Why Westlands Water District's New Contract is All Wet
Soaking Uncle Sam
Why Westlands Water District's New Contract is All Wet
Courtesy of U.S. taxpayers, a few hundred farms in Fresno and Kings counties annually get enough water to supply every household in Los Angeles, at pennies on the dollar of the price paid by urban water users. Now they're about to gain control of still more — even though they will need less in the future.
The farms are in the Westlands Water District, which is about to sign a contract with the U.S. Bureau of Reclamation that will set the price and amount of water the district gets from the Central Valley Project (CVP) for the next 25 years, with virtually automatic renewal for another 25 years.  If Westlands gets its way, it will control more water than the households of Los Angeles, San Francisco, San Diego, Riverside and San Bernardino combined use in a year.
Under the current contract, a computer investigation by Environmental Working Group (EWG) calculated the value of Westlands' federal water subsidy at $110 million a year in 2002.  The new contract will result in an increase in the price Westlands will pay for each acre-foot of water, but the vast amount of new water the district stands to receive will boost the value of the subsidy by tens of millions of dollars a year. Meanwhile, a third or more of the district's land is in such poor condition that to continue farming it, taxpayers will also have to pay for a drainage system the government says will cost at least $589 million to build and $11 million per year to run.  At the current value of the annual water subsidy, plus millions each year in federal crop subsidies, taxpayer-financed benefits to Westlands will total billions of dollars over the life of the contract.
EWG's analysis shows that the proposed new contract is a bad deal for taxpayers; for urban water users; for statewide water planners; for low-income Valley communities that lack adequate supplies of clean, affordable drinking water; and for fish and wildlife in the San Francisco Bay-Delta and rivers that Westlands' water comes from. It is, however, a very good deal for Westlands, cementing its position for decades to come as the dominant force in California water politics.
Over the life of the contract, its terms will affect the supply and cost of water throughout California. The public comment period for the proposed contract ends Sept. 15, but there's been little critical scrutiny of a deal that would lock up a huge amount of California's most precious resource for 50 years:
- Nowhere in the contract does it say what price Westlands will pay for CVP water in 2006 and beyond. Instead, the Bureau of Reclamation says it will adjust the rate — up or down — from year to year. This year, Westlands' base rate is $31.63 per acre-foot, less than one-fifth the water's market value. †1 With future prices a mystery, the contract cannot guarantee that Westlands will, as required by law, pay off by 2030 the $386 million it owes the government as its share of the cost of building the CVP, the largest federal irrigation system in the nation.
- The contract promises Westlands 1.15 million acre-feet of water a year, with the fine print adding another 38,490 acre-feet a year that may come from other irrigation districts through a scheme that seems designed to circumvent restrictions on water transfers. (An acre-foot is the amount of water needed to cover one acre one foot deep. The average California household uses half of an acre-foot per year.)
- Compared to the average of 755,635 acre-feet a year Westlands received from 1990 to 2003, the amount promised in the contract is an increase of more than 50 percent. Yet, in violation of federal law, none of the additional water was considered in studies of the new contract's environmental impact.
- Westlands is promised more water even though it's receiving a $107 million buyout from taxpayers in exchange for removing from cultivation 34,000 acres with severe drainage problems. To solve the drainage problem, the Bureau of Reclamation is considering taking out of production up to 298,000 acres — about half of the district — but the contract implies that Westlands would get to keep its full current water allotment no matter how much more land is retired.
Careful examination of Westlands' new contract is critical given what's at stake. In terms of both size and water use, Westlands is by far the largest of the roughly 100 CVP water districts. Almost all are signing new contracts this year, but because Westlands gets about one-fourth of all the irrigation water delivered by the CVP — more than five times as much as the next largest district — its contract will affect the supply and price of water throughout the state for the next half-century.  With the district's water subsidy conservatively estimated at $110 million a year, taxpayers have a right to know what they're getting for their money.
†1 Based on state and federal studies of the cost of irrigation water from a proposed new dam on the San Joaquin River, which is projected to be at least $170.42 per acre-foot. This cost estimate is highly conservative since it excludes the costs for road construction, relocations of existing facilities, environmental mitigation, land acquisition, reservoir cleaning, and interest during and after construction.
