Repost - Don't Privatize the State Water Project - Spillway News Fall 2004

Spillway News, Fall 2004

California Performance Review:

Don’t Privatize the State Water Project

By Tim Stroshane

A massive media blitz in early August accompanied

release of Governor Arnold Schwarzenegger’s California

Performance Review (CPR) report, which proposes to

centralize California’s regionally-oriented government—

especially when it comes to natural resource management,

development regulation, and conservation—and to privatize

public facilities, transferring their operation (if not divesting

the state of their ownership) to private corporations to profit

off the public weal. 

Governor Schwarzenegger writes poetically in the report’s

preface. “Never in history have such big dreams come

together in one place, never in history has such an array of

talent and technology converged at one time, never in history

has such a free and diverse community of people lived and

worked under one political system. This is a wonderful

place, California, this empire of aspirations.”1 

It is poetry to fatten lambs by. The state needs

resuscitation, as polls repeatedly show.2

“The governor is prepared to make government efficient for the taxpayer and

will be undeterred by forces who would be opposed to that,”

the governor’s spokesman Rob Stutzman said on the eve of

the report’s release.

The 2,500-page CPR report recommends, among much

else, eliminating a variety of regional regulatory board

structures with power over timber, air, and water quality, and

privatizing operation of the State Water Project (SWP), the

state-owned system moving water from the Feather River

region across the Delta to the California Aqueduct for

delivery to San Joaquin Valley farmers and urban residents

of southern California. The State Water Contractors

Authority (SWCA), a joint powers authority, was formed to

contract with the state for that purpose.3 

“None of this will be accomplished through stopgap

measures and half-hearted attempts at coordination,” the

report reads, striking a note of bravado.4 

“If they eliminate the [state water quality control]

boards,” asks Bob Caustin of Defend the Bay, a non-profit

environmental organization striving to protect coastal bay

waters in Orange County, “where are we going to go—the

state Supreme Court each and every time there’s an issue?”5 

“The regional water boards offer the public an invaluable

opportunity to participate in democracy and to have a voice

in water issues throughout the state,” commented Alisha

Deen of the Environmental Justice Coalition for Water

representing 50 water advocate groups statewide, at the CPR

public hearing in Davis in late September. 

Litigation can be avoided through more open and

democratic access to state boards, Deen added, “The cost

savings to the state in reduced litigation, due to proactive

measures taken at the local level, should be incorporated into

the financial analysis of the CPR. A distant mega-agency

with no face to face communication...is not acceptable” to

low-income and minority communities, “especially on such a

critical issue as water is to human life.”6 

Combined with CPR recommendations to eliminate the

State Water Resources Control Board and reposition the

power to regulate water rights and quality with the Governor,

the CPR report’s authors come into focus as less interested in

promoting efficiency and accountability than in improving

the business climate for corruption of public assets. 

A veneer of sympathy in the CPR report for California’s

public services and facilities is employed to prepare the way

for turning over many of these services to the private sector,

combined with largely simple assertions that what

Californians read in the CPR report must be true. 

“Once the envy of the nation, today our state government

fails the people of California, and it fails the men and women

who have given their careers to its service,” the report reads.7 

The Public and the SWP 

T’ain’t necessarily so. 

Since the 1970s, the SWP delivered an average of nearly

2.5 million acre-feet of water to its customers, annually

contributing value and wealth to the state’s farm and

industrial economies. California voters narrowly approved

general obligation bonds for the SWP’s construction in

November 1960 after a controversial and divisive campaign,

pitting water rights of northern Californians against water

demands of southern Californians.8 

After it began full service in the early 1970s, the SWP played a central, if controversial role in helping farmers and cities to weather droughts. By

rationing deliveries, the SWP made water available through

transfers to water-short regions during the severe drought

years of 1991 and 1992 and in most cases reduced losses that

might otherwise have occurred.9 

The drought water bank purchased water typically for

$125 an acre-foot from water agencies and other sellers

north of the Sacramento-San Joaquin Delta, acquiring a total

of 821,000 acre-feet during 1991 drought water bank

operations. The bank subsequently allocated 389,770 acre-

feet that year, with over half of these allocations being

delivered to the Metropolitan Water District of Southern

California (MWD) by October. Transferred water

subsequently exported from the Delta had transportation

debate.13 

This less-known financial crisis of the SWP, the Monterey

Agreement, the endangered species crises in the Bay-Delta

region, and stricter regulatory Delta water quality

requirements, forced the state and federal government to

create the CalFED Bay-Delta Program and implement its

“framework for action.” 

