Water Wars Could Drown State’s Recovery

Standard & Poor’s, the nation’s largest financial rating service, is not normally in the business of issuing environmental alarms. But this year it did, with a jolting message that is helping to change the way California--and its business community--looks at the environment. In its publication Creditweek Municipal, Standard & Poor’s warned last spring that if something is not done to end the decade-old water wars over the San Francisco Bay-Sacramento Delta, the state’s anemic credit rating could be further weakened.

According to the financial rating service, growing water shortages, higher water rates and chronic uncertainty over future supplies threaten to drive up interest rates and discourage investment in projects crucial to California’s economic recovery.

The source of water for 20 million Californians, the delta is the largest estuary in the western United States and home to more than 1,000 species of birds and fish. But so far, the seesaw battle for control of the delta is neither protecting the health of the ecosystem nor meeting the needs of consumers.

For years, it was assumed that agribusiness stood to lose the most in the contest over how much water should be left to protect the delta. But as Standard & Poor’s points out, the intractable struggle also threatens the financial health of hundreds of communities across the state--including many in Southern California--that depend on the delta for all or part of their water supply.

Unless the struggle is resolved, Standard & Poor’s says, these communities will be unable to plan for the future or commit themselves to supplying water for new industry.

But the delta debate is not just about water. The estuary is a vast mixture of environmental problems--from endangered species and disappearing wetlands to waste water runoff and chemical residue.

Solving any one of them has far-reaching implications. Establishing the proper balance of freshwater and saltwater needed to sustain an endangered delta fish, for instance, could substantially restrict water delivery to Los Angeles or San Diego.

Standard & Poor’s report “was a warning shot fired across our bow,” said John R. Wodraska, general manager of the Metropolitan Water District, which provides Southern California communities with more than half of their water. “It reminded people that the bay-delta is the crossroads of the environment and the economy in this state.”

It also reminded people, Wodraska said, that despite election-year fixations with crime, immigration and jobs, “matters of environmental quality are inextricably bound up with California’s economic well-being.”

Moreover, the warning that the state’s credit could be hurt by the delta stalemate suggests that California no longer can afford the interminable squabbling that has left it without clear environmental policies on issues ranging from water policy to growth management, from forest preservation to endangered species protection.

“You can get to the point where you feel like any policy is better than no policy,” said San Francisco real estate developer Nelson Rising. “At least, then, you know what you can and can’t do. As it is, uncertainty over water, over endangered species, over a whole host of environmental regulations is very frustrating.”

It was that sense of frustration that prompted a group of California business leaders to write President Clinton and Gov. Pete Wilson last August urging them to resolve the conflict over allocation of water from the delta.

“The continuing gridlock in setting standards for the bay-delta is creating uncertainty and threatens the economic recovery we desperately need,” said the letter signed by the chief executive officers of a dozen major companies, including BankAmerica Corp., Pacific Gas & Electric Co., TransAmerica Corp., Procter & Gamble and Wells Fargo.

The letter was a clear sign that California’s business leaders were taking seriously Standard & Poor’s implicit message--the state cannot tolerate continuing indecision when it comes to environmental policy-making.

The letter also was significant for what it did not say. It did not take a stand against proposals by environmentalists that could cut water diversions from the delta by as much as 20%.

Some analysts believe the letter reflects a growing acknowledgment by business interests that working with environmentalists makes more sense than working against them.

“They (business interests) want certainty and they are willing to give in the short run in order to get what they want in the long run,” said Harry Seraydarian, a water expert for the U.S. Environmental Protection Agency.

Speaking at a recent Los Angeles conference on water sponsored by the Metro Investment Report, a newsletter on business and environmental issues, Seraydarian said progress was being made by state and federal officials who are trying to resolve the dispute.

“There is a fragile consensus in the making,” he said.

If it holds, it will probably carry a big price tag.

Adapting to less water as the state’s population heads toward 40 million will require huge investments in conservation and reclamation technology to make more efficient use of available water. The decision to spend that money is not likely to be made without greater assurance from environmentalists that they won’t keep pressing for more water once a deal is struck.

“The idea is that you can’t choke the flow or shut down the pumps even if you do find another endangered species. That’s the bargain environmentalists will have to live with if they want a deal on the delta,” said one business leader who asked to remain anonymous.

The delta debate highlights a dilemma that California did not fully confront until the recession--how to build a strong economy without sacrificing the high-minded environmental goals the state set for itself during more prosperous times. Enjoying broad popular support, California environmentalists over the past two decades were able to enact some of the toughest laws in the nation protecting air, water and other natural resources.

But some of the enthusiasm for strong environmental laws has waned, and the erosion of consensus has left the state on the brink of several crises, aside from water, which the next governor and the next Legislature will face.

California has lost 90% of its wetlands. Each year, it is losing 100,000 acres of open space and farmland to suburban sprawl. If something is not done to stabilize the state’s Central Valley, the American Farmland Trust estimates that the area will lose 30% of its remaining productive cropland. Besides offering such environmental benefits as clean air and wildlife habitat, farmland is responsible for 12% of the gross state product.

Despite bipartisan support, bills have died in the Legislature that would have put the brakes on sprawl by offering developers new incentives to build next to existing communities rather than searching for cheap real estate in the undeveloped hinterlands.

