May 20, 2011

Our Policy: Abundance

Orange County Water Summit

Anaheim, California

May 20, 2011


A generation ago, the principal objective of our federal water and power policy could be summed up in a word: Abundance. 

It was an era when vast reservoirs produced a cornucopia of clean and plentiful water and power on a scale so vast that many communities didn’t even bother metering the stuff.  

That generation of builders clearly understood the benefits that water and power development brought not only to the economy but to the environment as well.  Nothing is more environmentally devastating than a flood or a drought.

When Franklin Roosevelt dedicated the Hoover Dam, he noted, “As an unregulated river, the Colorado added little of value to the region this dam serves.  When in flood, the river was a threatening torrent.  In the dry months of the years, it shrank to a trickling stream.” 

But the last generation seems to have abandoned this objective of abundance, and to replace it with a very different philosophy that now dominates public policy: that the principal purpose of government water policy is not to produce abundant water, but rather to ration shortages that government has caused by abandoning abundance as its objective.

The result is increasingly scarce and expensive water that is now affecting our prosperity as a nation.  One of my greatest frustrations in taking the chair of the House Water and Power Subcommittee was to discover that we were no longer looking at cost-benefit analyses of which projects make economic sense and which do not. 

Instead, practicality was replaced by an entirely new ideological filter: those projects that ration or manage shortage are considered worthy regardless of feasibility or cost – and projects that produce abundance are to be discouraged regardless of their economic benefits or simple common sense.

This year, the new majority on the Water and Power Committee will seek to establish a rational framework for future federal water policy, beginning with two fundamental reforms. 

The first is to establish a uniform cost-benefit analysis for all water projects coming before the sub-committee.  This framework will include an assessment of the economic value of all water sales, power sales, recreational leases and flood control protection to be produced by the project, weighed against the economic cost of construction amortized over the life of the project, and operations and maintenance. 

This will for the first time in many years give the committee clear guidance to direct federal attention to those projects of greatest economic benefit to each region, replacing the current process, which I can only describe as throwing money at any water project that is ideologically pleasing to the committee, regardless of cost considerations.  That era ended on Election Day.

The other principle for the framework is to restore the doctrine of “beneficiary pays” for the projects initiated with federal funds.  There is no excuse for taxpayers to bear the cost of any water project – every project must be cost-effective and it must be financed by the beneficiaries of the project in proportion to their use of its benefits.  Once capital costs have been repaid, such projects can then provide a revenue stream for the participating governments for the life of the project.

With respect to future federal funding of water projects, that means that if the federal government fronts the money for a project, that money is to be repaid by the beneficiaries – and not by general taxpayers. 

Once these principles have been restored, we will have set the stage for the next great expansion of our water and power infrastructure and can begin to target federal resources to those projects that have the potential of producing the most water for the least cost.

I applaud Gov. Brown’s stated objective of restoring California’s water infrastructure and certainly look forward to doing everything I can from my position to assist this objective.  But there is a difference between rhetoric and action.

If the governor is serious about restoring our water infrastructure, he should start by instructing his appointees on the State Water Resources Control Board to restore development rights to the federal government for the completion of the Auburn Dam.  Assuming that project can pass the cost-benefit test I have outlined earlier, it is the most obvious place to begin California’s next great era of water development, along with bringing the Shasta Dam to full capacity. 

Indeed, the completion of the Auburn and Shasta dams is a necessary pre-requisite to construction of a peripheral canal.  If additional water transfer facilities are to be constructed, there must be additional water to transfer – or all we will have done is to trade catastrophic water shortages in Southern California for catastrophic water shortages in Northern California.

Meanwhile, the cost of water projects is enormously inflated by the federal and state Davis-Bacon acts.  It is estimated that the federal Davis-Bacon act needlessly increases the price of federal projects by billions of dollars a year and California’s prevailing wage regulations by millions of dollars more. 

Most of all, we have got to take a realistic approach to environmental restrictions, particularly those imposed by the Endangered Species Act – that has been at the center of increasingly expensive mitigation mandates. 

Like all movements, the impetus for stronger environmental protection of our air and water was firmly rooted in legitimate concerns to protect these vital resources.  But like many movements, as it succeeded in its legitimate ends, it also attracted a self-interested constituency that has driven far past the borders of commonsense and into the realms of political extremism and outright plunder and I am hopeful that we are now entering an era when common sense can be restored to our water policy.

California’s Central Valley was devastated in 2009 and 2010 by the deliberate diversion of hundreds of  billions of gallons of water away from Central Valley agriculture to satisfy environmental edicts for salmon and delta smelt.  The practical effect of this action was to fallow a quarter million acres of the most productive farmland in America and throw tens of thousands of families into unemployment. 

This occurred:

Despite the findings of the Northwest Fisheries Science Center that determined the Pacific Decadal Oscillation was the principal factor in salmon migration;

Despite the California Department of Water Resources analysis of pumping flows that determined the pumps’ influence on salmon and smelt migration is negligible compared to natural tidal flows; and

Despite the findings of the Federal District Court that the U.S. Interior Department’s biological opinion on Delta smelt was “arbitrary, capricious and contrary to law.”