Under Westlands' old contract, the district's base water rate depended on whether the land being irrigated was in "Area 1" or "Area 2." Farmers in the first area got their water at an incredibly low fixed rate of $8 per acre-foot while farmers in the second area paid a higher, adjustable water rate, which amounted to $27.57 an acre-foot in 2002 and $31.63 in 2005.  Under Westlands' new contract, the geographical distinction will be erased and all of the district's farmers will be paying the higher, adjustable rate. 
Any increase in price brings the amount paid for the water closer to market rate and eases the burden on taxpayers, but given the serious waste, inequity and fraud in the CVP, this is a token "reform." It may seem like a considerable increase, especially for some irrigators, but compared to the water's market value, it's still small change — equivalent to raising the sale price of beef that retails for $10 a pound from 47 cents to $2.00, reducing the discount from about 95 percent to 80 percent.
According to the Bureau's figures, if irrigators were to pay operation and maintenance charges, make payments towards capital costs, and pay interest on these costs (calculated from 1982 as specified by federal law), Westlands farmers would have paid $51.75 per acre-foot for their water in 2002 and would be paying $55.20 per acre-foot in 2005 — almost twice the contract rate. †2 
But even this so-called "full cost" rate is highly subsidized. It does not take into consideration pre-1982 interest on construction costs. Nor does the Bureau's "full cost" rate reflect the fact that this price includes a power subsidy. Pumping water to Westlands consumes an incredible amount of energy — about 94 million kilowatt-hours in 1999, according to the district's documents.  Much of these energy costs are rolled into the Bureau's water rates, but the price the agency charges irrigators for energy usage is far below market rate. [2,6]
To get a better picture of what the water is really worth, consider what the state has been paying for water to put into the Environmental Water Account (EWA), which is used to restore fish and wildlife habitat in the Bay-Delta. Operated by the state since 2000 as part of a larger program to restore ecosystem health, the EWA buys water from willing sellers (mostly irrigation water users) within the CVP and State Water Project at market rates. In 2002-2003, the EWA paid an average of $129.48 per acre-foot for water.  If Westlands farmers had to pay this price for water plus pay off their capital costs, their water rates would be nearly $150 an acre-foot.
A new supply of irrigation water, as proposed by the Bureau and advocated by irrigators, would be even more expensive. Studies by the Bureau and the state for new or expanded dams on the San Joaquin River project that irrigation water from the newly created reservoirs would cost at least $170.42 per acre-foot — probably a lot more.  This cost estimate is highly conservative since it excludes the costs for road construction, relocation of existing facilities, environmental mitigation, land acquisition, reservoir cleaning, and interest during and after construction. 
Using these three different rates — "full cost," EWA and new supplies — as measures of the water's value and comparing what Westlands actually paid for its water in 2002, EWG calculated the value of the district's water subsidy that year. Depending on which market value is used in the calculations, EWG subsidy estimates ranged from $24 million to $110 million — all of which went to just 422 farms.  Compared to other published estimates, EWG's calculations are conservative: Dr. David Sunding, a prominent UC Berkeley economist, testified before the House Subcommittee on Water and Power in 2001 that "the present value of the [water] subsidy to Westlands alone is nearly $1 million per farmer." 
With such low prices being charged to Westlands irrigators, an important question remains unanswered: Will the district be able to pay the federal government what it still owes for CVP construction costs by the 2030 deadline? As of September 2003, the district had only paid back $56 million of its $442 million debt. The new contract says that rates may be adjusted in the future — up or down. 
On August 30 — just two weeks before the contract's public comment deadline — the Bureau announced that its rate-setting policies would change for 2006 †3. Although the full details of these changes have not been made public, they could increase Westlands' rates another $3 or $4 an acre-foot. The contract is really a pig in a poke — the annual rate-setting documents project how much water will actually be delivered and the price paid. The agency can adjust water rates as it sees fit without public comment or involvement.
