The CVP: Flowing Downhill to Money
Photo: PGHolbrook
How Corporate Growers Are Using Taxpayer Funds to Seize California’s Water
by Tom Stokely, Salmon and Water Policy Consultant
The Central Valley Project – the sprawling federal complex of dams, reservoirs, and canals that conveys water from the Trinity and Sacramento River watersheds through the San Francisco Bay-Delta to the corporate farmlands of the San Joaquin Valley – is employing massive taxpayer and ratepayer subsidies to support a handful of spectacularly wealthy growers. To enrich the few and the powerful, the CVP has commandeered state water supplies, destroyed California’s once-iconic salmon runs, poisoned hundreds of thousands of acres of land, and contaminated hundreds of miles of waterways, threatening public health, fish, and wildlife.
The CVP grew out of the Reclamation Act of 1902, which was established to encourage settlement of the rural western United States. The project’s original subsidies helped family farmers stricken by the Great Depression. But in ensuing decades, a small number of industrial agricultural corporations established control of hundreds of thousands of acres in the San Joaquin Valley, consolidating their grip on the lion’s share of CVP water.
Land for People, an activist group of small farmers, sued to enforce federal rules on the scope and scale of industrial agriculture. They prevailed in that lawsuit. But federal lawmakers allied with corporate farmers then passed legislation that bypassed the acreage limitations and other CVP allocation conditions Land for People had secured.
Since then, land consolidation has proceeded smoothly in the regions served by the CVP, particularly in the western San Joaquin Valley. Even as drought has afflicted urban ratepayers and small farmers throughout California, CVP contractors have concentrated on water-intensive crops that yield high returns, such as almonds and pistachios – luxury foods sold for export at premium prices.
Indeed, the term “subsidy” is hardly adequate to describe the egregious seizure of public funds by Central Valley growers. In simplified terms, a CVP contract is an obligation to pay off the debt the federal government incurred to build the project. It is analogous to a 50-year mortgage, but the asset is the water delivery infrastructure – dams, tunnels, turbines, canals, and pumps – rather than a house, and the contract requires no down payment and no interest payments.
If an irrigator declares they are unable to meet the required annual payments, they aren’t forced to pay – and the water will keep flowing. After the Water Infrastructure Improvements for the Nation Act of 2016 (WIIN ACT) of 2016 gave the contractors a reduced payment opportunity through converting to permanent water contracts [1], cost shifting from contractors to taxpayers became the rule, not the exception. Even prior to those contract changes, which left over $400 million in CVPIA restoration costs unfunded, a 2013 report from the U.S. Department of the Interior’s Inspector General concluded that CVP contractors will never pay the interest – let alone the principle – on their incurred debt due to the U.S. Bureau of Reclamation’s repayment policies.
“…We found that USBR’s ratesetting policies do not ensure that an appropriate share of capital costs and prior-year funding deficits are repaid annually,” the report states. “Water deliveries to the CVP contractors have been highly variable year to year. When actual water deliveries are less than projected deliveries, revenues are insufficient to recover the Federal investment in the project. When actual water deliveries exceed projected deliveries, however, existing contract provisions stipulate that excess revenues collected by USBR must be refunded to contractors. As a result, USBR has not demonstrated steady progress toward recovery of Federal investments in the CVP.”
So who picks up the tab? You do – if you’re a ratepayer who consumes any electricity produced by the turbines operating at the CVP’s 10 hydropower plants.
“[…If struggling to pay], an irrigation contractor is charged the lesser of the cost of service or the irrigation contractor’s payment capacity,” the 2013 report states. “At a minimum, the water rate must cover O&M costs. The difference between the cost-of-service rate and the irrigation contractor’s ability to pay is shifted to the CVP power users for repayment through the U.S. Department of Energy. Thus, power users will pay any costs above the irrigation contractor’s ability to pay.”
Customers served by CVP power include the Sacramento Municipal Utility District (SMUD); the Northern California Power Agency (which services the cities of Alameda, Palo Alto, Roseville, Redding, Santa Clara, Ukiah, Healdsburg, Lodi, Biggs, Gridley and Shasta Lake, the Bay Area Rapid Transit District, the Port of Oakland, the Truckee Donner Public Utility District, and the Plumas-Sierra Rural Electric Cooperative); and the Trinity Public Utilities District.
This “ratepayer pays” alternative, however, is by no means an assured option for the CVP. Hydropower is considered a renewable and sustainable energy source, so it currently benefits from strong market incentives. But hydropower is unreliable during drought years, and energy from other renewable sources– e.g., solar and wind – are scaling rapidly. As these alternative sources grow in scope, they are becoming cheaper. And the CVP’s energy customers are by no means wedded to the project out of principle; they have a fiduciary responsibility to their ratepayers.
As their 20-year contracts with the CVP expire, they will inevitably seek out cheaper power from the expanding palette of available sustainable sources. CVP power customers also have the option of simply walking away from their commitments. Recently, they requested and were granted a two-year cancellation clause in their twenty-year contracts – a tacit acknowledgement by the federal government of the volatility of the energy sector and the leverage power customers wield in the marketplace. Current law requires any money owed and not paid by the CVP contractors by 2030 must be paid by the power users. That is now highly unlikely.