“The continued degradation of open spaces and wildlife habitat has put a significant portion of the state’s biodiversity at risk,” said Carl Pope, executive director of the Sierra Club.

Although California has more plant and animal species than any other state, it has more endangered species as well. The State Department of Fish and Game’s list of threatened and endangered wildlife includes 286 plant and animal species.

Meanwhile, the state’s forests are being cut faster than they are being replenished. Less than 5% of California’s 2 million acres of virgin redwood still stand. The pace of logging on timber company lands in at least one Northern California county has raised the prospect of a “timber gap”--a period of many years in which there would be no trees mature enough for harvesting.

In Sacramento, lawmakers have struggled in vain during the past four years to produce compromise legislation acceptable to both environmentalists and timber companies that would regulate the volume of logging and set standards for protecting streams and wildlife habitat in the half of California’s forests regulated by the state.

At the same time, advocates of a far different sort of environmental reform have been equally frustrated. Bipartisan attempts to speed up economic recovery by modifying the state’s environmental quality laws have failed in the Legislature. Wilson created the California Environmental Protection Agency to streamline the state’s bewildering and often redundant regulatory bureaucracy. Four years later, a commission still is trying to identify which regulations ought to be modified.

“We have wound up with a system no one likes, where everyone can checkmate everybody else, so that at the end of the day there is no economic development and no environmental protection,” said Roger Carrick, a Los Angeles lawyer and policy adviser to the Democratic candidate for governor, Kathleen Brown.

The environment may not be an issue on the front burner of the 1994 governor’s race. Waiting in the wings, however, is a crucial question: What can be done to end the creeping paralysis that has gripped environmental policy-making in a state that once set a national standard for antipollution laws and where 80% of residents still call themselves environmentalists?

The letter sent by the business executives to Clinton and Wilson urging a speedy solution to the delta impasse suggests that there are powerful forces in the state unwilling to live any longer with policy gridlock on important environmental issues.

But there also are compelling reasons these days for hard-liners to resist compromise. The prospect of a more conservative Congress next year has raised hopes that legislation such as the Endangered Species Act can be weakened. If that happens, environmentalists will lose a powerful weapon not only in the delta, where imperiled species need more water to survive, but in their struggles to protect forests, wetlands and open space where species habitat is a key issue.

In the current political climate, say observers, breaking the environmental policy gridlock will not be easy. Forcing people to accept compromise will require leaders willing to twist arms, including the arms of some of their supporters.

“What we need is someone who will bring warring parties into the office and lock the doors until a problem can be solved,” Kathy Bailey of the Sierra Club said.

State of the State: The Environment

REALITY

The struggle for control of the San Francisco Bay-Sacramento Delta, the largest wetland in the western United States and the source of 40% of California’s drinking water, could further erode the state’s credit rating and slow its economic recovery.

In the delta and elsewhere in the state, policy gridlock is aggravating economic uncertainty and contributing to the deterioration of natural resources.

California already has lost 90% of its wetlands. Annually, it loses 100,000 acres of farmland and open space to suburban development. The state’s forests are being cut faster than they are being replenished. Less than 5% of original virgin redwood stands remain. With nearly 300 types of plants and animals in peril, California has the largest number of endangered species of any state.

RHETORIC

KATHLEEN BROWN:

“Our current sense of economic gridlock amid failure to achieve environmental progress is symptomatic of failed leadership. As governor, I will bridge this leadership chasm to bring environmental and business leaders together in a Sustainable California Commission to protect our ecosystems while growing our economy.

“On the critical environmental issues of the day--air pollution, water quality and coastal protection--I will personally direct the California Environmental Protection Agency to stop talking and start enforcing our laws against pollution, while I manage our state budget to protect, not abandon, our natural resources, parks and beaches.”

PETE WILSON:

“The three most pressing and challenging environmental issues in California are combatting the loss of biological richness and diversity, reconciling environmental improvement with economic progress, and continued achievement of air and water protections.

“California’s environmental standards lead the world, and many other states and nations are adopting them. California’s environmental permitting process has become needlessly complex, and other state and nations are not adopting the permitting process. . . . My Administration has been successful in reforming the process while protecting standards.”

PROPOSALS

BROWN:

As governor, Brown would accept the federal government’s proposed water quality standards for the delta. Water analysts, including officials of the Metropolitan Water District, say the federal standards could reduce Southern California water supplies as much as 20% in dry years. Brown argues that conservation and reclamation techniques can make up for lost water.

Brown has called for the creation of an “infrastructure bank” that would help local governments pay for projects such as water reclamation.

To protect open spaces, Brown has endorsed Proposition 180, a $2-billion ballot measure that would provide money for parks, tree planting and protection of rivers, forests and agricultural land.

WILSON:

Wilson has accused federal officials of basing endangered species protection on “questionable science” and of ignoring the economic consequences of keeping more water in the delta to protect species of fish.

At the same time, Wilson insists that California is making progress in formulating water quality standards for the delta that will satisfy the demands of federal environmental law.

Wilson’s plan would protect native plants and animal species through cooperation rather than regulation. The program looks to real estate developers and local governments to set aside land identified as valuable habitat.

Wilson opposes Proposition 180, contending that the measure is unfocused and too costly.