CALIFORNIA’S MULTI-BILLION DOLLAR BONDAGE PROPOSITION

Prop. 1 and 2 will cost taxpayers billions and benefit at least four of California’s 90 billionaires

NEWS RELEASE – Planetary Solutionaries  -

For more information contact Patrick Porgans pp@planetarysolutionaries.org

3 November 2014 

California Governor Jerry Brown is up for re-election, and, when he wins, will make history as the state’s first fourth-term governor.

Ironically, Brown is not out campaigning for his job. Instead, he is the major proponent of two “legislative sponsored” ballot initiatives, Proposition 1 a water bond” and Proposition 2, a “rainy day” fund, which reportedly have the overwhelming support of Democrats and Republicans.

Brown‘s T.V. ads claim voter approval of Prop. 1 and 2 will enable Californians to save water and money, and secure the Golden State’s economic and financial future, increase water supply reliability, and help it prepare for climate change.

Prop. 1 “Authorizes $7.5 billion in general obligation (G.O.) bonds for state water supply infrastructure projects, including surface and groundwater storage, ecosystem and watershed protection, wetlands restoration, and drinking water protection. Voter approval of Proposition 1 would increase state bond (indebtedness) cost averaging $360 million annually over 40 years,” according to the Secretary of State Office.

Taxpayer groups claim that Brown is plunging California deeper into debt. Some critics charge that Brown is promoting his father’s and his legacy to complete the State Water Project (SWP). Others contend issuance of the G.O. bonds is an ingenious financial scheme to use the state’s tax-base, credit rating and natural resources to promote and sustain the fortunes of California billionaires that benefit from SWP, at the expense of taxpayers.

Brown is viewed as being fiscally conservative; however, his support for the water bond would not save money it will cost taxpayers ‘$15 billion in new debt. This debt obligation will be repaid from the state’s heretofore deficit-ridden General Fund.  

California is already inundated with a total of $147.8 billion in G.O. bonds that have already been authorized, according to the State Treasurer’s Office; repayment on that debt is around $300 billion.

Currently, there is $78.5 billion in outstanding general obligation (G.O.) bond debt. Every dollar the State borrows in G.O. bonds, it cost two dollars, according to the State Treasurer, Bill Lockyer. Repayment costs on the outstanding G.O. bonds are in excess of $150 billion. In order to put the magnitude of this debt in perspective, the current general fund expenditures to keep the state running is $107 billion. The annual debt service to repay outstanding G.O. bonds is around $8 billion.

Prop. 1 and 2 are inextricably tied together. The “rainy day fund” requires annual transfer of state general fund revenues to budget stabilization account. It also requires half the revenues be used to repay state debts. Limits use of remaining funds to emergencies or budget deficits.

Critics of both propositions view them as a backstop that authorizes a legal way to issue more bonds and drain money from the General Fund that could be used to fund other essential services. Critics claim that the rainy day fund is just another way of soaking the taxpayers to pay to provide water projects that benefit at least four of California’s 90 billionaires , who have a combined acreage in excess of 720,000 acres that are in need of water and infrastructure. Water realized from the bond act will be used to plant more permanent crops and foster additional urban development in Central and Southern California.

Approval of both propositions would enable Brown and his supporters to open the flood gates and promote more G.O. bonds to cover the debt for the estimated $63 billion “Delta fix – twin tunnels” (Bay-Delta Conservation Plan) and the High Speed Rail “Bullet Train”; initially estimated to cost  $40 billion, it is currently at $68 billion.  Recently, the California Supreme Court refused to hear the case involving the issuance of bonds for the high speed rail, clearing the way for the state to sell up to $9 billion in G.O. bonds.

Proposition 1 was initially conjured up under former Republican Governor Arnold Schwarzenegger’s Administration, as was the Bullet Train and the Delta tunnels, all of which are being championed by Brown.  Schwarzenegger, also viewed as a fiscal conservative, was a strong advocate of G.O. bond indebtedness that Californians will be repaying into the next century.

Prior to the state’s current budget, draconian budget cut, effecting safety-net services, education, jobs, parks and other public services were slashed from the General Fund to offset G.O. bond debt. The state’s credit and bond rating went down the drain, and major investment firms lost interest in the bonds.

