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Community Engagement

Delta Water Tunnel Fails Benefit-Cost Test

Report finds $13 billion project is not economically justified
Jul 12, 2012

A proposal to build water conveyance tunnels under the Delta is not economically or financially justified according to a benefit-cost analysis released today by the Business Forecasting Center at the University of the Pacific.  The report finds that the costs of the tunnels are about $7 billion higher than their benefits, or about $2.50 in costs for each dollar in economic benefits.

The water conveyance tunnels are proposed as the centerpiece of the Bay Delta Conservation Plan (BDCP).  The economic benefits of the tunnels include water supply, water quality, and earthquake risk reduction for areas that receive water exported from the Delta by the State Water Project and Central Valley Project.  The economic costs include capital costs, operating and maintenance costs, and the costs to in-Delta and upstream areas that would be negatively affected.   The quantitative estimates of benefits and costs were compiled from recent information from the BDCP and other state agencies involved in Delta planning.

Benefit-cost analysis is an essential and normal part of assessment and planning of large infrastructure projects such as the $13 billion water conveyance tunnel proposal, but has not been part of the BDCP.  As a comparison, the revised benefit-cost analysis for California's high-speed rail project estimated a benefit-cost ratio of approximately two, five times the benefit-cost ratio of 0.4 for the Delta tunnels. This report fills an important information gap for policy makers, taxpayers, and water ratepayers who will ultimately bear the multi-billion costs of the BDCP. 

The Business Forecasting Center at the University of the Pacific was founded in 2004.  The BFC is one of the most recognized independent economic research centers in California, and is unique in its focus on issues in the Central Valley.  On water issues, the BFC is known for being the only academic or government entity to accurately assess employment impacts during the 2009 drought, and recently led the development of the Economic Sustainability Plan for the Sacramento - San Joaquin Delta for the Delta Protection Commission.

 

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Benefits and Costs of Delta Tunnels through 2074.  Results are expressed as present discounted values calculated with 3% and 6% discount rates. (millions of current dollars)

Benefits ($ millions)

3% Discount Rate

6% Discount Rate

Export Water Supply at 5.3 maf of exports

3,916

1,670

Export Water Quality

2,328

1,010

Earthquake Risk Reduction

866

376

Environmental Benefits at 5.3maf of exports

0

0

Total Benefits ($ millions)

7,110

3,056

  

  

  

Costs ($ millions)

 

  

Capital Cost  

10,777 

9,205

Operation and Maintenance

1,533

666

In-Delta and Upstream Impacts

1,173

509

Total Costs ($ millions)

13,484

10,380

  

  

  

Net Benefits ($ millions)

-6,374

-7,324

Benefit-Cost Ratio

0.527

0.297

Cost-Benefit Ratio

1.90

3.36

 

Estimated Annual Benefits and Costs in 2030.

Benefits ($ millions)

2030 Benefits/Costs

Export Water Supply at 5.3 maf of exports

217

Export Water Quality

129

Earthquake Risk Reduction

47

Environmental Benefits at 5.3maf of exports

0

Total Annual Benefits ($ millions)

393

  

  

Costs ($ millions)

 

Debt Service on Capital Cost  

1,100 

Operation and Maintenance

85

In-Delta and Upstream Impacts

65

Total Annual Costs ($ millions)

1,250

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