perspective, this is dramatically lower than the array of local alternatives available to Southern California and the Bay Area — even when taking into account the costs of conveyance and water treatment. For agriculture in the San Joaquin Valley, there is no new water supply alternative such as desalination. The valley will also be acutely impacted by the imposition of groundwater management. This is certain to decrease groundwater yields and increase the importance of reliable surface water supplies.
Valuing California WaterFix for agriculture remains a subject of intense and important discussion. An important piece of data to inform this discussion is the rapidly rising value of farmland in the San Joaquin Valley — even after eight dry years in the past decade. These property values represent a current expectation of a net income in the range of $900 an acre. This is significant net income, yet so is the cost of water. If the property value and water cost trends continue, given the agricultural productivity of the San Joaquin Valley, California WaterFix will be quite positive for agriculture.
I did not value climate change in the draft analysis we are about to walk through, but it is noteworthy and extremely important. Sea level rise and its impact will only enhance the economic value of California WaterFix. Our current water system is not remotely prepared to cope with climate change. California WaterFix effectively mitigates the effects of climate change on the state’s water supply. It is not easy to attach a cost/benefit value to climate change because the timing and severity are unknown. But it is an increasingly important factor that as directors, with a long view, you should play extremely close attention to.
Your staff report includes an attachment of an early draft analysis. I would like to address an assumption in that analysis of a potential federal contribution toward the capital cost of California WaterFix. That was a conjecture in a draft document rather than an economic imperative as California WaterFix has evolved. The state has said definitively that there is no federal contribution needed to move WaterFix forward. Understanding more about the precise cost allocation method is important to provide a formal analysis. An outside contribution by the state or federal governments does not appear to be an economic imperative. There certainly is a strong economic and political argument to have a public contribution to pay for the modest portion of the overall project for the public wildlife refuges in the San Joaquin Valley. But that is a narrow issue that will surely be addressed and resolved over time.
As we go through this presentation, the bottom line is that the difference in water supply reliability between investing in this project and risking billions of dollars in public investment is significant. This difference appears overwhelmingly likely to increase over time. And this will only increase the prudence of investing in California WaterFix from both an urban and agricultural perspective.
