Court ruling against bond financing for controversial delta tunnel won’t impede project, state says

March 27, 2024
Jesse Vad, SJV Water
by Jesse Vad, SJV Water
Environmental documents to take water from the Sacramento River 45 miles south beneath the ecologically sensitive Sacramento-San Joaquin Delta were approved by the Department of Water Resources in December 2023. Source: Metropolitan Water District of Southern California
Jesse Vad, SJV Water
Jesse Vad, SJV Water

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A recent court ruling may have thrown a wrench in the state’s funding plans for the controversial and expensive Delta Conveyance Project – a tunnel to move Sacramento River water 45 miles beneath the ecologically sensitive Sacramento-San Joaquin Delta. 

In January, the Sacramento Superior Court denied the state Department of Water Resources’ (DWR) request to finance the project through bonds. 

Tunnel opponents hailed the ruling as a blow to the project.

But state staff say the ruling will not impede funding. DWR has appealed the case and is still planning on using bonds to pay for the project if it comes to fruition. 

The Delta Conveyance Project relies on the end users – cities and agricultural districts that buy water from the state – footing the bill. DWR typically funds major projects up front through bonds, which are repaid by the participating state water contractors.

Though it’s becoming less clear how many state water contractors are still willing to pay for the tunnel, as reported by SJV Water in February.

The most recent estimate of the project’s cost is $16 billion. Tunnel opponents say that number is closer to $40 or $50 billion when inflation and interest are factored in over the 20-year construction period.

The state approved the project’s final environmental impact report in December of 2023.  

​​”Bonds would allow the participating state water contractors to pay that debt over time, as opposed to needing to upfront fund that project,” said Carrie Buckman, DWR’s environmental program manager for the Delta Conveyance Project. 

Investors want certainty that the bonds will be repaid, said Buckman. The higher the certainty, the lower the interest rate. 

The bond ruling stems from a 2020 “validation case.” 

“The idea is to get the court to confirm that we have the authority to issue bonds, which will help lead to more certainty and a lower lower interest rate,” said Buckman. 

The resolution was filed in 2020 and challenged by environmental nonprofit Sierra Club. 

That was before the current iteration of the delta project was conceptualized. Staff didn’t know what the project would look like, said Buckman. Because of that, the court found the project wasn’t specific enough to determine whether DWR had the authority to use bonds, she said. 

“We don’t see this as a block,” said Buckman. “I think this is a process that we need to work through, and we’re still in it. But we don’t see it as a block and the legal case did not indicate that we don’t have the authority.” 

Staff are going to be more specific through the appeals process now that the project is fully formed, added Buckman. 

Tunnel opponents see it differently. 

 “I think it’s a major impediment,” said Bob Wright, counsel for the Sierra Club. “They have appealed the court’s ruling so I can only conclude that they think it is a serious impediment. And that’s why they’re going to try to get the Court of Appeal to reverse what the trial court rules.”

The state has yet to do a cost-benefit analysis on the project, said Wright. 

“It’s amazing, frankly, they’ll give final approval to a project. And meanwhile, they said a long time ago they would do a cost-benefit study later,” said Wright. 

The lack of true costs and how much water the project would bring in are two of the biggest challenges for a number of water contractors, many of which are watching closely for new cost estimates. 

“This is really a complete outrage that DWR is trying to inflict, not only on the environment, and the already very troubled Delta, but also on ratepayers,” said Wright. 

The appeals process could take some time. If it’s not expedited, it could take more than a year, said Wright. 

Jesse Vad, SJV Water

SJV Water is an independent, nonprofit news site dedicated to covering water in the San Joaquin Valley. Get inside access to SJV Water by becoming a member.


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