Bond Issue Would Rechannel the Business of Water

The largest water bond issue in California history--$1.97 billion on the March 7 primary ballot--is an innovation in many ways.

It would focus most of its expenditures and energies on Southern California.

It would encourage ways of conserving and storing water in years of abundant rainfall so that it would be available in drought years.

It would allocate funds to control urban runoff that fouls beaches, particularly in Southern California.

It would further encourage private-sector efforts to market water--a price-based approach to basic resources that has support of environmental groups.

The bond issue, which will be Proposition 13 on the ballot, is a big deal because Southern California environmental and business groups, led by Ezunial Burts of the Los Angeles Chamber of Commerce, worked together to push it in Sacramento. That’s why Southern California is getting 60% of the expenditures. Previous water issues have been dominated by Northern California backers.

Also it’s a big deal because bipartisan support in the Legislature and from Gov. Gray Davis declares that California is moving to cope with a 50% increase in population in the next two decades.

It’s a prudent issue. The additional water California will get, enough for 8 million more people, is needed because the state’s share of Colorado River resources will shrink in future years as Nevada and Arizona demand more.

It’s significant that “we’re going ahead with a long-term measure even though there’s no crisis,” says Orange County Supervisor Todd Spitzer.

Orange, Riverside and San Bernardino counties would benefit particularly from a $235-million expenditure on the Santa Ana River watershed.

Ground water storage, an idea whose time is coming, would get a big boost. In ground water storage, surplus water in good years is pumped into underground aquifers so it can be pumped back out in drought years. It is an alternative to above-ground reservoirs, the storage method favored by the Metropolitan Water District and other public agencies that traditionally control wholesale water supplies.

But reservoirs have come under criticism for cost overruns and for environmental dislocations.

So now opinions are changing and environmental groups as well as private industry favor ground water storage and the beginnings of market pricing for water.

There is widespread approval for a major contract about to go into effect between the MWD and Cadiz Inc., a Santa Monica company that owns the rights to thousands of acres of Mojave Desert aquifer. The agency would store surplus water in Cadiz’s aquifer, drawing it out in dry years. MWD and Cadiz, a 15-year-old company that also owns SunWorld growers, would share the costs of pumping stations and other equipment. Cadiz would collect fees over 50 years.

Other private firms see similar opportunities arising as water supply becomes a more flexible business. Azurix Inc., a separately traded subsidiary of Enron, the Houston energy firm, bought ranchland near the San Joaquin Valley town of Madera last year to use for underground storage and water marketing.

Two French companies, Vivendi, which bought U.S. Filter of Palm Desert in 1999, and Suez Lyonnaise des Eaux, are active all over the world in the new business of water marketing.

In California, two investor-owned utilities, American States Water Co. of San Dimas and California Water Service Co. of San Jose, are growing fast as municipalities gladly turn over responsibilities for water supply and water purity to professionals.

Private markets may enhance conservation, said Tom Graff, senior attorney for the Environmental Defense Fund, in a recent interview in the Metro Investment Report newsletter.

If farmers were able to sell part of their water allocation through a free-market exchange, Graff explained, they would have an incentive to use water more efficiently because they could profit by selling their surplus.

To be sure, market pricing arouses misgivings. “We don’t want farmers not to grow crops so they can sell water,” Spitzer says.

So the business won’t grow as fast as some companies believe. (Azurix went public in June at $19 a share but closed Tuesday at $8 on the New York Stock Exchange, reflecting slower development of hoped-for water deals here and overseas, says analyst Debra Coy of Schwab Capital Markets.)

However, federal law now encourages free-market experiments in water control and distribution. And the fresh approaches in the bond issue reflect new thinking about managing the resource.

The bond issue would support clean water with $100 million of investment statewide, and there would be $40 million for recycling used water into drinking water.

Flood protection measures total $300 million for often-ravaged Northern California areas as well as those bordering the Los Angeles River.

Water always has been an extremely serious issue in California. The coming bond issue makes it serious business.

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James Flanigan can be reached at jim.flanigan@latimes.com.