Who will pay for Sacramento-San Joaquin Delta tunnel project?

Of the many issues hanging over the proposal to burrow enormous tunnels under the Sacramento-San Joaquin Delta and replumb the hub of California’s water system, the one most likely to make or break the $25-billion project is money.

Just who, exactly, is going to pay for it?

The San Joaquin Valley irrigation districts and urban water agencies in Southern California and the San Francisco Bay Area that get water supplies from the delta have promised to pick up most of the tab, with federal and state taxpayers paying the rest.

But the key question of precisely how the costs are divvied up between urban and agricultural users is unanswered. And hints have been dropped in recent months that to keep the project alive, urban ratepayers in the Southland may wind up paying more than their share, in effect subsidizing San Joaquin Valley agribusiness interests.

Water officials say that is not their intention, but they will not rule out the possibility.

“I’m not saying that we’ll end up there,” said Roger Patterson, assistant general manager of the Metropolitan Water District of Southern California, a major project participant. “But I don’t guarantee anything. It’s a pretty fluid process, obviously.”

Years in the making, the proposal would partially reconfigure the way the big state and federal water systems convey Northern California supplies through the environmentally distressed delta east of San Francisco. A new diversion point on the Sacramento River in the north delta would feed two 30-mile tunnels leading to southbound aqueducts.

The new facilities would reduce use of the existing, ecologically damaging export pumps in the south delta. Water contractors hope that change — combined with the restoration of more than 100,000 acres of fish and wildlife habitat in the delta — will loosen endangered species restrictions that have reduced deliveries.

Under the “beneficiary pays” principle that has guided the project since its inception, water users will pay for construction, operation and maintenance of the project, estimated at more than $19 billion over 50 years. State and federal funds would cover the habitat work.

Backers have said that user costs would be apportioned according to the size of water contracts with the federal Central Valley Project and the State Water Project. Under that formula, the biggest bill for the tunnels would go to San Joaquin Valley agriculture, because most water exported from the delta is used by irrigation districts

But that may not be the way it works out.

A recent economic analysis commissioned by the state concluded that from a financial standpoint, urban users would reap the lion’s share of project benefits because urban water is far more valuable than irrigation supplies.

That is raising questions. “Is the economic cost-benefit study … stage setting for coming out with, at some point, a bombshell that urban will pick up 70, 80 or 90% of the project costs?,” asked Dennis Cushman, assistant general manager of the San Diego County Water Authority, one of MWD’s biggest customers.

Mark Cowin, director of the state Department of Water Resources, which is shepherding the proposal, said participants continue to assume that they will pay based on their share of the project.

“But we have to have a project that’s affordable and we have to have enough participants to make it work,” Cowin said. “And ultimately if agricultural water contractors that are questioning the value of the project don’t want to participate, there may be some further negotiation.

“There are lots of different ways to allocate costs. If you looked at the value of the project to urban agencies, they could still pay less than they would if they were trying to build the project on their own by providing some reduction in unit costs to the agricultural agencies.

“But I want to be clear that that hasn’t been agreed to by any urban agency at this point.”

Jim Beck, general manager of the Kern County Water Agency, which supplies southern San Joaquin Valley agriculture, said that the cost distribution would mirror project benefits. But he couldn’t say how benefits would be determined.

Westlands Water District, the valley’s biggest irrigation district, did not respond to requests for comment.

Project backers are also broaching the possibility that federal and state taxpayers may be asked to buy water from irrigation districts upstream of the delta in the San Joaquin and Sacramento River basins to increase flows through the delta and out to San Francisco Bay.

Whether that program would be a part of the tunnel proposal or stand alone is unclear. But either way, it would make the tunnel project more attractive to users because it would — at public expense — essentially increase the volume of water they could take from the delta and still meet endangered species protections.

Cowin called the idea “very conceptual at this point.” The reasoning behind public water purchases, he said, is that if the planned habitat rehabilitation work doesn’t sufficiently boost the delta’s imperiled native fish populations and more flows are needed through the delta, federal and state funding could be shifted from restoration to water purchases.

It would not be the first time public funds have been used to buy irrigation water for the delta. A previous, state-run program, the Environmental Water Account, was widely criticized by conservationists who said it enriched irrigation districts while failing to add significant flows to the delta.

Much of California agriculture is accustomed to vast amounts of cheap, federally subsidized water in the form of deliveries from the Central Valley Project, the nation’s largest water supply program. The CVP irrigators are behind schedule in repaying the U.S. government for the sprawling system’s construction costs. And under reclamation policy, they pay no interest on what amounts to a decades-long loan.

The more recent State Water Project, which supplies mostly urban districts, was set up differently. Member agencies repay capital costs with interest in proportion to the size of their contracts and their use of the facilities.

Still, critics say the state system also favors agriculture with the sale of surplus water in wet years. The Kern County agency has been the leading buyer of surplus supplies, which are much cheaper than regular deliveries. That has driven down Kern’s long-term, average water price.

Tunnel opponents — primarily delta interests and some environmental groups — argue that the Southland is going to be left holding the bill.

“There isn’t any doubt in my mind that urban ratepayers are going to have to pay the vast majority of the cost of the project,” said Jeffrey Michael, director of the Business Forecasting Center at the University of the Pacific in Stockton.

“There is no way that these costs can be distributed proportionally in the way that they’ve described,” he said. “So yeah, it’s going to be a subsidy.”

bettina.boxall@latimes.com