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Financing the Fix by David Yardas, Environmental Defense Fund

"Among the most critical unanswered questions in the discussion of the CALFED Bay-Delta program is who, in the end, will be asked to pay for what. The stakes are enormous - the total bill could well exceed $20 billion over the next 20-30 years.

"According to the Phase II Report, 'sharing the costs of the Solution based on the benefits being created is the cornerstone principle of the CALFED Financial Strategy.' While my organization [EDF] supports the basic notion that those who would benefit from any newly-developed facilities should pay the 'true costs' thereof, the benefits-based approach described in the Phase II Report ignores at least one critically important issue: how we got here in the first place. By assuming that 'costs will be paid for by the beneficiaries of the actions, as opposed to seeking payment from those who, over time, were responsible for causing the problems being experienced,' CALFED is doing its best to ignore more than 100 years of environmentally-damaging water development activities - much of it taxpayer funded - the adverse results of which necessitated CALFED's programmatic efforts.

"Taken literally, the benefits-based approach so-defined would preclude any assessment of:

(1) historic investments and subsidies in existing water development,
(2) prior unmet environmental mitigation obligations,
(3) the true prior and ongoing costs of diversions, depletions, exports, impoundments, and pollution from facilities, and
(4) the related ecosystem costs of any new water development.

"The above approach assumes, in effect, that the 'water playing field' is somehow level. This ignores the fact that half of all Bay-Delta inflows (more than 70 percent in drier years) are already extracted from the ecosystem every year. It would also require the public to pay for any and all ecosystem benefits - including repairs for the damage already done. And it would preclude adopting even modest fees to pay for use of the public's water, to begin to 'internalize' long-ignored environmental costs, and to assist in implementing CALFED's efforts to restore ecosystem health - the best, and perhaps only, assurance of long-term water supply reliability.

"To its credit, the Phase II Report identifies as outstanding 'whether or not any adjustment for past impacts is appropriate prior to using the benefits [based] approach.' To this end, a draft CALFED document currently under discussion in the BDAC Finance Workgroup (Beneficiaries Pay: Implications for Cost Allocation) holds promise. While the Implications draft continues to discount the need for an accurate and detailed financial baseline analysis, it proposes instead a forward looking alternative that would include, among other key elements:

(1) a surcharge on all water users in the Bay-Delta system to assist in funding the CALFED common programs;
(2) clarification that the users of [storage and conveyance] facilities must pay the full cost of [any such] facilities;
(3)assurance that any share of new facilities that might be dedicated to ecosystem purposes will be treated as a mitigation cost for ongoing water development impacts (i.e., paid for by the direct beneficiaries and not by the public at large); and
(4) assurance that, if public funds are provided for facility planning purposes, they will be cost shared up front, with the balance to be repaid by contractors should facilities be constructed.

"Though the Implications draft needs work, it is an important step in the right direction. Unfortunately, the principal public discourse on these issues of late has been shaped not so much by CALFED's work, but by Governor Wilson's efforts to secure hundreds of millions in taxpayer funds for water development projects and activities through a prospective 1998 state water bond, the 1998-99 state budget, and in proposed companion federal legislation. The asserted justification for such funds - which of course cannot be justified using any version of the beneficiaries pay concept - is that the ecosystem received its share of funds through state Proposition 204 (and companion federal legislation), so now, the past aside, it's the water users' turn once again.

"This is precisely why a rigorous baseline assessment is needed. By our estimates, for example, the ecosystem funds provided to date amount to less than two percent of the historic construction investment (measured in current-year dollars) in the CVP and SWP alone. Whatever it does, CALFED must reject the temptation to sweep the past under the rug."

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