Ringside: How the Federal Government Can Massively Fund Water Supply Infrastructure

A few months ago I had the privilege of speaking directly with some of the top executives at one of California’s largest water agencies. Their primary question for me was explicit, and my attempts to answer were inadequate. They contend, accurately, that during the last century there were periods when massive federal funding to pay for water supply projects was sustained for multiple consecutive years, and in some cases for decades. They also explained, accurately, that nothing of the sort has happened so far in the 21st century.

So how do we restore federal funding, massive federal funding, to pay for the next generation of water supply infrastructure in California?

We are talking about a lot of money, or not, depending on your frame of reference. The cost to build new water infrastructure sufficient to add 10 million acre feet per year to California’s water supply for farms and cities would cost about $100 billion. Is that really such a big number, when the result would be abundant water even during droughts? Is it such a big number if it ensures that California not only improves its chances to restore affordability to its residents and a competitive edge to its farmers and small businesses, but also vastly improves the state’s capacity to withstand natural and civil catastrophes?

It’s certainly not a lot of money in the context of federal spending. Awarding $10 billion per year for ten years would consume about 0.14 percent of the budget. Not much, to save a state.

So how do we get that money? How do we get money that once flowed – forgive the metaphor – like water in the 20th century, but has slowed to trickle in the 21st?

The first step is to convince the federal government to recognize water infrastructure, nationwide, as a critical, cabinet level priority. We have a cabinet secretary for agriculture, energy, and transportation. Maybe it’s time to take water oriented agencies subsumed within other cabinet departments and create a U.S. Department of Water. Water should be prioritized and managed at that level. This would allow the federal government to focus on major water projects in the same manner as the federal government has focused on building interstate highways.

Next, with our state setting the precedent, we need to restore the incentive for more water supply infrastructure instead of prioritizing water conservation infrastructure. The entire concept of “decoupling” water agency revenue from water agency supply must be shattered. Water bureaucracies and water agencies, at all levels, must have an incentive to produce more water because that will produce more revenue that can be reinvested in more water supply infrastructure. California’s current policy is precisely the opposite of this, and it must change. The mentality in Washington, at least for now, is more likely to recognize decoupling as a dangerous policy because it encourages taking all resilience out of our water supply by rationing all use down to its most “efficient” level. “Decoupling” is a seductive, but ultimately destructive idea.

Another step is to streamline the laws that empower endless litigation and bureaucratic delays. It’s important for those opposed to new development and revisions to operating procedures to have a voice, but today they have become so powerful that major projects are invariably stalled for decades, if not stopped completely. To the extent federal regulations (for example, NEPA, ESA, CZMA, CWA, and the FWCA) can be streamlined, capital costs drop dramatically. To the extent capital costs drop, we reduce the amount of government investment required to preserve incentives for private partners and we avoid imposing unaffordable costs on ratepayers. Again, California needs to set an example for the federal government to follow.

In no particular order, next, restore urgency to the development of new infrastructure to deliver safe drinking water, abundant water storage, diverse sources of water, and geographically distributed reservoirs of surface water to supply water for wildfire containment. Imagine if the federal government gave water supply infrastructure the amount of priority it gave to constructing intercontinental railroads or the interstate highway system, or the burst of effort waged in the 1930s and again in the 1950s and ’60s to build water projects. Without urgency, we wallow. The process profiteers attend conferences and collect giant salaries. Nothing gets done.

Finally, recognize that water distribution infrastructure is just as important as water supply infrastructure. We consider money to be completely fungible, allowing capital to find its most efficient application anywhere in the world. Most commodities are highly fungible. The price of “West Texas Light Sweet” crude oil is affected by the price of similar grades of oil coming from the North Sea or Nigeria, because a buyer can have it delivered from any of those places. Water is not as fungible as oil because the capacity to distribute water is not sufficiently developed. Investing in pipes, aqueducts and pumping stations to augment California’s already substantial capacity to move and store water will create an incentive for investors to build water supply infrastructure because they’ll have more ability to find a remote buyer.

In an earlier analysis, I summarized an assortment of projects that altogether would add 10 million acre feet to California’s annual water supply. With reasonable regulatory relief, it could be possible to construct these projects for $100 billion (2025 dollars). If California were to demonstrate a resolve to streamline the state’s own regulatory obstacles to building water supply infrastructure, it might greatly improve the chances that the U.S. Congress would also engage in federal regulatory streamlining. And if so, they may well be inclined to award Californians a torrent of construction funding, insofar as they might at last conclude that every dollar sent to the Golden State does not end up flowing into the Pacific.