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Jeffrey Michael, professor of policy at University of the Pacific and director of the Center for Business and Policy Research

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Study says state water tunnels not economically justified

Aug 24, 2016

Like the Bay-Delta Conservation Plan before it, California WaterFix would cost more to build than it would deliver in return, according to new research by University of the Pacific's Center for Business and Policy Research.

California WaterFix is the newest iteration of the California Department of Water Resources and U.S. Bureau of Reclamations' effort to build twin 35-mile water conveyance tunnels under the Sacramento-San Joaquin River Delta.

The $16 billion WaterFix plan would deliver just 23 cents in benefits, such as increased water supply, for every dollar in costs. The most optimistic scenario increases the return to just 39 cents per dollar, according to the study.

"This is the first comprehensive benefit-cost analysis of WaterFix and it is clear that it costs four times more than its benefits. This project simply is not economically justified," said economist Jeffrey Michael, a professor of policy at University of the Pacific and director of the Center for Business and Policy Research. The center produces independent, objective analyses of business, economic, and public policy issues in California.

The study received funding support from the Delta Counties Coalition, which represents the governments of Contra Costa, Sacramento, San Joaquin, Solano, and Yolo counties.

Low water yield is the primary economic drawback of the project, according to the report, in that WaterFix would deliver too little additional water for the cost. The report concluded that WaterFix would be economically justified only if its construction and mitigation costs were below $2 billion.

In carrying out the study, the Center for Business and Policy Research used the project description and operating assumptions developed by the state for the WaterFix environmental analysis. The study also includes many additional assumptions that are favorable to the project. The study did not consider the possibility of cost overruns, risk of harm to endangered species, or financing costs of a bond debt that is expected to be used to pay for construction.

"We did not include a pessimistic scenario that deviates from the state's environmental analysis," said Michael. "That means the economic return to WaterFix could be even smaller than we estimate."

Download the latest report.

The Center's 2012 analysis of the BDCP tunnels can be downloaded here.

Media contacts:
Jeffrey Michael | 209.946.7385 (office) | 209.662.5247 (cell) | jmichael@pacific.edu

Keith Michaud | 209.946.3275 (office) | 209.470.3206 (cell) | kmichaud@pacific.edu

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