Moreover, the methodology the Bureau of Reclamation used to determine the cost of the CVP incorporates several egregious omissions. The most significant: the massive environmental damage caused by the project (including the destruction of valuable fish species and their habitats), and the aquifer over-pumping and subsequent ground subsidence directly related to CVP operations. These externalized costs are borne by taxpayers: the State of California, for example, uses bond funds and general fund allocations to pay for CVP ecosystem and restoration projects, as well as canal repairs from overdrafted aquifers. The cost allocation methodology was skewed so the taxpayer pays roughly 80% of the CVP and of course CVPIA mitigation costs identified in 2013 were not allocated and still have not been allocated. It is likely the mitigation costs have grown to over $1 Billion in uncollected monies.
The Central Valley Project also has devastated several tribal communities that depended on the fisheries and wildlife of the Sacramento and Trinity River watersheds for both their subsistence and cultural identities. Among them are the Hoopa Valley Tribe, which is litigating the U.S. Bureau of Reclamation because the agency did not seek reimbursement from irrigators for funds spent to rectify environmental damages caused by the CVP, including $300 million (and growing) for restoration of the Trinity River. (See the attached press release)
The Central Valley Project also has devastated several tribal communities that depended on the fisheries and wildlife of the Sacramento and Trinity River watersheds for both their subsistence and cultural identities. Among them are the Hoopa Valley Tribe, which is litigating the U.S. Bureau of Reclamation because the agency did not seek reimbursement from irrigators for funds spent to rectify environmental damages caused by the CVP, including $300 million for restoration of the Trinity River. (See the attached press release)
Furthermore, the Bureau of Reclamation continues to undermine the success of CVPIA programs such as the Trinity River. It is currently preparing an EIS for reconsultation of Trinity River Coho salmon that would examine alternatives to eliminate fishery flows and temperature protections. Reclamation also claims that CVPIA mandates such as restoration of the Trinity River’s fishery are “complete” under CVPIA, yet salmon fisheries are closed, except for a minimal tribal subsistence quota.
Finally, a second Inspector General’s report found that the Bureau of Reclamation worked with the Westlands Water District to deceive Congress and use taxpayer money to pay Westlands’ share of the planning costs required for the proposed Delta Tunnels conveyance project. These funds totaled $75 million and were disbursed by USBR, but the federal government was not recompensed by Westlands and 3 other federal contractors as required under federal law.
There have been periodic efforts to reform the CVP, and all of them have failed. The most ambitious was the Central Valley Project Improvement Act of 1992 (CVPIA), which attempted to change the CVP’s operations to remedy the damages caused by the project and ensure mitigation measures for fish, and wildlife. It has been more than 30 years since the CVPIA was passed, and hundreds of millions of dollars now owed by the contractors have been expended in its implementation. But enforcement of the legislation was left to Reclamation who has thwarted the law. Failure to ensure the basic protection principles contained in federal law and the Fish and Wildlife Coordination Act have left the Bay-Delta’s ecological integrity in shambles, fisheries have collapsed – and each year, millions of acre feet of public trust water continue to irrigate the toxic, selenium-impaired lands of the western San Joaquin Valley via the CVP. For an overview of the Bureau of Reclamation’s failure to adequately implement the CVPIA, see the report “Listen to the River.”
In sum, given the massive taxpayer subsidies that underlie the CVP’s financial structure, the likelihood of power customers ultimately decamping to other providers, the flagrant unethical collusion between the Bureau of Reclamation and large San Joaquin Valley irrigation districts, and the delivery constraints that will only accelerate with climate change, it’s clear the CVP is unsustainable. To ensure water security for California, the project’s deficiencies must be remedied by our policy makers through ensuring that all required costs are repaid by CVP water contractors, and all environmental commitments are met.
[1] The WIIN Act further exacerbated the inherent fiscal inequities of the CVP. Among other things, this convoluted legislative boondoggle provided permanent contracts to major western San Joaquin irrigators such as the Westlands Water District. The Bureau of Reclamation failed to require full repayment of CVP costs in those permanent contracts, including mandated habitat mitigation and restoration programs of more than $400 million (in 2013 dollars) – a price tag that continually increases. These programs still must be paid for; but under WIIN, the bill is going to taxpayers, not the contractors. Many lawmakers, including U.S. Senator Barbara Boxer, objected to WIIN, but a powerful group of legislators –one of whom was Senator Dianne Feinstein – rammed the bill through.
Tom Stokely, Salmon and Water Policy Consultant, retired as a Principal Planner in 2008 after serving 23 years with the Natural Resources Division of Trinity County, where he focused on Trinity River and Central Valley Project salmon and steelhead restoration. In 2012, he was appointed by the Interior Secretary to represent commercial salmon fishermen on a federal advisory committee for the Trinity River Restoration Program and served as vice-chairman and Chairman until the Trump administration disbanded it in 2017. He has been on the board of directors of the California Water Impact Network (www.c-win.org) for 18 years, and served as its media contact for 5 years. He is on the Board of Directors for Save California salmon and is a consultant to the Pacific Coast Federation of Fishermen’s Associations. He specializes in Central Valley Project operations, the Trinity River, and San Joaquin Valley selenium and agricultural drainage issues. He was a member of the California Salmon and Steelhead Advisory Committee from 1991 to 2018. He is a recipient of California Trout’s Roderick Haig Brown Award and the Salmonid Restoration Federation’s Lifetime Achievement Award. He is a former member of the California Department of Water Resources AB 303 Groundwater Advisory Committee. He has a bachelor’s degree in environmental studies and biology from UC Santa Cruz.