Brown kept Schwarzenegger’s Director of Finance, Ana J. Matosantos. During the last two budgets of the Schwarzenegger’s reign, and the first budget Brown approved, they had made draconian budget cuts from the General Fund in excess of $100 billion during a three-year period.

Things went from bad to worse when the State had entered into a deal in a 2010 failed attempt to sell 11 properties in a sale-leaseback transaction to extract revenue from the state’s real estate assets to provide revenue for the state’s budgetary shortfalls. This deal was challenged in the courts, and received a scathing review from critics. A report on the details of the sale was published by the state’s Legislative Analyst’s Office (LAO). G.O. bonds are backed by the full faith and credit of the State, which has the authority to sell public assets to cover the state’s debt.

While it is not the intent to discount Brown’s assertions, critics claim it is a matter of interpretation. For example, since the mid 1990’s, more than $19 billion in G.O. bonds have been authorized for water supply reliability, safe and clean water programs, water for fish, drought relief, and habitat improvement.  Voters were assuaged to approve those bonds because they had politicians’ assurances that it would resolve the very water shortages the state is currently experiencing, since the mid-1990s.

Government records attest to the fact that California has expended vast sums of money on water development projects in the past century. The Golden State has the most developed water storage and delivery system in the United States.

In fact, it was Brown’s father, Edmund G. “Pat” Brown, Sr., who successfully launched the California State Water Project (SWP), by getting voters to approve a $1.75 billion G.O. bond,  back in November 1960, to build the Project that sold to the public on the promise it “would pay for itself.”

The concept was prefaced on the assertion that SWP water and power contractors would be obligated to repay all of the reimbursable cost for the SWP.  The record does not support that assertion.

Conversely, the data indicate that project has not, nor will it ever pay for itself. More than a half-of-century later, there is still $392.9 million in outstanding debt on the SWP $1.75 billion bonds. “Completion of the SWP is now estimated to be more than $50 billion, which does not include all of the costs.

SWP contract require that contractors pay certain annual cost even if they do not receive water; the revelation of the SWP’s economic plight surface at the end of the 1987-1992 droughts.  In 1994, Senate hearings revealed that the SWP was not paying for itself and bond syndicates were troubled about the financial integrity of the Project. Those findings and concerns were affirmed by testimony from SWP agricultural contractors asserting that they were on the verge of default. The crisis prompted the state to resort to issuing commercial paper to make good on the SWP’s financial obligations.

 Insiders contend that Proposition 1 is just another in a longstanding series of publicly subsidized bailout for SWP contractors. Governor Brown, Sr. conceded that the SWP was knowingly underfinanced and contractually over committed (“sold” more water than it could deliver), since its inception.

Whichever is the case, the final determination of the fate of Prop. 1 and 2 will be determined by the voters on November 4th. #

Note to Reader: Regarding BDCP Doomsday article

The links that have double-underlines were not included in the article, they are from some other unknown source, and should be IGNORED.

BDCP Doomsday Plan Ends Public Comment

PUBLIC SERVICE ANNOUNCEMENT  31 July 2014

Five Years in-the-making Bay Delta Conservation Plan (BDCP) public comment period closed

On July 29 the 228 day public comment-period closed on the Draft Bay Delta Conservation Plan (BDCP) and associated Draft Environmental Impact Report/Environmental Impact Statement (EIR/EIS).

Public Comments: Submitted by Patrick Porgans & Associates (P/A) on behalf of Planetary Solutionaries (PS), a nonprofit organization. Neither time nor resources permit detailed comments pertinent to the contents of the estimated $200,000,000+, 20,000-page draft BDCP and draft EIR/EIS, to do so could be construed as giving the report and the premise upon which it is being promoted a relative degree of credence; that is not the case. Rather, P/A and PS focus is on the “BIG Picture” to address the concept of the plan and the historical track-record of government’s repetitive deception as to the “real cost” of water projects, and its failures to protect the Sacramento-San Joaquin Delta and the San Francisco Bay Estuary over the course of the last century, and for its success in the destruction of other invaluable delta estuaries. Therefore, we commence by referencing BDCP’s lead-off quotations, which are the embodiment of a myriad of false assurances preface upon preconceived misconceptions espoused by the very government entities responsible for the existing and deplorable conditions of the Bay-Delta Estuary.

