Lack of Water Forces Firms to Review Growth Plans : Drought: Many of California's major employers are considering expanding in other states, study shows.

By FREDERICK M. MUIR

April 23, 1991 12 AM PT

TIMES STAFF WRITER

Concerns about California’s water supplies are causing many large employers to consider other states as sites for expansion, according to a study commissioned by a consortium of 10 of the state’s largest water agencies serving 12 industrialized counties.

Aerospace, defense, computer and food-processing businesses are growing increasingly nervous about expected water shortages in the coming decade as the state’s burgeoning population threatens to outstrip the water supply--even in years of normal rainfall, according to a preliminary report submitted to California Urban Water Agencies.

Just one year with a 30% reduction in water supplies to businesses would cost the state’s largest industries $8 billion and nearly 60,000 jobs--and the ripple effect could produce an even worse economic crisis, the study by Spectrum Economics of San Francisco found.

“Water supply unreliability is one more business problem--joining air pollution, congestion and housing costs--that creates a corporate bias against plant expansion or location in California,” the study’s authors concluded.

“Major new plant investments in capital intensive, water critical high-technology industries may look elsewhere if reliable water supplies cannot be guaranteed,” researchers said. They concluded: “California, alone among the major U.S. industrial centers of manufacturing, has an unreliable water supply system.”

Indeed, by 1995, the six-county region of Southern California served by the Metropolitan Water District faces a 50% chance of experiencing water shortages. The odds of having a year with a 30% shortage are 1 in 10, according to an MWD report. By 2000, the prospects of a water deficit will increase to 75%--with odds that three out of four years will see shortages--and 25% for a severe shortfall, according to the MWD.

“These are huge numbers,” said William Wade, a director of Spectrum and head of the study team. “It’s unheard of in planning for the infrastructure for a modern economy.”

Other critical industrial resources--such as gas and electricity--have a 99.9% reliability, Wade said.

The worst losses would probably come in those industries--high technology, defense and food processing--that have already done the best job of conserving water, the study said. These businesses would account for 89% of direct job losses.

“Manufacturing accounts for about 18% of statewide employment--but forms the critical backbone of the state’s economic base,” the report said. “Losses in these leading industrial sectors would ripple across the state to the trade, services and government sectors.”

Los Angeles and Santa Clara counties would “bear the lion’s share of these employment losses,” with about 21,000 lost jobs each out of 56,000 jobs lost statewide, the study found. These losses “would ripple to other nearby counties and set off secondary losses.”

These preliminary findings are the first from Spectrum’s 18-month study. The findings are based on 212 returned surveys from companies in the 12 counties in the San Francisco Bay and South Coast regions.

Spectrum is an economic consulting firm that specializes in energy and natural resources issues. The firm was retained in 1989 by the MWD to conduct the study. When the California Urban Water Agencies trade group was formed in 1990, it took over sponsorship of the project.

Timothy Quinn, director of the MWD’s State Water Project and Conservation Division, said the Spectrum study represents “a substantial improvement over previously used methodologies” to determine how water policies and supplies are affecting the economy.

The study points out that “information on the current water needs of industrial users is extremely limited.”

The last published research on the topic was a report by the state Department of Water Resources in 1979. The U.S. Department of Commerce discontinued collecting water data after 1982.

The study focused on the industries that produce 85% of the state’s manufacturing output and 88% of the state’s manufacturing labor force.

“These are the industries most affected by water policy because of their water use intensity; these are the industries most important to the economic health of the state because of their large employment base,” the report said.

In the event of a 30% cut in supplies, 32% of the plants statewide reported that they would be forced to reduce output.

The study found that, in response to these potential water supply problems:

* 50% of the computer and office automation firms in Northern California are reconsidering expansion/location plans.

* 49% of the respondents in the various food industries statewide are considering changing expansion/location plans.

* 41% of aircraft/aerospace firms in Southern California are reconsidering their expansion/location plans.

* 30% of the microchip firms in Northern California are reconsidering their expansion/location plans.

* 26% of the remaining respondents statewide are reconsidering their expansion/location plans.

Water conservation may help but perhaps not enough to reverse the trend, the study found. Already, 66% of respondents have implemented conservation measures.

As one microchip maker told the researchers, additional recycling of water will buy the firm “another six to eight months,” but the company cannot see where the water will come from to support growth beyond that.

WATER CUTS: THE TOLL ON BUSINESS

The 30% cutback in water supplies to industrial users, which is becoming increasingly likely, could take an enormous toll on California business. Here is a look at the potential costs in selected counties:

Potential Production Losses (In billions of dollars)

San Francisco: $0.17

Riverside: $0.18 San Bernardino: $.03

Ventura: $.08

San Diego: $.21

Orange: $.39

Alameda: $.47

Contra Costa: $1.12

Santa Clara: $1.54

Los Angeles: $4.07

Potential Employment Losses (In thousands of jobs)

Contra Costa: 100