A state court decision has scuttled a $16 billion revenue bond issue that would have financed the controversial plan to tunnel under the Sacramento-San Joaquin Delta to bring “surplus” water downstate.
Judge Kenneth Mennemeier of Sacramento County Superior Court ruled Tuesday that the California Department of Water Resources exceeded the authority delegated to the agency by the state Legislature when it defined the project to be financed by the bond issue.
That meant that the proposed bond issue could not be “validated” by the court, a step generally considered necessary for bonds to be sold in the public finance market. Like a dam that blocks the flow of a stream, lack of validation blocks the flow of money for the project.
The court’s 28-page decision — a dense and tightly reasoned document that only a lawyer could love — provides background that puts the legal issue in a historical perspective.
Quoting at length from prior court decisions, Mennemeier explained that California’s water problems don’t arise from a lack of water, but from its uneven distribution in the state. He repeats the oft-cited fact that “while over 70 percent of the stream flow lies north of Sacramento, nearly 80 percent of the demand for water supplies originates in the southern regions of the state.”
As far back as 1933, the state Legislature adopted a plan that contemplated moving surplus water from the Sacramento River to the south. While construction didn’t begin until the 1960s, the state ultimately built a network of facilities including the Oroville Dam, waterways, pumping plants and aqueducts that bring water through the Delta to coastal and southern parts of the state. The judge said the flow provides supplemental water supply for two-thirds of Californians.
However, environmental concerns, water quality, and other issues have led to decades of debate and wrangling over arguably more efficient ways to get water south, including tunneling under the Delta.
To get a project underway, on Aug. 6, 2020, DWR passed various resolutions proposing to issue bonds to finance what it called the “Delta Program,” which it defined to include the design and construction of facilities “for the conveyance of water in, about and through the Sacramento-San Joaquin Delta, subject to such further specification thereof as [DWR] in its discretion may adopt.”
On the same day, it filed a court proceeding in which it asked the court to “validate” the bonds, a legal proceeding common in the world of public finance, in which a court determines that the bonds, if and when issued, will be “legal, valid and binding.” The determination is considered a key step in the marketability of the bonds when ultimately issued.
In this case, DWR filed the proceeding not only before the bonds were issued, but even before the full contours of the project were determined.
The Sierra Club and other environmental groups challenged the validity of the bonds on grounds that the Delta project, for which the bond proceeds were to be used, was beyond DWR’s authority.
DWR argued that it had authority to define the project as it did because it had long ago been given power by the Legislature to “modify” the state’s water plan involving the Feather River, a tributary of the Sacramento River, to divert water from the Delta and move it to the south. DWR said that its new definition was authorized by that power.
Thus, the case came down to the issue of whether the Delta project — defined only in general and unspecific terms in 2020 — was a legally appropriate “modification” of the Feather River project.
DWR offered a variety of arguments in support of its authority, the strongest one being that the Feather River project had a purpose consistent with the current purposes — that is, moving surplus water to the south — so the new project was only a modification.
However, DWR was hamstrung by the fact that the project definition was so broad that it gave DWR virtually unlimited room to contour the project as it saw fit. That meant that the court had to consider whether any project that DWR might ultimately approve was within the meaning of modification.
That was too big a lift.
Mennemeier ruled that DWR did not have authority for the Delta project — as it defined it — and accordingly, bonds to finance such a project would not be valid.
A ‘narrow’ decision
The court described its decision as “narrow,” perhaps anticipating that DWR could adopt a new resolution making the project definition narrower and more specific.
John Buse, senior counsel with the environmental group Center for Biological Diversity, one of the lawyers involved in the case, is dubious that such approach would work.
Buse says the project recently adopted by DWR — a 36-foot-wide, 45-mile-long, 150-foot-deep tunnel under the Delta — could be described very specifically but “this would still be more than a ‘modification’ of the Feather River Project/State Water Project envisioned in the authorizing laws DWR relies on.”
Buse thinks DWR will have to go back to the Legislature and get a new authorization, but, if it does so, “the project might have a cool reception in the Legislature.”
He thinks the most likely next step is that DWR will appeal and hope to reverse the decision.
According to a DWR spokesperson, the department disagrees with the court’s decision and is considering whether to appeal the decision to the Court of Appeal.
In a statement, DWR said the project “is a critical part of California’s strategy to ensure a reliable water supply for millions of Californians — modernizing our water infrastructure to protect against the impacts of earthquakes, climate change, and more.”
DWR went on to say, “This ruling is specific to the question of revenue bond authorization; it does not refer to the validity of the Delta Conveyance Project … The judge has not said that DWR doesn’t have the authority to build the project.”
DWR’s statement did not address how the state would pay for the project if a state bond issue isn’t feasible.
Threats of the ‘multibillion-dollar boondoggle’
U.S. Rep. John Garamendi, D-Walnut Grove, is a committed opponent of the project. Garamendi believes building a tunnel under the Delta is a “multibillion-dollar boondoggle.”
“As I told the six previous governors and now Governor Newsom, this tunnel will never be built,” said Garamendi in a statement earlier this month. “Tunneling under the Delta to export more water to Southern California risks collapsing the Delta’s earthen levees and inundating this iconic working landscape with saltwater.”
Garamendi said, “I hope the Newsom Administration will now reconsider this deeply misguided project and instead focus on better ways to meet our state’s future water needs.”