Money could boost distribution, but cost farmers
By WES SANDER
A San Joaquin Valley lawyer says hundreds of millions of dollars are waiting to be invested in California's water infrastructure.
But there's a tradeoff: The investors putting up the cash want a piece of agriculture's available supplies, which they could sell to urban users for high prices.
Despite the loss of the water, such investment could make supplemental water more affordable, and therefore accessible to more farmers, said Gary Sawyers of Sawyers & Holland, a San Joaquin Valley firm that serves mostly agricultural clients.
"There are folks who would love to invest in California water infrastructure if we choose to accept it," Sawyers told the State Board of Food and Agriculture at a Sept. 22 meeting.
Sawyers recently spoke with 10-15 fund managers in New York, and is aware of up to $500 million ready to be invested in a California water project promising a decent return.
That means state and federal managers need to smooth out the kinks in their regulatory processes, including the unpredictable allocations and species protections of the past few years, Sawyers said. But the biggest question is whether water interests can learn to live with the concept, he said.
"Can agriculture tolerate the idea of selling water in the marketplace?" Sawyers said. It's an idea "that would have gotten me shot in a lot of rooms just a few years ago."
Resistance comes from environmentalists who decry the concept of privatizing water, saying it can only be equitably distributed as a public resource. Farmers, meanwhile, fear any loss of water allocated to agriculture.
It's an age-old concern in the state, where fights have brewed for decades over water rights. A large sale of San Joaquin Valley ag water in 2009, made by a San Francisco Bay Area-based investment group to a Southern California urban area, sent shock waves through the farming community. Such sales happen periodically, causing unrest among ag-water interests.
Even so, agriculture could benefit from further investigating the pros and cons of altering the state's water management, said Jill Willis, a water attorney with Best, Best and Krieger in California.
"I think the future potential is there," Willis said.
Private investment could make water more affordable when purchased on a supplemental basis, Sawyers said.
A farmer anticipating insufficient deliveries in the coming season can contract to purchase water transferred from another district.
Usually transfers take water from north to south, across the Sacramento-San Joaquin Delta and into the drier San Joaquin Valley. Water could also be transferred east-to-west across the valley to help the parched Westside, but conveyance capacity is limited.
Transferred water tends to be expensive, from $300 to nearly $500 per acre-foot. That puts it out of reach to all but urban districts and larger growers of high-value crops, mostly nuts and winegrapes.
Because venture capital would expand infrastructure, it would make transfers easier and less expensive, Sawyers said. Despite the loss of some water to investors, what remains could still become more affordable.
The decision that the farm community must make is whether the trade-off is worth it, Sawyers said.
"Is a percentage of something better than 100 percent of nothing?" he said.
Beyond infrastructure, investors would need the regulatory stability that valley farmers have said is a top requirement in the wake of drought conditions and Delta species protections that grew in the past three years.
That means accomplishing the reform that water interests, water managers and politicians have been pursuing, through sweeping legislation in 2009 as well as an ongoing plan by Gov. Arnold Schwarzenegger's administration to rework Delta conveyance.
Sawyers said his first-hand knowledge of the investment landscape is likely the tip of the iceberg.
There are "tens, if not hundreds, of billions of dollars out there right now that are hungry for investments in California (water) infrastructure," he said.