“The BDCP is a comprehensive conservation strategy aimed at protecting dozens of species of fish and wildlife, while permitting the reliable operation of California’s two biggest water delivery projects.

Why BDCP?

Securing California Water Supplies –

Restoring the Sacramento-San Joaquin Delta Ecosystem

Planning for the Future”[1][1] 

Comment: State and federal officials have had more than a half-of-century, and expended tens-of-billions of public funds in a failed attempt to protect and restore the Bay-Delta Estuary and to ensure the reliability of the State’s water supply.  

1957- The California Water Plan. “California is presently faced with problems of a highly critical nature --- the need for further control, protection, conservation and distribution of her most vital resource---water… Unless corrective action is taken---and taken immediately---the consequences may be disastrous.”[1][2] Source: Department of Water Resources.

2009- Gov. Schwarzenegger, “California’s Water: A Crisis We Can’t Afford to Ignore.” However, as I have already said, when a crisis is at its worst the opportunity to reform it is at is greatest and this is why we had a good shot this time, Association of California Water Agencies.”[1][3]

2010-Fifty-three years and an estimated $50 billion later -- “Right now we have the most unreliable water system we ever had in California…”[1][4] Source: Lester Snow, Director, Department of Water Resources.

2012 - Gov. Jerry Brown’s comment on the BDCP “I want to get “s**t done.[1][5]

Comment: More aptly stated; the BDCP is a comprehensive strategy which if implemented would be the final coup de gras for the last largest remaining ecosystem of its nature on the West Coast of the Americas. Keeping in mind, its predecessor, the Colorado River Delta fell prey to “Manifest Destiny," which included expansion of the West and the Bureau of Reclamation’s conquest and damming of the Colorado River Basin and in so doing destroy one of the largest Delta estuaries in the world. 

Until the early 20^th Century the Colorado River ran free from its headwaters in the Rocky Mountains of Colorado southwest into Mexico, where it flowed into the Gulf of California. Significant quantities of nourishing silt from throughout the Colorado River Basin were carried downstream, creating the vast Colorado River Delta. 

Prior to the construction of major dams along its route, the Colorado River fed one of the largest desert estuaries in the world. Spread across the northernmost end of the Gulf of California, the Colorado River delta’s vast riparian, freshwater, brackish, and tidal wetlands once covered 7,810 km² (1,930,000 acres) and supported a large population of plant, bird, and marine life. Because most of the river’s flow reached the delta at that time, its freshwater, silt, and nutrients helped create and sustain a complex system of estuarial wetlands that provided feeding and nesting grounds for birds, spawning habitat for fish and marine mammals. Today, conditions in the delta have changed. … The construction of Hoover Dam in the 1930s marked the beginning of the modern era for the Colorado River Delta. … The loss of freshwater flows to the delta over the twentieth century has reduced delta wetlands to about 5 percent of their original extent, and nonnative species have compromised the ecological health of much of what remains.[1][6] 

Comment: The “management and operation” of two of the California’s largest water projects, the State Water Project (SWP) and the federal Central Valley Project (CVP), are the primary factors contributing to the precipitous decline and demise of anadromous and pelagic species dependent on the ecological sustainability of the San Francisco Bay and Sacramento-San Joaquin Delta Estuary.[1][7]  

Collectively, the California Department of Water Resources (DWR) delegated with the “responsibility” to operate and “manage” the SWP, the federal Bureau of Reclamation “responsible” for the operation of the CVP, and the State Water Resources Control Board (State Water Board), entrusted with the authority for permitting the use and distribution of SWP and CVP water are at fault for California’s government-induced water crisis effecting the Bay-Delta Estuary.[1][8]  “Water rights are property rights, but their holders do not own the water itself. They possess the right to use it. The exercise of some water rights requires a permit or license from the State Water Resources Control Board (State Water Board), whose objective is to ensure that the State’s waters are put to the best possible use, and that the public interest is served.”  