The fact is that taxpayers have no guarantee that the Bureau will actually set prices in the future high enough to require Westlands to pay off its multi-million dollar debt. The proposed contract mentions the debt repayment just once, and refers to it only as a "goal."  The Bureau can change its accounting methods to show that the districts are paying off their debts, but since they are getting cheap water, power subsidies and not paying interest, the meter of costs to the taxpayers is still running all the time.
Westlands Water District contains some of the largest and most subsidy-rich agribusinesses in California and the nation. Of the nine farms that used the most CVP water in 2002, all are wholly or partly contained within Westlands. No less than 15 Westlands farms received water subsidies worth at least $1 million in 2002. 
Table: Top 15 farms in Westlands.
|Farm Name||Estimated amount of WWD water purchased in 2002 (acre-feet)||Subsidy calculated at|
|Federal "full cost" rate||State Environmental Water Account rate||Replacement water rate|
|WOOLF ENTERPRISES||29,223||$38,000 to 710,000||$2.3-3 million||$3.5-4.2 million|
|DRESICK FARMS INC||18,812||$30,000 to 450,000||$1.5 million||$2.3 million|
|VAQUERO FARMS||17,083||$38,000 to 410,000||$1.4 million||$2.1 million|
|S & S RANCH||16,217||$29,000 to 390,000||$1.3 million||$2.0 million|
|HARRIS FARMS||15,158||$36,000 to 370,000||$1.2 million||$1.8 million|
|BURFORD RANCH||14,757||$28,000 to 360,000||$1.2 million||$1.8 million|
|MURRIETA WESTLAND TRUST||14,202||$39,000 to 340,000||$1.1 million||$1.7 million|
|TANIMURA & ANTLE||12,910||$29,000 to 310,000||$1.0 million||$1.6 million|
|O'NEILL FARMING ENTERPRISES||12,543||$36,000 to 300,000||$1.0 million||$1.5 million|
|WESTSIDE HARVESTING L P (NORTH)||11,239||$37,000 to 270,000||$910,000 to 1,100,000||$1.4 million|
|STONE LAND COMPANY||10,794||$34,000 to 260,000||$870,000 to 1,100,000||$1.3 million|
|ANDERSON, DICK & SONS FARMING||9,561||$33,000 to 230,000||$780,000 to 970,000||$1.2 million|
|BORBA BROTHERS FARMS||8,844||$39,000 to 210,000||$730,000 to 900,000||$1.1 million|
|TERRA LINDA FARMS II||8,660||$34,000 to 210,000||$710,000 to 880,000||$1.1 million|
|WESTSIDE HARVESTING L.P.||8,583||$38,000 to 210,000||$700,000 to 870,000||$1.1 million|
But some Westlands farmers are getting a double helping of government subsidies. These "double dippers" not only get federal irrigation water delivered at cut-rate prices, they then turn around and get cash payments from the government for growing subsidized crops they have irrigated with highly subsidized water. Matching up names and addresses in our crop and water subsidy databases, EWG found that 37 percent of farms in Westlands were double dipping in 2002, with crop subsidy payments alone averaging $144,345 per farm. Overall, these 156 farms got crop subsidy checks together worth $22.5 million in 2002. 
†2 The 1982 Reclamation Reform Act requires farmers who irrigate more than 960 acres of land to pay this rate for water they use on each acre over the 960-acre limit. It is well known, however, that many farmers break up their land holdings into trusts and other arrangements to get around paying these higher prices for water. The 1992 Central Valley Improvement Act also requires CVP contractors — in theory — to pay higher prices for their water. According to the tiered pricing structure outlined in the Improvement Act, the first 80 percent of a contractor's water allotment is paid at the contract price, the next 10 percent is paid at the average of the contract and the Bureau's "full cost" price, and the last 10 percent is paid at the "full cost" price. The revenues from this tiered pricing are supposed to go into a habitat restoration fund of up to $50 million annually. Unfortunately, because CVP water is over-allocated, most contractors don't receive more than 80 percent of their allotted amount in a given year, meaning that in practice the tiered pricing structure falls short of its promise.
