Coming Face to Face With the Real Cost of the Delta Tunnel Plan

There are two ways to look at any big-ticket item you're going to buy using borrowed money. There's the sticker price — say the $30,000 you agree to pay Volkswagen or Toyota or Ford when you buy a new vehicle. And then there's the price of the money you borrow for the purchase. Let's say you take out a $30,000 loan to buy the car and agree to pay 5 percent interest over five years. You'll get your nice new ride and pay thousands more than the original price as you pay it off.

That same kind of calculation comes into play when considering much bigger purchases — you might think of them as "projects" — like Gov. Jerry Brown's plan to re-plumb the Sacramento-San Joaquin Delta by building twin 35-mile tunnels. The plan, which aims to improve the reliability of water shipments to the South Bay, San Joaquin Valley and Southern California while improving environmental conditions in the estuary, carries a big price tag — depending on whose numbers you're using, somewhere between $15 billion and $18 billion for the giant tunnels themselves and maybe $9 billion more for a hugely ambitious habitat restoration plan.

But that's just the estimated sticker price for the facility, which has been creeping upward ever since the early 1980s, when the cost of Brown's plan for a Peripheral Canal around the Delta was pegged at $1.3 billion. Of course, a dollar was a dollar then. Three years ago, the administration of Gov. Arnold Schwarzenegger estimated the price of a new Delta "conveyance facility" — a canal or a tunnel — at $12 billion.

Those numbers look a lot different when you count the cost of financing. Instead of paying the bank for just a few years to buy a car, the farm and city water agencies that are supposed to bear the cost of building the tunnels and the taxpayers who will pay for habitat restoration and other environmental fixes will be paying off creditors — anyone who buys bonds for the projects — for decades. Natural Resources Defense Council lawyer Barry Nelson pointed out in February 2011 that the Schwarzenegger administration's analysis suggested the 50-year cost of building, operating and financing a Delta tunnel and paying for habitat restoration would be $47 billion.

But it turns out that might be a low-ball estimate.

Paul Rogers, environmental reporter for the San Jose Mercury News and managing editor for KQED Science, says in a story published today that a new analysis of the cost shows it might be as high as $67 billion. That number comes from a presentation last month to the Westlands Water District, which supplies more than 600 farms on about 1,000 square miles of the western San Joaquin. Rogers reports that a presentation from a Westlands staffer and a bond consultant presented three scenarios at a water district workshop last month:

Each [scenario] considered bonds issued for 30 years at 5 percent interest. They pegged the cost to build the tunnels at $18 billion, and overall cost with financing at $42 billion to $58 billion.

When the $9 billion more in wetlands restoration, monitoring and other costs are included, the grand total is $51 billion to $67 billion.

As Rogers points out, those numbers could have a huge impact on the debate over whether to build the tunnels. On one hand, agencies like Westlands and L.A.'s Metropolitan Water District will have to decide whether they and their rate-payers can handle the cost, even when it's not completely certain yet how much water the project will deliver. On the other hand, deficit-wary voters will be asked at some point to approve bonds to help pay for the plan's environmental improvements. Rogers quotes Mark Cowin, chief of the state's Department of Water Resources:

Cowin ... confirmed the estimates are accurate.

"The assumptions they've made are reasonable," he said. "But financing is confusing. There isn't any doubt about it. It's hard to relay information that the public understands. We need to be clear that if you add up the total debt service, that's a different type of calculation than the capital cost estimate. I would hope those two types of estimates aren't confused."

Cowin also poses what amounts to the perennial question in the debate over what to do to restore the Delta, safeguard imperiled fish species like chinook salmon and make sure that valley farmers and cities near and far can get a reliable share of the water that flows through the estuary:

"What are the costs if we don't do it?"