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Delta Flows: What Exactly is California DWR Selling Bonds For?

by Barbara Barrigan-Parrilla, executive director, Restore the Delta
October 12, 2016

UPDATE at 12:00 today: DWR will delay their response to our PRA request.

Mr. Stroshane,
Your California Public Records Act request (attached) sent to Director Mark Cowin has been forwarded to me for review and response. I’m replying to your request pursuant to the California Public Records Act, Government Code sections 6250 et seq.
The California Department of Water Resources (DWR) has determined it maintains records responsive to your request. The records you request are maintained in separate file locations at DWR. We anticipate these records may be voluminous and will require a significant amount of time to locate, assemble and review. DWR is presently collecting and reviewing these records. We estimate that these materials can be made available to you not later than January 13, 2017.
Please note that DWR will make every effort to provide you with responsive records as soon as feasible.
John Dunnigan, Senior Staff Counsel
Office of the Chief Counsel
California Department of Water Resources

As the only watchdog group digging through bond announcements by California water agencies, I wanted to share a mystery that crossed my desk this week.
A new bond by the California Department of Water Resources (for sale 10/13) raises a big question for SF Bay-Delta advocates. We wonder, if funding for a squishy money pot called “construction of certain Water System Projects” an attempt to stock away funds for the unpermitted Delta Tunnels (CA WaterFix)?
According to a recent Bay-Delta committee report at Metropolitan Water District, the CA WaterFix (Delta Tunnels) line item is down to about $1.5 million in the kitty. It is hard for non-financial experts to know which projects the money is being allocated for, so we sent a new Public Records Act Request to the Department of Water Resources.
Here’s what we know:
The California Department of Water Resources is advancing a $470,000,000 revenue bond sale on Thursday, October 13, 2016. The bonds would fund the State Water Project System, in addition to refunding some of DWR’s past water revenue bonds and commercial paper purchases.
We note the lack of transparent descriptions and explanations contained within the Preliminary Official Statement for the AW Bond Series that would allow all Californians a full understanding of what is being financed. That is why we are trying to bring sunlight to the process and funding of the planning behind the Delta Tunnels (CA WaterFix).
Among our concerns:
Metropolitan Water District of Southern California and the California Department of Water Resources will not state publicly what has been the bonding relationship between the two agencies for the last two years of CA WaterFix planning and what is the arrangement going forward to pay for design and planning for construction. Yet, Metropolitan will repay approximately 36% of this nearly half a billion dollar bond as the State Water Project’s largest contractor. While it is anticipated that they would pay back a larger share of any bond than any other State Water Project agency because they are the SWP’s largest member, we cannot ascertain if they are funding a larger share for CA WaterFix planning costs to cover for agricultural districts like Kern County Water Agency. (Link to tables, page 54 & 55 of the bond.)
We also don’t know if this huge bond is an attempt by DWR to pay off any commercial paper that the agency may have used to fund the Delta Tunnels planning for the last two years. Planning for the (still unpermitted) Delta Tunnels is all happening behind closed doors. If Southern California water ratepayers find out they will pay for a project that will deliver no new water (but largely subsidize corporate agriculture interests), they might revolt. And while the bond appendix discusses about $90 million of current construction for State Water Project facilities, it is not entirely clear if planning and design expenses for the Delta Tunnels will be or won’t be funded under the ‘construction of certain water projects’ category.
The shift from a project that is paid for solely by water users, to one that may require public financing, has recently been reported by AP and KCET. The Preliminary Official Statement for the bond includes a lengthy justification for using Ad Valorem taxes as a funding source, but does not provide direct context for the discussion within the description of the bond. It is not clear if this is an oblique justification for using Ad Valorem taxes for CA WaterFix planning expenses.
Ratings agencies have made clear they will rate bonds higher if the Delta Tunnels are a sure thing. But they admit this is not the case at this time.
On September 27, Moody’s Investors Service issued a ratings statement on the new DWR Central Valley Project Water System Revenue Bonds sale and lays out scenarios by which their Aa1 rating for the bonds could lead to an upgrade or a downgrade.

Factors that Could Lead to an Upgrade
Substantially increased, long-term water delivery reliability
Effective resolution of contract extensions
Increased certainty regarding funding sources and total costs associated with the Bay Delta Conservation Plan
Full resolution of major outstanding litigation concerning biological opinions and Monterey Amendment
Factors that Could Lead to a Downgrade
Continued drought conditions resulting in a significant decline in the contractors’ financial positions or their collective willingness to collaborate on joint water delivery systems and reach agreement on contract extensions
Significant, permanent cutbacks in water deliveries imposed by regulatory or legal restrictions from the Bay Delta or high mitigation costs

Why include a discussion of CA WaterFix, litigation over drought orders for the Delta, lawsuits concerning the giveaway of the urban preference for water deliveries, and the Delta Water Quality Plan Update in the bonds narrative if funding CA WaterFix planning is not part of the bond? CA WaterFix, from DWR’s perspective, seems to be the needed link to complete all the other projects DWR is constructing for water deliveries in other parts of the state. Yet, the project is not permitted by state or federal authorities, and does not have a financial plan signed off by the parties who are supposed to pay for the tunnels. A project that has yet to prove that it imposes no injury on the legal users of water in the Delta.
And so the research beat goes on. We will keep you posted on DWR’s response.

Leave a Comment

{ 8 comments… add one }
  • Judith Kirk
    October 12, 2016, 12:08 pm

    Thank you for all you are doing. Your work is absolutely vital for the estuary, the Bay Area, and the state (not to mention the planet.

  • Janet Levers
    October 12, 2016, 1:22 pm

    Good lord, it’s going to take three full months to organize and provide the information requested? Obviously DWR has staff that’s been working on the material (to back-up) the bond filing in the first place. Don’t they have it referenced well enough to show it to the public?

    • Bev Holt
      October 13, 2016, 8:55 am

      Their response is rediculous……they cannot tell you now how they plan to use the millions of bond money? Very very suspect

  • daved
    October 12, 2016, 7:16 pm

    The water fix is in, more of the same aquisition and squandering to the highest bidder/powerbroker/utility at the cost to the public at large. Makes me want to destroy a few nearby dams that imposition spawning salmon.

  • October 12, 2016, 9:13 pm

    Keep up the great work Barbara, we all appreciate it immensely.
    And I am as amazed as Janet with the long time required by the DWR to provide the information requested. They are either trying to delay and/or avoid providing revealing information or they are an extremely inefficiently run organization that is in need of improvement. Or maybe both?

  • Mike Smith
    October 14, 2016, 10:44 am

    Restore the Delta has caught onto Jerry Brown’s game plan. What amazes me most are the professional politicians who take public resources and give them away to large corporations. How many of of fearless leaders in the Legislature right now are selling their vote for a larger share of local “pork”? I wonder if Jerry Brown has a “public and private opinion” about water too? Jerry Brown is a con-artist. For sure Jerry’s “The Fix” is in and taxpayers are left holding the bag of manure. One last environmental disaster before he sails off into the sunset, that’s Jerry’s legacy. Jerry’s “WaterFix” is going to made Boston’s “Big Dig” look like a child’s game.

  • Barbara Jornov
    March 2, 2018, 2:24 pm

    Thank you for your efforts. Just another corporate fraud making millions off the backs of our labor. We all are just “cattle”. We all need to bond ourselves.