CA may use Prop. 1 water bond to buy enviro water during drought

In the midst of a grueling four-year drought in agriculture, state officials say some $287.5 million in borrowed cash is available to purchase water for smelt and salmon runs and other wildlife.

The funds come from California’s $7.5 billion Proposition 1 Water Bond, approved by the voters last year.

Although it is unlikely that all of the $287.5 million will be used for water purchases to benefit the environment, the Wildlife Conservation Board and the Department of Fish and Wildlife still have yet to determine what they will do with their respective $200 million and $87.5 million bond funding allocations.

The last time California tried a pilot program of purchases of environmental water, it didn’t work out so well.

Interest adds up

Starting in 2000, state and federal water agencies purchased farm water for fish and wildlife using bond funds under a now-defunct state-federal program called CALFED. The Environmental Water Account project was aimed at improving water supply reliability and protecting the Delta ecosystem.

The project followed a major allocation by Congress in 1991: a one-time allotment of 800,000 acre-feet for salmon runs plus another 400,000 acre-feet annually for wildlife refuges without payment for the water. (See page 15). An acre-foot of water – enough to cover one acre of land to a depth of one foot – can supply two to four urban households per year, depending on whether it is a normal or drought year. That same amount can support about one-third an acre of cropland per year.

The use of general obligation bonds to buy water for the environment is controversial because actual financing costs would typically be double the principal amount once interest is included.

Calwatchdog.com spoke with Wes Strickland, a water rights attorney in California and Austin, Texas, about the results of the EWA project. Strickland said EWA was a lose-lose-lose-lose deal for every group involved:

• For environmentalists it did not allocate enough water to alleviate ecosystem stress.
• For farmers it drove up spot market water prices because of reduced supply.
• Southern California cities were thwarted from buying water to bank for dry years.
• State and federal water agencies didn’t accomplish their environmental goals even as the state ran up its budget deficit and exhausted water reserves going into a 2007-2010 court-ordered limit on water pumping.

From this failed experiment, Strickland said California should have learned to make small, incremental water purchases during rainy years to support the environment during years of drought.

$193.4 million

The state and federal taxpayer bill came to $193.4 million for the EWA project, which lasted from 2000 to 2007. More than 2 million acre-feet of water were purchased for environmental uses. (See table below.) According to the California Department of Water Resources:

• $16.8 million came from Proposition 204, a 1996-voter approved state water bond.
• $101.2 million was from Proposition 50 voter-approved state water bond.
• $50.1 million was from the state general fund in 2001.
• $25.3 million came from federal coffers.

Under the program, the government came to dominate the spot market for water.

On average, water purchases under the program made up 43 percent of all spot-market purchases of water each year. By the final year of the program, the government’s purchases comprised 87 percent of all water bought on the spot market.

The average price of water purchased over the seven years was $96 per acre-foot, without bond interest, compared with the current going price of $700 per acre-foot for water transfers from farmers.

At the lower price, the $287.5 million under Prop. 1 would be enough to purchase about 3 million acre-feet of water. As the table below shows, in 2007 California bought 477,000 acre-feet of water for fish runs, and that was deemed insufficient to help migrating fish get to the ocean.

Will there be any water to buy?

Because Lake Oroville has been drawn down below 50 percent of its storage capacity, water cannot be sold by the farmers along the Feather River, which flows into the lake.

The EWA project ended just before the Natural Resources Defense Council filed suit to protect the Delta smelt, prompting court-ordered limits on the amount of water drawn from the fish’s habitat.

Environmental Water Account Purchases, 2001 to 2007

	2001	2002	2003	2004	2005	2006	2007	Total &Average
Water Available EWA (acre-feet)	367,000	349,000	348,000	121,000	288,000	70,000	477,000	2,020,000
Spot Market Trades-All Sources(acre-feet)	1,000,000	600,000	750,000	650,000	650,000	500,000	550,000	4,700,000
Percent EWA	36.7%	58.1%	46.4%	18.6%	44.3%	14.0%	86.7%	42.98%
Total EWA (millions)	$60.10	$28.30	$30.50	$19.00	$17.90	$0	$37.50	$193.40
State (millions)	$50.10	$16.80	$30.50	$19.00	$17.90	$0	$33.80	$168.10
Fund Source	General Fund	Prop. 204	Prop. 50	Prop. 50	Prop. 50		Prop. 50
Federal (millions)	$10.00	$11.50	$0	$0	$0	$0	$3.80	$25.30
Sources: California Department of Water Resources, email April 22, 2015California Water Market by the Numbers 2012 (p. 19)

 

 

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