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Breaking the spell (weekly2)

Infrastructure cannot put an end to California’s four-year-long episode of crippling drought. But investing in it should help the state deal with the crisis’s consequences.

Examining claims that California, as it tries to deal with what has been described as the worst drought in recorded history, is now paying the price for not having invested in its water infrastructure sooner reveals that neither the problem nor its solution is that straightforward.

But while infrastructure investment is not the only answer to California’s problem – itself the result of factors ranging from a complex water management system and political dynamics to an agricultural sector that relies on ‘thirsty’ crops – it is certainly part of the solution.

“We have a tremendous need for investment in our water system, both for ongoing maintenance and new infrastructure to support the conservation, water recycling, stormwater capture, additional storage, ecosystem restoration, and interconnections we need,” Nancy Vogel, public affairs director at the California Department of Water Resources (DWR), recently told Infrastructure Investor.

That is the need California Governor Jerry Brown is seeking to address with a series of initiatives set out in a five-year Water Action Plan released last year. Measures include expanding water storage capacity, improving groundwater management and increasing flood protection – the latter alone requiring an estimated $50 billion.

Governor Brown’s plan also includes finding ways to finance these projects through multiple funding sources, such as federal grants and loans, taxes, private investment and public-private partnerships (PPP; P3).

In an update released in collaboration with other state agencies last January, DWR states that general obligation bonds approved by voters over the past decade have been effective in launching and continuing essential state services and programmes. The most recent example is Proposition 1, approved by voters last November, which will provide $7.5 billion for investment in water infrastructure projects.

DWR, however, reckons that these general obligation bonds are not sustainable. Asked whether public-private partnerships are an option to deliver the projects California needs, Paul Massera, the department’s manager of strategic water planning, responded: “There could be some opportunities to bring new investment into the state with P3s. However, the critical component of a P3 is how the private entity is going to get a financial return out of their investment. In most cases, that will require some new assessment or rate increase, a challenge in the current financial climate.”

But Californians may not have a choice. As one source pointed out, California has used up cheap water. “Whatever they do from now going forward is going to be – by definition – more expensive than what they’ve done in the past.”

As is the case with private investment and US infrastructure in general, the issue is not shortage of capital. “It’s a matter of getting things done and the willingness of customers to pay for it,” according to the same source.

That seems to be a smaller price to pay than dealing with the consequences of a problem that is likely to get much worse in the future due to climate change, as the governor and DWR emphasise in their water action plan.