Department of Water Resources Faces $60 Million Shortfall

By Dan Bacher | July 26, 2014 | It appears that California is not only running out of water during the drought, but it is running out...

By Dan Bacher | July 26, 2014 |

It appears that California is not only running out of water during the drought, but it is running out of money to move that water because of mismanagement, according to the California Water Impact Network (C-WIN). 

The environmental group accused the California Department of Water Resources (DWR) of facing a $60 million shortfall after failing to collect $125 million owed by water contractors. 

“Even as it continues to promote the ruinously expensive, environmentally destructive and ultimately unworkable Bay Delta Conservation Plan (BDCP), the California Department of Water Resources has failed to collect $125 million for ongoing operations owed by water contractors, and now faces a $60 million shortfall,” according to a C-WIN media release. 

“The dearth of cash couldn’t come at a worse time for the beleaguered agency,” said Carolee Krieger, C-WIN Executive Director. “DWR now has only $50 million available, enough for about 60 days of operations, including meeting payroll.” 

The group said this shortfall required the agency to withdraw a $500 million bond proposal for BDCP planning costs because the measure’s draft disclosure form did not cite the financing deficit. 

While this shortfall is occurring, Krieger criticized Governor Jerry Brown and “his proxy, DWR,” for continuing to promote the Bay Delta Conservation Plan to build two massive water conveyance tunnels beneath the Sacramento/San Joaquin River Delta at a final cost to ratepayers and taxpayers of $ 67 billion or more, inclusive of interest and cost overruns. 

“Ultimately, DWR cannot go broke because it has a default source for funding: property taxes and water rates,” Krieger pointed out. “They believe property taxes can be increased to meet the agency’s needs without a public vote.” 

The group said an increase in property taxes is planned for Santa Clara Valley Water District and the Metropolitan Water District (MWD) of Southern California, where officials claim the moves are exempt from Proposition 13 and Proposition 218 that restrict state government options on raising property assessments. 

A memo from the Santa Clara Valley Water District, obtained through a Freedom of Information Act (FOIA) request, demonstrates that district officials believe they can raise property taxes to pay for the Twin Tunnels without a vote, according to Tom Stokely, Water Policy Analyst/Media Contact for the California Water Impact Network. (See

“Staff financial modeling assumes that BDCP costs associated with conveyance of State Water Project supply (approximately 65 million out of the $228 million ten year total) would be paid for by the State Water Project tax. Consequently, the State Water Project tax for average single family residence would increase from $36/yr to $60/yr by FY 2023-24,” the memo stated. 

Stokely also cited a document submitted on March 19, 2014 by Goldman Sachs to the State Water Contractors' Project Authority that flat out says the bonds will be secured by "ad valorem tax" increases. For example, page 10 of the document, the "Goldman Sachs Request for Qualifications and Proposals for Underwriting Services," cites "The authority of DWR to adopt a new Indenture, finance and build BDCP projects and obligate contractors to levy ad valorem tax (if necessary)." 

Nancy Vogel, Director of Public Affairs for the Department of Water Resources, confirmed the shortfall that DWR now faces, attributing it to “cumulative underbilling” of $125 million in 2013 and 2014, and cited a number of reasons why the underbilling occurred. 

“DWR is obligated to provide the State Water Project contractors with a projection of the following year’s costs and bills by July 1,” said Vogel. “We became aware in June that actual SWP operational costs for 2013 and 2014 have been higher than previously accounted for due to a number of factors, including unanticipated maintenance needs and compliance requirements, elimination of State government furloughs, salary increases for skilled project trades and crafts staff, new staff positions, and increases in overhead.” 

“Because these cost increases were not completely accounted for in 2013 and 2014 bills, a cumulative under-billing of about $125 million occurred over these two calendar years,” she explained. “The under collection amounts to 6 percent of the cumulative billing in those two years.” 

She noted that the total State Water Project billing was $1.06 billion in 2013 and $1.03 billion in 2014 – and that they are working to reduce charges and operating expense in 2015 and to mitigate the “under-collection.” 

“We are working to reduce the charges for 2015,” said Vogel. “For example, we have identified about two dozen projects at existing SWP facilities that were originally billed as operating expenses that could have been capitalized. And we are evaluating the deferral of certain non-critical SWP work for six to 18 months. We anticipate having a revised statement of charges for 2015 in the next few months that reflects a reduction.” 

She concluded, “No payments have been or are threatened to be missed on any SWP obligations. No compromise of safety has occurred, nor has SWP operational capability been impaired. We are working to reduce SWP operating expenses for 2014 and 2015 and otherwise mitigate the under-collection, and we are confident that the SWP water contractors will be able to absorb the increase without undue hardship.” 

Krieger called DWR’s response “one of the most defensive spins I’ve ever heard to cover up blatant incompetence.” 

“If they go ahead with this twin tunnel boondoggle, they’re on the verge of running out of money,” said Krieger. 

Krieger said DWR’s quandary comes at a critical time for the BDCP. "The administration has yet to make a strong ‘business case’ for the Twin Tunnels. The lavishly expensive project is being pushed at a time of growing public resistance to gigantic infrastructure projects that have no palpable benefit,” she stated. 

“As the facts emerge about the BDCP, it is clear the plan will not increase the state’s net supply of water, the Delta will be placed at great risk, and the beneficiaries will be a handful of corporate farms in the western San Joaquin Valley and Tulare Basin, not southern California urban ratepayers,” Krieger emphasized. 

She also said secure funding is becoming increasingly elusive. “A large water bond seems foredoomed to failure,” noted Krieger. “Property owners are thus the only viable alternative.” 

‘The $125 million dollars that ratepayers and taxpayers will cough up to pay for DWR’s shortfall is just the beginning. It will take an additional $1.2 billion to complete the planning process for the Twin Tunnels,” Krieger noted. 

She said that if the project moves forward, many California residents will see their properties taxes and water rates rise to support the $67 billion Twin Tunnels. 

“Few state citizens understand their properties can be so encumbered without a vote or even token input. Unfortunately, they may be about to receive an object lesson in property taxation without representation,” she summed up. 

The twin tunnels won't create one drop of new water, but they will lead to horrendous environmental degradation, according to tunnel critics. The construction of the tunnels will hasten the extinction of Central Valley Chinook salmon, Delta and longfin smelt and other fish species, as well as imperil the salmon and steelhead populations on the Trinity and Klamath rivers.

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