The BDCP is an extenuation of the underfinanced and contractually overcommitted SWP, which was sold to the public in 1960 as a project that “would pay-for-itself”; i.e., the recipients of the water and power would pay.[1][9] P/A completed a series of fact-finding reports, forensic accounting of the SWP financing and repayment obligations, which served as the basis for a series of Senate hearings[1][10] that substantiated the fact that the SWP has not, nor will it ever pay for itself as promised.[1][11] Furthermore, the facts revealed that although DWR officials and Governor Edmund “Pat” Brown, Sr. assured the public the SWP would cost $1.75 billion that was never true, which former Governor Ronald Reagan acknowledge during his term in office.[1][12] The capital cost on the SWP has exceeded $6.5 billion, and there is still about $350 million in outstanding debt on the initial $1.75 billion. Although there is no definitive amount as to what it will cost to “complete” the SWP, estimates exceed $50 billion (includes principal and interest). Then, as is now, the government misinformed the public of the real cost of the SWP. (Refer to Attachment A for an overview of SWP financial and contractual shortcomings that have led up to the BDCP.)

Federal agencies reviewing draft for proposal to re-plumb the Sacramento-San Joaquin Delta call it 'insufficient,' and 'biased’ and ‘confusing.'

In what would be the biggest water supply project constructed in California in half a century, the state is proposing to build a large diversion point on the Sacramento River in the north delta and send the water through two 35-mile tunnels to aqueducts serving the San Joaquin Valley and Southern California. By adding the diversion point and restoring more than 100,000 acres of delta habitat, the south-of-the-delta urban and agricultural water contractors who have promised to pay for much of the project are hoping to get relief from environmental restrictions on their deliveries. 

The project, estimated to cost about $24 billion, must pass muster with federal fishery agencies that oversee endangered species protections for migrating salmon and the delta's imperiled native fish. … Citing one paragraph, fish and wildlife said the wording amounted to ‘unjustified advocacy’. Other comments called the document ‘difficult to read’ and cited ‘factual and analytical errors.” [1][13] 

Who will be financially Liable for Restoration Costs, Capital and, O&M?[1][14]  

In order for BDCP to receive permits as a Habitat Conservation Plan[1][15]and a Natural Communities Conservation Plan[1][16] Federal and State laws require evidence that there is assured funding for the habitat restoration component of BDCP. BDCP is assuming that Federal and State taxpayers will pay just under $4 billion for the capital costs of purchasing and restoring upwards of 145,000 acres of land.[1][17]  

Department of Water Resources Director Cowin described the estimated cost of the BDCP plan as $24.5 billion, of which $14.5 billion would be for conveyance (the tunnels). The remaining costs are for habitat and operations and maintenance costs, Cowin said.[1][18] 

Comment: An estimated $6.5 billion has been spent on Delta and Delta-related habitat and wetlands improvements, and $500 million expended on buying water for fish! Those expenditures were primarily from the issuance of General Obligation Bonds sales, which are repaid with interest from the heretofore State’s deficit-ridden General Fund. In addition, vast expenditures of public funds were used in government’s failed attempt to double anadromous fish populations that migrate through the Bay-Delta Estuary. Fish populations are worst now than at any other time in history. Expending another $10 billion on habitat improvement and taking 145,000 acres of Delta land out of production is unjustifiable. It is estimated that government already has more than 100,000 acres of Delta lands in its possession. SWP and CVP will benefit from the acquisition of those lands, as it will free up hundreds-of-thousands of acre-feet of water when those lands are no longer irrigated.  

The 35-mile twin tunnels are essentially a prototype of the Mono-Lake-North-Sacramento-Valley-siphon system capable of re-routing up to 9000 cubic feet per second from the Sacramento River flow placing the central and southern portions of the Delta to even greater risk of salt water intrusion.

