<html><body><div style="color:#000; background-color:#fff; font-family:times new roman, new york, times, serif;font-size:14pt"><div style="font-size: 14pt; font-family: 'times new roman', 'new york', times, serif; "><div style="font-size: 12pt; font-family: 'times new roman', 'new york', times, serif; "><div class="y_msg_container"><div id="yiv7788217055"><div><div align="center"><span class="Apple-style-span" style="font-size: 32px; font-weight: bold; ">Delta tunnels
plan's true price tag: As much as $67 billion</span><br><blockquote><blockquote><div align="left">
<div id="yiv7788217055articleByline" class="yiv7788217055articleByline"><a rel="nofollow" class="yiv7788217055articleByline" ymailto="mailto:progers@mercurynews.com?subject=San%20Jose%20Mercury%20News:" target="_blank" href="mailto:progers@mercurynews.com?subject=San%20Jose%20Mercury%20News:">
<div class="yiv7788217055bylinejb">By Paul Rogers<br>
</div>
</a>
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<div id="yiv7788217055articleDate" class="yiv7788217055articleSecondaryDate yiv7788217055meta">Posted:
12/26/2013 05:16:14 AM PST<span style="padding:0 10px;"></span><span id="yiv7788217055dateUpdated" title="12/26/2013
06:49:47 AM"></span></div>
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<div class="yiv7788217055bodytext"><i><b><big>San Jose Mercury News</big></b></i><br>
For more than a year, Gov. Jerry Brown's administration
has been describing his plan to build two massive water
tunnels through the Delta as a $25 billion project.</div>
<div>That would rank it as one of the largest public works
plans in California history.</div>
<div>But when factoring in long-term financing costs, the
price tag actually ranges from $51 billion to $67
billion, according to new figures that emerged last
month. </div>
<div>While there's nothing unusual about long-term debt to
finance big projects, the new numbers suggest for the
first time that the interest payments for the
controversial water tunnels could be even more expensive
than many traditional projects financed by bonds.</div>
<div class="yiv7788217055articlePosition2" style="width:300px;">
<div class="yiv7788217055articleImageBox" style="width:300px;"><span class="yiv7788217055articleImage"><a rel="nofollow" target="_blank" href="http://www.mercurynews.com/portlet/article/html/imageDisplay.jsp?contentItemRelationshipId=5626875"><img src="cid:1.1581482225@web125405.mail.ne1.yahoo.com" title="Sherman Island at the western edge of the
Sacramento-San Joaquin River Delta. (Karl
Mondon/Staff)" alt="Sherman Island at the
western edge of the Sacramento-San Joaquin River
Delta. (Karl Mondon/Staff)" height="200" border="0" width="300"></a></span>
<div class="yiv7788217055articleImageCaption" style="width:100%;">
Sherman Island at the western edge of the
Sacramento-San Joaquin River Delta. (Karl
Mondon/Staff) ( KARL MONDON )</div>
</div>
</div>
<div>And since the water project relies on a higher
percentage of financing than Brown's other legacy
project -- high-speed rail -- critics and supporters
alike are questioning if California can afford the cost.</div>
<div>"The numbers are big. There is sticker shock," said
Jason Peltier, chief deputy general manager of the
Westlands Water District, an agency in Fresno that
provides water to farmers. "We keep going back to our
policy people and saying 'Yes, this is tough to look at,
but consider your other scenarios. How much more
groundwater can we pump?' That kind of thing."</div>
<div>The Brown administration has yet to provide a detailed
breakdown of the overall 30-year cost of the project,
even in a 34,000-page report on the tunnels it released
last month.</div>
<div>The new cost figures were presented at a Westlands
district board meeting last month by a Westlands staff
member and a Citigroup bond consultant.</div>
<div>Mark Cowin, director of the state Department of Water
Resources, confirmed the estimates are accurate.</div>
<div>"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."</div>
<div>The new details are significant for three reasons:</div>
The overall cost for the tunnels is politically
sensitive. State voters will be asked to approve a water
bond to pay for parts of it in November, and polls have
shown that the more government projects cost, the less
likely voters are to support them. Water agencies around
the state would sell bonds to pay for much of it also,
and the higher the borrowing costs, the higher they will
have to raise water rates on the public.
Many large public projects are funded with money from
bonds. But the tunnels project would rely on bond
borrowing to cover a huge percent of its costs: roughly
85 percent. By comparison, the financial plan for
Brown's other major project, high-speed rail, relies on
state bonds for only 12 percent of its funding -- $8
billion of the $68 billion price tag -- with the rest,
he hopes, to come from Congress, private companies and
others.
A general rule for government bonds is that they
double the cost of projects once interest is paid. But
the borrowing costs for the tunnel project could cause
its construction costs to more than triple, according to
Westlands' estimates. They include inflation, potential
delays from lawsuits and techniques that water agencies
could use in which they pay no interest or principal for
the first few years, increasing the overall cost.
<div class="yiv7788217055bodytext">Financing charges are familiar to
anyone buying a house or car. The interest costs help
determine the monthly payments.</div>
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<div>"You want to ultimately know what the total cost will
be, in order to evaluate the cost-effectiveness of the
tunnels project versus other alternatives," said
attorney Doug Obegi, with the Natural Resources
Defense Council in San Francisco. "Financing and debt
service costs are significant. Ratepayers ultimately
pay them."</div>
<div>Critics say the state has deliberately tried to keep
the grand total from the public as it tries to build
political support for what is expected to be the
biggest water battle in California in a generation.</div>
<div>"I think they are nervous about the total cost," said
Steve Kasower, a Sacramento economist who worked for
the state Department of Water Resources from 1977 to
1985. "They have a reticence to put out a number
because they feel people are going to get upset
because it looks too expensive."</div>
<div>The Westlands presentation looked at three scenarios.
Each 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.</div>
<div>When the $9 billion more in wetlands restoration,
monitoring and other costs are included, the grand
total is $51 billion to $67 billion.</div>
<div>Brown's plan is to build two tunnels, each 40 feet in
diameter, running 35 miles under the Delta, and to
restore 147,000 acres of wetlands and other habitat.</div>
<div>Supporters say the tunnels would make it easier to
move water south without grinding up salmon, smelt and
other fish in giant pumps at Tracy, which has caused
federal officials in recent years to limit pumping.
Environmentalists and Delta politicians call the
project a water grab that could result in even more
water being taken from the Delta. They say too many
costs remain a mystery.</div>
<div>"We're going to have to add a lot more detail to our
finance plan," Cowin acknowledged.</div>
<div>Asked when those details will be forthcoming, Cowin
said he doesn't know, because the state expects 70
percent of the project to be paid by water agencies --
from the Santa Clara Valley Water District to farm
water districts like Westlands to the powerful
Metropolitan Water District in Los Angeles, who would
issue revenue bonds -- and they haven't yet committed.</div>
<div>Cowin said he hopes the water agencies will agree to
fund construction, and that state voters and Congress
will pay for restoration so work can begin in 2017.
Environmentalists say more water recycling,
conservation and other measures are preferable. But
Cowin said not building the project also comes with a
price in future shortages.</div>
<div>"What are the costs if we don't do it?" he said. </div>
<div class="yiv7788217055taglinejb">Paul Rogers covers resources and
environmental issues. Contact him at 408-920-5045.
Follow him at <a rel="nofollow" target="_blank" href="http://Twitter.com/PaulRogersSJMN">Twitter.com/PaulRogersSJMN</a>.</div></div></div></blockquote></blockquote></div></div></div></div> </div> </div> </div></body></html>