Ag Today April 25, 2017

Fixing Oroville Dam will cost hundreds of millions. Who should pay the bill?


The damage has been done and the repair contract awarded. Yet more than two months after damaged spillways at the Oroville Dam prompted authorities to order the evacuation of 188,000 people, the question of who will ultimately pay the bill remains murky.

How much will be the responsibility of homeowners, businesses, farmers and other customers of the more than two dozen local and regional agencies that contract with the State Water Project? The 700-mile network of canals, pipelines and lakes, including Lake Oroville, brings water mostly from Northern California to parts of the San Francisco Bay Area, Central Valley and Southern California.

What will be the cost to state taxpayers, who have approved billions of dollars in borrowing to pay for flood prevention and dam-related work, most of which has already been spoken for? Will the federal government have a role after the Trump administration’s recent approval of $274 million to cover emergency repair costs from mid-February through May?

Government officials and water policy experts say they don’t know who will end up on the hook for a cost some believe ultimately could approach $1 billion. Despite its importance to the lives of millions of Californians, the system exists outside California’s normal state budgeting process.

“That’s a question that even I don’t know the answer to,” said state Sen. Jim Nielsen, R-Gerber, the top Republican on the Senate’s budget subcommittee that oversees the water project and other resources programs, and whose district includes Oroville. “There will be substantial costs.”

27     The number of local and regional water agencies that contract with the State Water Project

Water project costs are allocated under a doctrine that calls for the beneficiary to pay. Contractors and their customers are responsible for water supply-related expenses. Federal, state and local governments have historically shared the water project’s flood-control expenses. And state government and user fees have covered the tab for water project recreation, fish and wildlife costs.

Disagreements regularly arise.

“The project is a water supply project, but it also provides some flood control benefits and other public benefits, so there’s always been some cost-sharing,” said Ellen Hanak, director of Public Policy Institute of California’s Water Policy Center.

In the case of the Oroville spillway, the lake is a major supply of water for millions of Californians. Yet it also serves a vital flood-control purpose for Oroville and surrounding communities. In addition, it’s a popular recreation and fishing spot.

“Whatever portion is paid by State Water Project contractors, it would be incorporated into the Delta water rate,” the fixed amount paid by almost all contractors and then passed on to customers, said Jonas Minton, water policy adviser at the Planning and Conservation League and former deputy director at the Department of Water Resources.

Major players in the funding mix have been particularly guarded about the issue in recent weeks.

In late February, Gov. Jerry Brown’s Department of Finance said water project contractors that receive water from the reservoir would be responsible for the repairs. President Donald Trump has since issued the disaster declaration for the dam.

“To the extent we can pursue and secure federal funding, because of this federal declaration, we will do so,” finance spokesman H.D. Palmer said last week. Remaining costs will be the responsibility of water contractors, he said.

Said Nielsen: “The water contractors are going to pay a good portion of it.”

But contractors note the flood protection role served by Oroville Dam and other parts of the water project – something that is not their customers’ responsibility.

“There is a flood-control component to this,” Jeff Kightlinger, the general manager of Los Angeles-based Metropolitan Water District, said in a recent interview. The district serves 19 million people across Southern California, and is the water project’s largest contractor.

“We’re obviously going to be working with the (Brown) administration,” Kightlinger said.

Shortly after the February crisis, district chairman Randy Record and other board members toured Oroville. They also met with U.S. Interior Department officials as well as House Majority Leader Kevin McCarthy, R-Bakersfield, and Rep. Ken Calvert, R-Corona, who sits on the House appropriations subcommittee that oversees the U.S. Bureau of Reclamation, Army Corps of Engineers and other agencies involved with funding California water and flood projects, to support Brown’s efforts.


With the issue unresolved, the Department of Water Resources is in the process of increasing its short-term borrowing capacity to pay for spillway repair work.

The department seeks to expand an existing $150 million line of credit to $300 million, and also establish the ability to borrow another $500 million. The department would later refinance any short-term borrowing.

Yet compared to other expensive projects involving the government, discussions about spillway repair cost-sharing could occur with less public and legislative involvement.

That’s because the State Water Project has been “off budget” for decades. Water contractors whose customers pay the bulk of the bills historically have decided among themselves who pays what.

That lack of transparency, though, has likely caused an increase in billing protests from water project contractors, according to the Legislature’s nonpartisan fiscal analyst. That, in turn, has prompted the Department of Water Resources to ask for more positions to deal with the protests, with those costs passed on to ratepayers, the Legislative Analyst’s Office reported in 2009.

“This upward expenditure cycle is due in part to the lack of effective budgetary oversight of the (State Water Project),” wrote the office, which has called for making the State Water Project’s entire budget part of the state budgeting process.

If the state is responsible for any share of the spillway repairs, it’s unclear where the money would come from.

Much of the flood-prevention money approved by voters in past bonds has already been appropriated, although lawmakers could redirect money to repair work.

And while Proposition 1, the $7.1 billion November 2014 water bond, set aside $2.7 billion for dams and groundwater storage – much of which remains unspent – that money is only for new projects, not fixing existing ones.

Another possibility is Senate Bill 5, a measure to set up borrowing for parks and other programs, by Senate President Pro Tem Kevin de León, D-Los Angeles. The current version of the $3 billion legislation lacks money for State Water Project flood control projects, but it could be amended.

Lawmakers also could tap the general fund, the source of state money for universities, prisons, health care and other programs. Budget interest groups, though, likely would balk at any proposal to shift significant general-purpose dollars to pay for the major repairs needed at Oroville.

Nielsen, the state senator, said he thinks the situation justifies taking money from the state’s rainy-day fund. Created by voters in 2014, the fund will contain an estimated $6.7 billion by June 30.

“It’s an emergency situation, and it needs to be dealt with,” Nielsen said of the spillway situation. Brown or his successors, though, would have to declare a fiscal emergency to allow the money to be spent. Brown’s finance department opposes the idea.

History, meanwhile, offers few cost-sharing precedents for such a large project.

More than $900 million in improvements to Folsom Dam, part of the federal Central Valley Project, yielded a new auxiliary spillway. Roughly two-thirds of the money for the decade-long project came from the federal government, and the rest came from the state and the Sacramento Area Flood Control Agency. Folsom Lake, though, serves much less of a water-supply purpose than Lake Oroville does.

Still, when it comes to figuring out how to pay for Oroville Dam spillway repairs, said Kinglinger, “That’s a good analogy to look at.”

Editor’s note: The post was updated at 11:20 a.m. April 25, 2017 to clarify the description of the Folsom Dam spillway project.

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