In the latest episode in the sordid saga of the Bay Delta Conservation Plan "BDCP" to build the peripheral tunnels, two environmental groups revealed on June 20 [2104] that even an economist hired by BDCP officials won't sign off on the controversial project. Dr. David Sunding, an economist on the faculty of the University of California-Berkeley and a principal with The Brattle Group, said at the recent Continuing Legal Education Water Law Conference in San Diego that "given the financial uncertainties if he were a water agency, he would not sign off" on the BDCP, according to a news release "The recently released statements and documents from BDCP on the costs, and who will pay, are more of the same disingenuous statements that they have been making throughout the life of the project," said Barbara Barrigan-Parrilla, executive director of Restore the Delta (RTD). "These unsubstantiated claims show how desperate BDCP officials are to greenwash this project for the public. Documents from public record requests, and statements from their own officials and water agency officials, reveal that the project will be closer to $67 billion in today's dollars, before cost over-runs."   Independent University of the Pacific economist Dr. Jeff Michael concludes that the average water ratepayer will end up paying between $40 and $80 per person per year.[1][19]   Report of the Independent Science Board (ISB) on their review of the BDCP’s EIR/EIS – May 2014 Dr. Tracy Collier said that the ISB has eight major concerns: 1.   Many of the impact assessments hinge on overly optimistic expectations about the feasibility, effectiveness, or timing of the proposed conservation actions, especially habitat restoration: “Is the scientific basis for the analyses and for the draft EIR/EIS, is it sufficient, is it good enough to support the decisions that are going to have to be made? There are overly optimistic expectations about the feasibility, effectiveness, and timing of the mitigation measures of the conservation actions, especially habitat restoration.”  2.   The project is encumbered by uncertainties that are considered inconsistently and incompletely; modeling has not been used effectively to bracket a range of uncertainties or to explore how uncertainties may propagate: “The project has uncertainties encumbering it and one of the problems is that the level of uncertainty that is there is inconsistently applied, so some have more uncertainty, some have less, but it’s not been used,” he said. “They haven’t used modeling to effectively bracket a range of uncertainties, or how to explore how uncertainties may propagate through the system as they compound and cascade.”  3.   The potential effects of climate change and sea-level rise on the implementation and outcomes of BDCP actions are not adequately evaluated: “When we asked DWR about that, their response was that the EIR/EIS process is to look at the effect of the project on the environment, but not the effect of the environment on the project. And while that may be the legal context, that’s just a big science issue that applies to levee failures, floods, and invasive species – the effects of those actions on the project itself, we think needs to be considered.”  4. Insufficient attention is given to linkages and interactions among species, landscapes, and the proposed actions themselves: “We don’t think there’s enough attention given to that, he said.   5. The analyses largely neglect the influences of downstream effects on San Francisco Bay, levee failures, and environmental effects of increased water availability for agriculture and its environmental impacts in the San Joaquin Valley and downstream.  “In the analyses, they largely neglect the influences of downstream effects on San Francisco Bay. They don’t consider it because its outside the project area and the defined scope.  They don’t consider the effects of increased or altered water reliability on agriculture outside the region and what that might do to water quality issues, etc.”  6. Details of how adaptive management will be implemented are left to a future management team without explicit prior consideration of (a) situations where adaptive management may be inappropriate or impossible to use, (b) contingency plans in case things do not work as planned, or (c) specific thresholds for action: “The details of adaptive management and how it’s going to be implemented are just not there,” said Dr. Collier.   7. Available tools of risk assessment and decision support have not been used to assess the individual and combined risks associated with BDCP actions: “We don’t see evidence that a comprehensive risk assessment has been really applied in the system, and there’s not been the use of currently available scientific tools for decision support or how to support decision making based on technical information. There are methods for doing that and we think those could be beneficially applied to this process.”  8.   The presentation, despite clear writing and an abundance of information and analyses, makes it difficult to compare alternatives and evaluate the critical underlying assumptions. “There’s a lot of good writing and a lot of good content, but we suffered equally as well as the effects analysis panel with the inability to get to the information we needed,” he said. “… We haven’t seen any attempts to undertake some of the suggestions that we made early on in the process.”  “We think BDCP science needs to be integrated with the Delta Science Plan,” he said. “It really provides a framework for trying to effectively use adaptive management in supporting decision making and management actions, so we think that it needs to be a concerted effort, and much like in the state Water Action Plan they now say, the Delta Science Plan, we will do our best to adhere to that, we need to see that same level of commitment for BDCP.” Read more http://mavensnotebook.com/2014/06/03/reviewing-the-science-of-the-bay-delta-conservation-plan/. [P/A explained to ISB at its May 2014 meeting that the ultimate decisions on the BDCP will not be prefaced on "real science", rather as history attests, decisions will be made based on “political science.”]   ATTACHMENT A:   Excerpts from Patrick Porgans & Associates White Paper: Cracking California’s Water Code  Today’s “water crisis” got started 50 years ago in the form of a General Obligation (GO) Bond measure, authorizing the funding and construction of the California State Water Project (SWP). Unfortunately, the SWP, which was made possible by an ingenious funding scheme, has three major flaws: (1) officials willfully and knowingly misinformed the public of its true costs, [1][i] (2) contracted out more water than it could provide (in certain water-year types),[1][ii] “paper” water, a (3) it was sold under the false pretense that it would cost $1.75 billion and would “pay-for-itself”[1][iii] – it never has.[1][iv] In order to stabilize default by SWP agricultural contractors, and to keep the SWP “solvent” DWR and the contractors devised the 1994 Monterey Agreement, which, among other ingenious schemes. established a “Trust Fund” that sets aside $10 million a year, beginning in 1997, from the earned interest off of California Water Fund (obtained from the sale of publicly owned tideland oil reserves and General Fund allocations), and hundreds of millions of dollars of this same money will be distributed to SWP urban contractors to do what they want with this money. The Monterey Agreement increased the reliability of existing water supplies; providing strong financial management for the SWP; and increased water management flexibility; proving more tools for local water agencies to maximize use of existing facilities.[1][v] (Refer to page 59, Monterey Agreement Another Backdoor Agreement in the “Era of Transparency – composed behind closed doors.”)   Government Water Projects at the Crux of California’s “Water Crisis” Inundating the State in an Era of Bonded Indebtedness: Ironically, the SWP remains at the epicenter of the “crisis” that continues to cost Californians tens-of-billions of dollars of debt from the sale of GO Bond funds – bailouts. Since its inception, the SWP has been inundated with a series of unrelenting crises and the subject of decades of Legislative hearings in failed attempts to reconcile its inherent shortcomings.   As early as 1963 DWR recognized the SWP was going to be short of funds and resorted to issuing millions in revenue bonds. 1967: Governor Reagan’s Water Task Force reported SWP had a $300 million to $600 million deficiency.[1][vi] 1970: DWR appeals to Legislature for passage of Proposition 7; claimed  that if it fail to pass it would cause the shutdown of SWP construction, causing a financial disaster.[1][vii]   1985: DWR reports agricultural contractors may not be able to pay their bills.[1][viii]   1991: DWR exhausted SWP reserve funds to buy water to keep agricultural contractors solvent.[1][ix]   1993: DWR resorted to Legislature to pass urgency law to keep SWP financially afloat, issues $150 million in commercial paper notes, via Goldman Sachs, to buy water.[1][x]   2000 through 2006: more than $19.6 billion in GO water and water-related bonds were approved, [1][xi] a significant portion had been used to keep the SWP afloat - Déjà vu. The interest payments on those GO bonds cost taxpayers another $10 billion. In November 2014 voters may be asked to approve yet another $11 billion GO bond Act bailout, being promoted under the guise it will ensure the State’s water supply reliability, shore up its aging infrastructure, and restore the Bay-Delta Estuary. However, according to the Governor and other officials, those funds are only a “down Payment” or leverage for yet another $30 to $40 billion to “move forward” with other components of the project! [1][xii] “Every time we’ve had a problem in the financing of the State Water Project, we’ve tried to take action to solve the problem,…”[1][xiii] It is apparent that if this bailout cycle is not reconciled, it will continue to add to the State’s ever-increasing debt load, depletion of General Fund revenues, increase cost for State’s borrowing, adversely effecting its credit rating, which was cut to the lowest of all 50 states,[1][xiv] and jeopardized the Golden State’s once promising economic prosperity as eighth-biggest economy[1][xv] in the world.[1][xvi] Because of California’s persistent fiscal problem, bond rating agencies assigned it the lowest rating; a few notches above junk bonds. [i][xvii]   Endnotes shown in Roman numerals are available upon written request.

 

Note: Patrick Porgans has completed 75-Fact Finding Reports on water in the West, and contributed to Marc Reisner's book, entitled Cadillac Desert. Additional information can be obtained at linkedin.com/patrickporgans