Frustration with the pace of CalFED projects since

adoption of its Record of Decision and reforms has tried the

water industry’s patience, and the recall election last October

2003 of Arnold Schwarzenegger gave the industry an

opening to further advance its privatization agenda for the

State Water Project. 

Solicitous CPR 

It is one thing to be certain, but you can be certain and be

wrong at the same time, to paraphrase a recent presidential

charges added to it, enabling the state to recover its costs from

bank.11 

San Joaquin Valley agribusiness tumbled into its direst

economic crisis as water deliveries

plummeted to near zero. Yet the Valley’s irrigation and water

districts still had their eight- and nine-figure mortgage payments

due to the State Water Project.12 

The California Department of Water Resources’ (DWR)

performance in those years demonstrated that state

government could successfully operate a drought water bank on

behalf of California’s public as a whole. This success, however, was

anathema to Governor Pete Wilson, in power at the time, and

who would subsequently embark on a major but largely

unsuccessful campaign in state government to privatize many of California’s government services. 

In late 1994, major SWP contractors and David Kennedy,

then-director of DWR (himself a former general manager of

MWD) under Governor Pete Wilson (whose advisers play

prominent roles in both Governor Schwarzenegger’s

campaign and administration), secretly negotiated an

agreement in Monterey that established rudiments of

California’s water market.

This agreement turned control of

one southern California reservoir to MWD and a

groundwater bank to a Kern County mutual water company

owned by Paramount Farms. (Stewart Resnick) It also eliminated the prospect

of shrinking SWP “entitlements” due to the possibility of the

state declaring a permanent drought in California, without

subjecting such an important policy decision to public

candidate. 

Nowhere is this nostrum more in evident than in CPR’s

proposal to privatize operation of the SWP. 

It seems to CPR that the State Water Project is just

too difficult for the California Department of

Water Resources to administer. State budget-related hiring

freezes caused chronic staff shortages [particularly in the San

Joaquin Division of DWR,resulting in “40,000 hours of

overtime to keep the system operating at a high level.” 

Electric utility deregulation14 taxes the beleaguered SWP’s

staff, says the CPR report: 

“Special skills associated with purchasing power and

scheduling power and water deliveries are in demand in the

private sector, and state civil service classifications do not pay

high enough salaries to attract individuals with highly

specialized skills. Limitations and freezes on contracting

impede the timely use of consultants to provide the needed

skills for energy purchasing and scheduling to mitigate for

SWP’s inability to hire state employees.”15 

In other words, privatizing the SWP will enable the

system to hire more expensive employees and

consultants (whose billing rates, lest it be forgotten, include 20 to 50

percent mark-ups with profit margins for administration of

their businesses, costs unrelated to direct provision of state

services). The CPR does not explain how more expensive

staff will provide the state of California with savings from

SWP privatization. 

Besides, most Californians know how well privatization

of public electric utilities went during 2000 and 2001, right?

The state’s electricity deregulation system was signed into

law by Governor Wilson in 1996. That mass mugging by

private energy companies cost California its state surplus

within a few months in 2001 when extortionate prices for

electricity here caused widespread recurring blackouts, panic

buying by the state, and one of the greatest and most rapid

transfers of economic wealth in modern memory.

CPR shows its solicitous but patronizing concern for the

SWP by recommending the project’s removal from DWR, “a

department which has other major missions including public

safety, local assistance, statewide planning for water

resources, and public education. Such a large mission and

variety of funding sources often creates conflicts for both

management and support organizations inside the

department.”16 

SWP, the Public’s Asset 

The trouble with CPR’s patronizing tone is that DWR

exists to operate the SWP, by law.