Protecting endangered species is a worthy goal and worthy goals need to be pursued with common sense and sound science, not left-wing ideology and junk science.  We need to ask whether the enormous wealth consumed by these policies has made any significant contribution to enhancing endangered populations compared to far more effective and less expensive alternatives, including predator control, increasing overall water supplies and hatchery production.  As far as I can tell, the principal beneficiaries of current policies have been the law-firms and environmental fundraising organizations -- and the principal victims have been families and workers who face a dismal future of chronic shortages, prohibitively expensive water and power and a faltering economy.

Finally, we need to look at our overall water policies and financing structures used since the mid-1970’s and compare them to the structures that produced our state’s golden era of water development. 

At the end of the Pat Brown administration, after California had constructed not only the State water project but the state highway system and a massive expansion of the University of California, the state’s debt service ratio stood at 2.2 percent.  Today it is 7.7 percent.  With a debt service ratio three and a half times higher than at the end of the Pat Brown administration the fact is we have no significant additional infrastructure to show for it.

In the last ten years, voters have approved six bond measures totaling almost $17 billion that all promised to enhance California’s water supply.

Compare that to the Burns-Porter Act that financed construction of the entire state water project.  It was a total of $1.75 billion approved in 1960.  That’s the equivalent of $12.3 billion in today’s money.  $12.3 billion.  That’s substantially less than the water bonds we’ve approved during the last ten years and about the size of the bond pending voter approval.

The Burns-Porter Act paid for the entire State Water Project.  In the last ten years we’ve approved a significantly larger sum of money, promising the public it would solve our water needs.  And once again I must ask, where is our generation’s State Water Project?

We went wrong by making a series of financing mistakes.  Let me list a few lessons we need to re-learn about responsible borrowing and public works.

The first lesson is, “Project first – then financing.”  A generation ago, policymakers would first agree on a project, they would commission the engineering, obtain the bids – and only then borrow what was necessary to finance that project.

You don’t go to a banker and say, “I’d like to buy a nice house or something.  Please lend me lots of money.”  No, you select a house, negotiate a price and then obtain a loan.

Today, we revel in “mega-bonds” that borrow billions of dollars for vague notions like “water” or “parks” or “stem cell research” or “economic recovery,” with no specific projects in mind and at the end of the day all we have accomplished is to create a gigantic grab bag of money for local pork projects. 

That’s the first lesson: we have to get back to the classic California constitutional concept of approving bonds only for a “single object or work.”

The second lesson is, “Don’t rob St. Petersburg to pay St. Paul.”  If a project exclusively benefits a local community, it should be exclusively paid for by that local community.

A generation ago, it would have seemed ludicrous to ask the taxpayers of Orange County, California to pay for a water system in Orange County, New York.  Strictly local projects should be strictly financed by local revenues – regional water systems should be financed through state and federal funds.

The third, closely related lesson is, “Beneficiaries should pay.”  Federal funds for future water projects should not be doled out as gifts to the lucky beneficiaries, but rather fronted as loans to be repaid with interest by the project’s beneficiaries – in other words, restoring the beneficiary pays principle I discussed earlier as one of the policy objectives of our sub-committee.  

With respect to state or local funds, unless it’s a self-liquidating general obligation bond like those used in the Burns-Porter Act, there’s no excuse for using a G.O. bond for a water project – it should be a revenue bond repaid by the actual users of the actual water and electricity produced by the actual project. 

The fourth lesson is, “Don’t rob our children.”  Whatever is purchased with a 30-year bond ought to be there 30 years from now when our children are still paying off that debt.  Yet the bonds adopted in recent years include billions of dollars for cleanup and conservation projects that will be obsolete long before these bonds are repaid.  Our children are going to have their own pollution to clean up and conservation programs to promote without paying for programs from 30 years ago.

It should be painfully obvious that the policies of the last four decades have failed and failed miserably to meet this generation’s water needs – let alone to begin to meet the needs of future generations. 

It is time that we restored a little common sense to our water policy:

  • We don’t build water projects so that we can dump the water into the ocean.
  • We can’t create abundance by wantonly destroying our existing infrastructure.
  • We won’t build more dams as long as we won’t complete the dams we’ve already started.
  • We can’t keep plundering one community to pay for local water projects in another.
  • We can’t produce projects of the magnitude of the Burns-Porter Act by squandering billions of dollars on open grab-bags for local projects.

It is true that with enough government force, fines, lawsuits, edicts, regulations and bureaucracies we can restore plant and animal populations to their original prehistoric conditions.  The problem is that this requires restoring the human population to its original pre-historic conditions.

Or we can return prosperity and abundance as the central objectives of our water and power policy – by providing abundant water, clean and cheap hydroelectricity, new recreational centers, desperately needed flood protection, burgeoning fisheries, re-invigorated farms – not to mention lower electricity, water and flood insurance bills for American families.

It is toward that brighter and more prosperous future that this majority seeks to proceed. We need a sharp and dramatic change from the folly of past policies.  I want to pledge to you to do everything I can do in my new capacity as Chairman the House Water and Power Sub-Committee, and ask that you, the stewards of this region’s water, to take a leading and visible role in this fight. 

As Ronald Reagan once asked his generation, if not now, when? And if not us, who?

Tom McClintock
Tom`s Blog