WaterFix costs may skyrocket

Inflation estimates show Delta tunnel cost could jump by $20B

The estimated cost of the Delta tunnels project, Gov. Jerry Brown’s controversial plan to re-engineer the troubled hub of California’s water network, has jumped to nearly $20 billion when accounting for inflation.

Tunnels backers say the higher cost reflects the impact from inflation over 16 years, not cost overruns or design changes, and isn’t expected to hurt the project’s ability to move ahead.

The latest $19.9 billion price tag represents a 22 percent increase from the estimate of $16.3 billion, released by state officials last year. That $16.3 billion figure was provided in 2017 dollars.

It’s disclosed in a July 27 letter to the federal government from the recently-formed Delta Conveyance Finance Authority, an agency set up by the south-of-Delta water agencies that are attempting to finance the massive project. In the letter, the finance authority expresses interest in applying for a $1.6 billion water-infrastructure loan from the U.S. Environmental Protection Agency in order to jump-start the long-awaited project.

The letter says the new estimate includes “anticipated cost inflation from the time the initial cost estimates were developed in 2014 through the expected 16-year construction period.” Project proponents assumed inflation would increase the tunnels’ costs by 1.5 percent a year.

“Over time, as with anything else, there’s inflation,” said Brian Thomas, the finance authority’s interim executive director.

“It doesn’t really affect the financial feasibility, if you will,” he said. “People have accounted for this in their long-range planning.”

The assumed 1.5 percent inflation rate “was just an estimate,” Thomas said. “We could be wrong.” Inflation ran at 1.8 percent last year and so far this year is running at an annual rate of 2.1 percent, according to the U.S. Bureau of Labor Statistics.

Money remains an issue, however, for the project. Although the Metropolitan Water District of Southern California has agreed to spend $10.8 billion on the tunnels’ construction, some other potential contributors haven’t finalized their commitments.

Metropolitan spokesman Rebecca Kimitch said her agency, which serves 25 million Southern Californians, isn’t bothered by the new figure.

“There’s nothing that’s changed in the actual cost of building WaterFix,” she said. The project is officially known as California WaterFix.

Besides the financial issues, the project is still without crucial water-rights permits and fending off lawsuits from environmentalists and Northern California local governments that oppose the tunnels.

Brown’s administration says WaterFix would shore up reliability of water deliveries to the southern half of the state by improving water flows through the Sacramento-San Joaquin Delta.

The massive Delta pumping stations that move water south are so powerful that they can draw Chinook salmon, Delta smelt and other fish toward predators or into the pumps themselves. Because the fish are protected by the Endangered Species Act, the pumps sometimes have to be shut off or throttled back at critical times.

When that happens, water flows out to the ocean, to the frustration of Metropolitan and other south-of-Delta water agencies expecting deliveries. By re-routing a portion of the Sacramento River through the twin underground tunnels, Brown’s aides say WaterFix would protect the fish.

Opponents say the project would actually worsen conditions in the Delta, in part because the tunnels would divert fresh Sacramento River water from the heart of the estuary, degrading water quality.