†3 The following note was posted on the US Bureau of Reclamation website on August 30th, 2005: "Effective in the 2006 CVP Irrigation and M&I water rates, Reclamation is fine-tuning the base (projected water deliveries) utilized in the capital and deficit rate calculation process to reflect paid for project water. The following sample schedules show what the 2005 CVP water rates would have been utilizing this change." See: http://www.usbr.gov/mp/cvpwaterrates/
At first glance, the amount of water promised Westlands in the new contract is unchanged — 1.15 million acre-feet a year. But a footnote in the contract says: "This amount may increase before this Contract is executed due to contract assignments. The expected maximum increase in the Contract total is 38,490 acre-feet."  Compared to Westlands' current use, this may not seem like much. But it is more water than three-fourths of CVP districts got in 2002. 
The language used to give Westlands this extra water allotment seems crafted to circumvent restrictions on water transfers. Under the 1992 Central Valley Project Improvement Act (CVPIA), all proposed water transfers must undergo thorough review and meet ten different conditions before approval  A key condition is that the transfer will have "no significant adverse effect" on the government's ability to supply water for fish and wildlife. On the other hand, the CVPIA says nothing about "contract assignments." By using the term "assignment" — which is not further defined — rather than "transfer," Westlands appears to be trying to get its extra water under the table, without having to undergo CVPIA review.
This isn't the only example of how Westlands is subverting required environmental reviews of its contract. Under the National Environmental Policy Act, the Bureau of Reclamation must assess the potential environmental impacts of the proposed CVP contracts and consider alternatives to reduce harm. The Bureau has issued a series of draft Environmental Impact Statements ostensibly fulfilling its statutory obligations. Yet in a major — and illegal — oversight, the studies did not examine the impacts of delivering full contract amounts of water. 
In a January 25, 2005 letter to the Bureau, the U.S. Environmental Protection Agency called the Bureau's environmental analysis "inadequate" because it is based on current deliveries of water, equal to only 50 to 60 percent of the amounts called for in the contracts.  In Westlands' case, this is the difference between about 750,000 acre-feet per year and 1.15 million acre-feet per year. The EPA also said the Bureau's studies failed to consider the impact of increased water deliveries on water quality — a glaring omission, given that hundreds of miles of rivers and tens of thousands of acres of wetlands and estuaries in the Central Valley are impaired by agricultural pollution. 
Disingenuously, the Bureau insists there's no change in the amount of water promised — that it is only continuing, as it has for decades, to overallocate CVP water in the contracts with no intent to actually deliver that much water. But the agency's spin is at odds with its actions. The Bureau has already made its first moves to find more water for CVP contractors.
In July 2003, the agency met with the California Department of Water Resources, Westlands water district, and several other major agricultural and urban water interests in the state. The meetings took place in Napa behind closed doors, without any representation from fish and wildlife officials, environmental advocates or other key stakeholders — a move that sparked widespread criticism and state legislative hearings. [15,16]
Nevertheless, the parties came up with a plan that will dramatically reshape California's water infrastructure. It calls for connecting the CVP to the State Water Project (a similar but much smaller irrigation system) and increasing state pumping from the fragile Bay-Delta ecosystem by 35 percent. The so-called Napa Agreement will eventually yield the CVP an estimated 95,000 more acre-feet of water each year.  Who would be the main recipient of the additional CVP water? Westlands.
Less Land, More Water
Much of the land in Westlands should never have been irrigated in the first place, for the area is plagued with highly saline soil and poor drainage. A 1990 Department of Interior report said:
"Inadequate drainage and accumulating salts have been persistent problems in parts of the [San Joaquin] valley for more than a century, making some cultivated land unusable as far back as the 1880s and 1890s. Widespread acreages of grain, first planted on the western side of the valley in the 1870s and 1880s were irrigated with water from the San Joaquin and Kings rivers. Poor natural drainage conditions, coupled with rising ground-water levels and increasing soil salinity, meant that land had to be removed from production and some farms ultimately abandoned." 