Never mind that a reasonable case could be made that

privatization of the SWP is illegal. In the mid-1950s under

Governor Goodwin Knight, the state Legislature created

DWR specifically to plan, construct, operate and maintain

the SWP. Under Governor Pat Brown, the state legislature

approved the Burns-Porter Act17, which was passed as a referendum in November 1960, and assigned DWR the responsibility for carrying out design, construction, and operation of the SWP. In the general obligation bonds and revenue bonds that provide the project with its ongoing sources of debt capital, DWR is responsible for operating and maintaining the SWP. In return bondholders receive secure streams of interest payments from the SWP as administered by DWR.

The Legislature and the People are given no role in CPR’s

recommendations, however. 

The CPR informs its readers that a white knight awaits the

careworn SWP, the State Water Contractors Joint Powers

Authority (SWCA) which “could provide a mechanism to

maximize the reliability of SWP by contracting with DWR to

undertake specified projects and services. The purpose of

[SWCA] is to help resolve significant challenges in the near

future, such as hiring freezes, budget constraints, and more

complex power operations.”18 

Major water contractors that make up the SWCA include

the Kern County Water Agency (KCWA) and the

Metropolitan Water District (MWD); combined they contract

for more than 80 percent of SWP deliveries year-in and year-

out. MWD and KCWA also were among the principal

signatories to the 1994 Monterey Agreement. Many other

SWP contractors are water districts formed to provide a

public district cover for private landowners and

agribusinesses in the southern San Joaquin Valley.19 

SWCA takeover of the SWP relies on a ridiculous

pretense, considering that maintenance of the state’s water

supply in the public interest hangs in the balance. Resolving

the state budget’s structural deficit20 could enable the state to

address budget constraints and hiring freezes directly; power

operations could be simplified by re-regulating utilities and

their power plants.

In California water law, the people—

the People—retain sovereign ownership of water within the state’s borders. 

The CPR’s recommendation to turn over operation of the SWP to

the SWCA would effectively cede this sovereign authority

from the state without a debate or a fight, as it urges the

Governor to issue an Executive Order separating the SWP

from DWR, to make the system its own administrative

authority. The state of California is supposed to regulate

water in trust for the public (for example, the public trust

doctrine protecting resources). 

“If any infrastructure project in California has proven to

be successful,” commented Mark Sheahan, president of

Professional Engineers in California Government, a union of

professional and technical state employees, “it is the State

Water Project. The safe, cost effective, and efficient delivery

of water and energy via the State Water Project—a state-

owned engineering marvel—is and must remain a

fundamental role of state government. 

“For that reason,” adds Sheahan, “the CPR

recommendations to contract with the State Water

Contractors Joint Power Authority to provide specialized

services and skills and to turn over portions of the aqueduct

system to State Water Contractors to operate and maintain is

a blueprint for disaster. Apparently, if it ain’t broke, the folks

who wrote this [recommendation] want to break it.”21 

ENDNOTES

1AReport of the California Performance Review,

August 2004, epigram quote preceding page i. Hereafter cited,

CPR. 

2Mark Baldassare, California Millenium: The Changing

Social and Political Landscape, Berkeley, CA: University of

California Press and the Public Policy Institute of California,

2000; and Mark Baldassare, A California State of Mind: The

Conflicted Voter in a Changing World, Berkeley, CA:

University of California Press and the Public Policy Institute

of California, 2002. 

3Caustin quoted in Alicia Robinson, “Watchdogs resist sea

change: State’s money-saving move to get rid of regional

boards dedicated to keeping water clean doesn’t thrill

environmental groups,”Daily Pilot(Orange County) 19

August 2004. 

4Alisha Deen, Environmental Justice Coalition for Water,

Written Testimony to the California Performance Review

Panel, 30 September 2004, author’s files. 

5Peter Nicholas and Robert Salladay, “Radical Revamp of

State Bureaucracy: Schwarzenegger’s panel says a

restructured government would save $32 billion in five

years,” Los Angeles Times 30 July 2004. 

6Quoted in Nicholas and Salladay,

ibid.. 

7See INF 07, “The State Needs to Restructure the

Administration Over the State Water Project,”

ibid. pp. 731-735. 

8For a review of attempts to privatize the State Water

Project in the 1990s, see Tim Stroshane, “Monterey

Agreement: A Bloodless Coup,”

SPILLWAY v1n2, Winter

2000. Available at

http://www.spillwaynews.net/BackIssues