Finance for Drinking Water Infrastructure

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The proposed construction of a peripheral canal comes at considerable costs and the need for a cost-benefit analysis cannot be ignored. It is important to mention that a similar project had once been proposed but rejected by the voters. This move was however rejected by California voters at a time when the costs were only a meager $1.3 billion which is way below the $4 billion and $ 17 billion proposed by currently for the various construction options.

However, this is now price that needs to be paid to address the ever declining Sacramento-San Joaquin Delta and also provide safe drinking water to the cities and farms in California (Piazza, 2012). These are costs proposed by the panel proposed by a panel formed to research and find ways of preserving the water and offer the much needed to the cities and farms.

However, there is also the issue of financial impact to the Northern California economy if most of the water is diverted to Sothern California and hence limiting access to fresh water by farmers. However, this has been addressed by the proposed construction of the two-way canal.

Financial Sources Analysis

Financial analysis of the proposed construction of the proposed two-way canal is important in ensuring there will be sufficient funds for construction and maintenance of the project (Weiser, 2010). It is fair to state that funds need to be availed for project operations, its maintenance, power needs, and payment of debts. A number of future contingency which may alter the financial structure of the project includes:

Schedule variations with regard to construction processes
Changing economic landscape such as rates of interest,
Completion of transfer facilities
Construction of extra resources not foreseen earlier
Canal enlargements
Pending law suit and future law suit outcomes
Capital cost increments for additional conservation facilities during and after construction

Capital Financing

This water project will draw from three different sources of financing including Burns-Porter Act, revenue bonds, as well as capital resources. These funding will cater for all aspects of the project.

Burns-Porter Act

Burns-Porter Act financing option originates from selling of bonds from California Water Resources Development Bonds as well as the State Tideland Oil Revenues which were deposited. This was authorized by Burns-Porter Act. The Act authorized issuance of general state obligation bonds worth $1.75 billion paid by revenues obtained from contracts on water supply. The proceeds obtained from these sales are deposited in “California Water Resources Development Bond Fund-Bond Proceeds Account.” It is from here that funds are withdrawn and used in SWP facilities construction. It is worth pointing out that more than one-third of expenditure up to 1995 in construction as well as in Davis-Grunsky Act Program was financed by the general obligation bond (Massachusetts Infrastructure Investment Coalition, 2007).

Appropriation of funds deposited into California Water Fund is done in line with the provisions of Burns-Porter Act. The deposits also originate in part from State Tideland Oil Revenues based on continuous authorization; the legislation enacted in 1989 provides for the funds payment schedule in line with Burns-Porter Act (Massachusetts Infrastructure Investment Coalition, 2007).

Revenue Bonds

This financing option originates from revenue bond sales as provided for by the Central Valley Project Act. The authority of the department to issue revenue bonds was re-affirmed by the 1963 authorization from California Supreme Court (Weiser, 2010). The proceeds from such sales are deposited into the Central Valley Water Project Construction Fund. The money is then spent for purposes outlined in resolution authorizing which authorized the sale of each bond (Weiser, 2010). Other than payment for construction, planning and management of the right of way costs, they can also be used to fund Debt Service Reserve Account, bond interest payments, as well as payment of water system costs of operation within a specified duration.

Capital resources

This originates from payments and appropriations which are authorized via special contracts, cost-sharing arrangements, as well as acts of legislation relating to SWP. Also included are accrued interests from the mentioned funds.

Integration of recycled systems with pipe replacement/maintenance to reduce costs

The aim of every project is to lower costs. This is what is achieved if integrated with replacement/maintenance costs. It is important to mention that the recycled systems form part of a larger system which constitutes the entire project. Where each is independently done, they have cross-effect on each other and as such some costs can be incurred multiple times. However, when done side by side, scheduling ensure that double costs are not incurred in the same areas.

Financing desalination of plants where necessary

Interest in desalination of water has largely increased in the recent past with up to 17 plants proposed along the Californian coast. This process is however energy intensive implying costs are swollen by high energy costs. Nonetheless, during drought energy requirements are highly low due to the fact that most of evapotranspiration occurs as a result of solar energy. In addition, installation of solar plates during construction results into more energy sources during the process to aid energy related costs get lower and lower.

Regulation

The constitution of California states as well as court decisions hold the opinion that land owners with property where underground aquifers pass can pump reasonable amounts of the water for as long as it is directed towards beneficial usage. Such may include irrigation and drinking water supply. However, over-pumping must be kept in check (Barringer, 2009). Aquifers may pass through many farms and if each would pump large volumes, then this could compromise flow of water upstream. It is vital to stress that it can also offer a source of funding. Beyond certain usage levels, a fee should be imposed and the fee used in maintenance.

