This benefit - cost analysis of the California Water Fix project was produced by Dr. David Sunding with the Brattle Group and a consultant to the Natural Resources Agency, a proponent of the project.

There are two basic questions with respect to the economics of the Cal Water Fix.  First, is the project affordable?  That is, do the water users who would pay for the construction and operation of the tunnels have the ability to repay the associated debt and operating costs?  Second, does investment in the Cal Water Fix generate benefits to water users that are greater than the costs?  This is the classic benefit-cost question, and it is often a more exacting test than ability to pay.

The purpose of this report is to examine the relative direct benefits and costs of the Water Fix, and to outline some of the major indirect economic effects of implementing the program.  The benefits of the tunnel are analyzed with respect to a no-tunnel baseline with the same operating criteria as the Water Fix.

As requested by the Joint Legislative Audit Committee, the California State Auditor presents this audit report concerning the Department of Water Resources’ (DWR) management of the planning efforts for the California WaterFix Project (WaterFix). WaterFix is intended to address environmental and water supply reliability issues related to pumping water from the Sacramento?San Joaquin Delta (the Delta). Planning began in 2006 on the development of the Bay Delta Conservation Plan (BDCP), which consisted of several measures or activities for restoring the Delta and improving water reliability. Subsequently, in 2008 DWR initiated the Delta Habitat Conservation and Conveyance Program (conservation and conveyance program) to evaluate how to implement the BDCP and alternatives to it, including evaluating the environmental impacts and completing preliminary engineering work. Through the evaluation effort, DWR identified one of the alternatives—WaterFix—as its preferred approach. This report concludes that the planning phase experienced significant cost increases and schedule delays because of the scale and unexpected complexity of the project. For example, costs of the conservation and conveyance program’s efforts to evaluate and plan for the potential implementation of the BDCP and its alternatives, which eventually included WaterFix, increased significantly. As of June 2017, the planning costs had reached $280 million.

We also found that DWR did not follow state law when it replaced the program manager for the conservation and conveyance program. Specifically, DWR selected the Hallmark Group (Hallmark) to provide program management services without advertising a request for qualifications, and DWR could not demonstrate that it ever evaluated Hallmark’s qualifications for this role. The cost of DWR’s current contract with Hallmark has tripled from $4.1 million to $13.8 million.  Additionally, DWR has not completed either an economic or financial analysis to demonstrate the financial viability of WaterFix. Finally, it has not fully implemented a governance structure for the design and construction phase, and has not maintained important program management documents for WaterFix.