California Has Plenty of Water—And Too Much Politics

California's politicians and regulators are making the drought worse.

Almost everyone knows California is running out of water as it enters the fourth year of a grueling drought. The results are stark, as massive reservoirs turn into mud pits, and state inspectors fine residents for watering their lawns.

But in the state's second most populous county, there's a problem of a different sort.

The San Diego County Water Authority has so much water it doesn't know what to do with it all. And its long-term prospects are even more promising.

Thanks to a variety of projects, San Diego area residents should be set for the rest of their lives. The agency says it will reduce its water purchases from the Metropolitan Water District of Southern California by 66 percent over the next 15 years. It shrugs at Gov. Jerry Brown's multibillion-dollar plan to send more water southward from the Delta by building two big tunnels under that estuary.

One of the county's ambitious projects is illustrative of what's wrong with California—not because it will meet the water needs of most in this metropolitan area of 3.2 million people. It's the bottom-line lesson that what ails the Golden State is not primarily a lack of rainfall, but politics. The drought is a manmade disaster.

A $1 billion desalination facility that turns salty ocean water into fresh drinking water opened Monday in the northern San Diego County city of Carlsbad. Critics, most of them environmentalists, quickly seized on the comments of some investors—that the plant was so wrapped up in red tape, they were no longer sure it could turn a profit.

"It required far more equity capital and development capital than we anticipated," a financial backer of the Poseidon Resources Corp. facility told Bloomberg. "In hindsight was it a good investment? Probably not," he said of the facility, which took 18 years from planning to opening.

Such negative news can be used by opponents of these facilities to call for more caution. Indeed, several environmental-related lawsuits were filed against this plant, so desal has its share of opponents. And a nearly identical project in Huntington Beach is being held up by the California Coastal Commission, an environmentally oriented state agency that's worried about the effect of the giant intake tubes on ocean plankton.

But a closer read of the story shows clearly that the technology was never the problem. The problem was political and regulatory.

As Bloomberg explained, "Proposed in 1998, the project was beset by legal and regulatory challenges that held up construction until the end of 2012." The investor was even more precise: "We realized there would be certain political risks, but not at this level." It took longer to get approvals for this one desalination plant than it did to design, approve and complete most of the 60-year-old State Water Project—California's enormous system of dams, aqueducts and pumping stations that brings northern California water to the more arid Southland.

The problem isn't desalination. The problem is politics. A key player in the Poseidon project argues that unnecessary and duplicative approvals—four separate state agencies approved the project on their own, separate tracks—delayed things by at least a decade and added about 10 percent to the total project cost of $1 billion. When construction finally started in 2012, the plant went from a hole in the ground to a functioning facility in only three years.

The rest of the time involved getting state and local approvals. An environmentalist quoted by Bloomberg called for even more reviews and oversight.

"We learned a lot with Carlsbad, and that's one of the reasons it's only going to get harder for them," said Marco Gonzalez, a suburban San Diego lawyer who represented local environmental groups including Coastkeeper and the Surfrider Foundation in lawsuits against the project. "Carlsbad was the first of its kind and it was as much about lobbying as it was about science. If anything, we need heightened levels of review, not less."

Desalination is just one piece of an engineering puzzle that will keep water flowing in California. And even in the current environment—where policy makers prefer fining people for overusing water while they empty reservoirs to protect a small number of non-endangered fish—the water actually does keep flowing. Environmentalists have mucked up the process, delayed the construction of needed facilities and driven up the cost of water. They've brought havoc to some of the more agricultural-intensive parts of the Central Valley, where farmers are abandoning their fields because of a lack of available water.

But there's still water. Conservation has helped, of course. Despite the lawsuits and unnecessary delays and costs, good planning still is the key. Even in a drought, a massive urban area in one of the nation's most arid regions is awash in the wet stuff.

Republican legislators in particular have been beating the "water storage" drum since the beginning of the drought. They are right. The state no doubt needs to finish building a couple of proposed dam projects and beef up its system of underground water storage. That doesn't mean every proposed dam project is a good one or that the state is an efficient builder. But water officials would do well to prepare more storage for the future. When it does rain again—and predictions of an El Niño year have so far fallen short in most of the state—there needs to be a place to store it for drought years.