Groundwater overdraft issues are known to result into lawsuits, and in many cases, courts have been forced to come in and play adjudication role in water rights. In such instances, a water master is mandated to determine the yield through regulation of pumping through pump taxation as well as other means which discourage excess use of water. It must be acknowledged that other than Texas, California is the only other state to have successfully undertaken comprehensive regulation of ground water resources.

Reduce water usage on a household level

Household water usage levels ultimately impact the plant operations and the costs incurred. Where households misuse waters, costs of water pumping and delivery marginally increases, needless to say it can cost other would be beneficiary from not being able to access the services. Household water levels can be reduced by introduction of tariffs which charge based on consumptions. In this respect, the tariffs should charge based on consumption where low consumers are rewarded with lower tariffs while high consumers are charged higher tariffs.

Extra taxes to gain money from excess water usage

While imposing extra taxes for extra water usage could potentially lower water usage and hence pumping costs, this offers an opportunity to earn more from the project’s investments and use them same for maintenance. It is important to mention that such effect can be implemented through the water management department, which oversees water use billing.

Incentivize recycling (subsidies)

Recycling is a sure way through which the environment is conserved and also lowering costs of service delivery. Offering incentives to people who recycle water encourages people to recycle water more.

Solutions

In general, the financing options available for the project include capital resources, revenue bonds, and Burns-Porter Act mandated funds. Most of the capital needs of the project will be financed by proceeds from the projected revenue bonds sale. A sizeable margin will further be financed through current bond revenues, capital revenues as well as transfer of excess funds not required for costs of operation, servicing of debts and repayment of the water fund used (Barringer, 2009).

Further, projected payments by contractors as well as various other revenues will offer sufficient funds to pay for annual operations, maintenance costs, power requirements, and replacement/maintenance costs (Barringer, 2009). Generally, project expenses to be catered for will include costs of operations maintenance, power costs, maintenance costs, replacement services deposits, expenditure on capital resources, and servicing of project debts.

Additionally, while huge investments are being directed towards implementation of the project that will see millions of people access water without compromising farmer’s access to quality farming water, measures must be put in place to minimize misuse of water. Additionally, extra-funds can be generated from regulatory measures such extra taxation for high water users and charging higher tariffs to people who use water beyond some levels (Poel & Royakkers, 2011). It should also be mentioned that initiating acts which promote recycling of water. This lowers the costs of distributing water. These constitute regulatory measures in generation of funds and lowering expenses.

Ethical analysis

Cost benefit analysis is considered on basis of the social benefits the project is likely to offer to the residents (Poel & Royakkers, 2011). Sacramento brings together divergent groups. Like other Americans, they deserve to enjoy the right to clean and safe drinking water, as well as for other functions. It is estimated that more than 150,000 reside in areas where water is toxic and no fit for consumption by humans. These are an economically deprived lot and have to drive for miles to purchase bottled water. This is quite an economic burden. Faming using contaminated water has also increased marginally the nitrate pollution with over 2.65 million people living in California County drinking water contaminated with nitrates. It is estimated that if this pollution is left to continue, more than 80% of the population might be drinking polluted water by 2050.

This project might change this and such the magnitude of social benefits the project presents to the society. Additionally, if such contaminated water is continuously used in farms, it will find way into the lakes and oceans, eventually having adverse effects beyond California (Forbes, 2012). Fresh water will always eliminated the risk of blue baby exposure, as thyroid cancer, skin rashes, and hair loss, all associated with nitrate contamination. Such can place enormous costs on national health. Forbes (2012) noted that in a few years’ time, it will cost between $20 and $35 million to offer clean water to the population. In essence, as the utilitarian theory would have it, the social benefits way exceed implementation costs.

References

Barringer, F. (2009). Rising Calls to Regulate California Groundwater. New York Times. Web.

Forbes, R. (2012). The problem is worse than we thought. Web.

Massachusetts Infrastructure Investment Coalition. (2007). Infrastructure Status Report: Massachusetts Drinking Water. Massachusetts Infrastructure Investment Coalition, 3 (1), pp.1-10

Piazza, T. (2012). The Peripheral Canal: What It Means for the Delta. Delta Winds. Web.

Poel, I. V. & Royakkers, L. (2011). Ethics, Technology, and Engineering: An Introduction. Washington DC: John Wiley & Sons

Weiser, M. (2010). The Delta debate: Resurrecting the canal. The Sacramento Bee on the Web. Web.

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