But in the current environment of endless environmental reviews and lawsuits (under the controversial California Environmental Quality Act, CEQA), this will take years to complete. It's a great approach for the future, but my recent visit to two of the state's bigger reservoirs (Folsom Lake, east of Sacramento; Lake Oroville in the northern Sacramento Valley) showed depressingly empty lakes. Storage capacity is a long-term, not short-term, solution.

As politicians fight to build more storage for the future, there are some obvious regulatory changes that can help today. A recent study by the nonpartisan Public Policy Institute of California offered a number of ways the state could jump-start its flagging water markets.

First, free water markets. Freer markets are the best way to direct all resources to their highest and best use. Water is no different. Sadly, the state's regulatory regimen makes it nearly impossible to buy and sell water rights.

"California's system for allocating water to its residents, businesses and ecosystems is weakened by flaws that hamper it from meeting the state's needs, especially in times of scarcity," according to the report, called Allocating California's Water. "It is fragmented, inconsistent and lacking in transparency and clear lines of authority." In other words, the bureaucracy impedes the efficient use of water at a time of scarcity, when such efficiency is of particular importance.

PPIC rightly notes that "calls for a complete overhaul of water rights have been on the rise, with some observers asserting that the seniority-based system [where early water users have a greater claim on water than later arrivals] is outdated and not up to the task of meeting California's needs. In our view, less sweeping, more legally defensible pathways are available to improve water allocation." That's sensible, given that overhauling water rights can be a fancy term for taking away some people's property rights.

One solution seemed particularly noteworthy: "Trading [buying and selling water rights] is an essential tool for enabling water right-holders to voluntarily reallocate water to reduce the economic and environmental costs of shortages. Although some trading occurred during this drought, the approval process is hampered by a complex and often opaque set of rules."

These are basic market issues. Another one is pricing. When the price of, say, gasoline goes up, drivers tend to use less of it. That's how the market allocates goods that are, at least temporarily, scarce. Unfortunately, California consumers – who have conserved far more water than the state demanded—actually face higher costs as they conserve more. The per-unit cost of the water goes up as you use less of it. That irony is the product of a government-controlled water monopoly.

The water agencies have many fixed costs (pipes, pumps, filtration, salaries, pensions, buildings) and when people use less water these user have to cover those inflexible costs. In a real free-market system, competition would force down infrastructure and personnel costs. But we all must pay whatever the local water monopoly charges, with pricing determined by politicians and regulators. In such a world, rates rarely go down.

There's some effort to change the water-pricing structure, but in a way that has many taxpayer advocates troubled. California water agencies and city governments are pushing a statewide ballot initiative that would let them charge higher water rates to discourage water use. The agencies want to re-impose a tiered pricing system thrown out by a state appeals court, in which they charge higher rates to those who use higher levels of water.

That sounds like a market approach, but it's more like a tax increase. The state constitution forbids governments from charging more than the actual cost of providing the service. In a monopoly situation, it's nothing more than a mandated increase. Nevertheless, it at least touches on a key issue: pricing affects water usage. But there's need for something else to be understood, that competition is the best way to keep rates reasonable.

Even many of the state's Democratic leaders realize that CEQA, the act that opened the door to multiple lawsuits against the desalination plan, needs reform. There's no clarity within the act, so developers like the people behind the new Poseidon plant in San Diego County can't plan for costly litigation and years of delays.

CEQA is used not just by environmental groups. Labor unions leverage CEQA to file suits to exact wage concessions, and project competitors to crush innovation. Legislators are quick to make CEQA exemptions on their favored projects, but the law remains intact, and it slows and stops many necessary projects, including water projects.

Also needed: water recycling technologies. Opponents refer to them as "toilet to tap," but scientific techniques can turn literal sewage into drinkable water. The San Diego City Council approved such a program last year, which promises to provide more than a third of the city's water by 2035. Of course, city and water officials are spending a lot on public relations to assure public acceptance of something that sounds a bit icky. They call it Pure Water San Diego, and such projects promise good, clean water at competitive prices.

As the San Diego situation shows, California could easily meet its future water needs – even as the population continues to grow – by embracing technologies that already are working. Some regulatory changes and infrastructure investments will help, too. The big question is whether state officials can learn new lessons.

Steven Greenhut is a senior contributor to Watchdog.org and the California columnist for the San Diego Union-Tribune.