When Westlands became a CVP district in the 1960s the government was planning to construct a drainage system in the western San Joaquin Valley to make long-term farming viable. Part of this system became the San Luis Drain, a cement canal constructed during the 1970s that funneled wastewater away from thousands of acres of farmland in the area. But in 1982, scientists discovered record numbers of migratory birds emerging from their eggs with massive deformities at the Drain's terminus, Kesterson National Wildlife Refuge in Merced County. Baby birds were found with grossly misshapen beaks, twisted legs, missing wings, and incompletely formed skulls. More than 1,000 waterfowl eventually died. 
Much of the soils in the western San Joaquin Valley are loaded with selenium, a usually benign trace element that can be deadly to wildlife and humans in high concentrations. The San Luis Drain transported the compound to Kesterson, where it concentrated in the shallow waters and aquatic vegetation, poisoning the birds and wildlife that lived there. To avoid further ecological destruction, officials closed the Drain in 1985. But they never figured out what to do about the drainage problem.
Looking back, Floyd Dominy, head of the Bureau of Reclamation from 1959 to 1969, called the decision to add Westlands to the CVP "a terrible mistake:"
"We went ahead with the Westlands project before we solved the drainage problem. We thought we knew how to solve the drainage problem. We thought the Kesterson Reservoir could be flushed on out into the Delta. We didn't have it solidified. So I made a terrible mistake by going ahead with Westlands at the time we did." 
According to Bureau of Reclamation figures, 379,000 acres in the San Joaquin Valley — including 298,000 acres in Westlands — need drainage.  In 2002, the Bush administration promised Westlands $107 million in exchange for permanently retiring 34,000 acres of impaired farmland.  The Bureau is currently evaluating various alternatives as to what to do about the remaining hundreds of thousand of acres. Although none of the proposed options involve retiring all of the problem land, many of the options involve substantial additional land retirement. 
In other words, Westlands will soon need less water than it is using today since it will have fewer acres of land to irrigate. But this fact isn't reflected in Westland's official "water needs assessment" used in the contract renewal process to document why the district would need 1.15-—plus million acre-feet of water for the next 25 years.  To the contrary, Westlands' "needs assessment" actually claims that it will be irrigating 50,000 more acres in 2025 than it was in 1999.
More troubling is that Westlands is poised to keep its full CVP water allotment, even if its acreage gets slashed almost in half. Part of the Bush Administration's deal to retire 34,000 acres was that the district would get to keep the water now flowing to these farms. Likewise, Westlands' new contract says basically nothing about the likely future land retirement or how this would affect water deliveries. The contract states only that "adequate drainage service is required to maintain agricultural production within certain areas" and the Bureau intends to "develop and implement effective solutions to drainage problems."  This omission seems to imply that future land retirement would not affect the amount of CVP water flowing to Westlands.
What if Westlands does end up with its same hefty water allotment but only a fraction of its land? The district will obviously have more water than it could use, putting it in a position to sell its surplus to thirsty Southern California cities. Rep. George Miller of California, the leading CVP watchdog in Congress, says the deliberate over-allocation of water in the contracts amounts to an "annuity" for farmers who plan to resell their water. 
As proposed, Westlands' new contract is a deal California simply can't afford:
- No planner would think of giving a green light to a development the size of San Diego, San Francisco, Riverside and San Bernardino combined if the source of its water supply was unclear. But that's what the Bureau of Reclamation is doing with Westlands' new contract. The contract must reconcile the amount of water that can be provided with the amount being promised.
- By locking in more than 1 million acre-feet a year for up to 50 years, the contract makes it impossible for the state to plan wisely and fairly for the future water needs of California, where the next drought is always just a matter of time.
- California's fish and wildlife need more water. The San Francisco Bay-Delta ecosystem is on the verge of collapse. Last fall the populations of many species considered to be indicators of ecosystem health — including the endangered Delta smelt, young striped bass, threadfin shad, and copepods — fell to some of the lowest levels ever recorded.  Forty miles of the San Joaquin River, once home to a thriving salmon fishery, have been completely dry for the last 50 years since the construction of the Friant Dam.  Today, more than half of Trinity River flows are diverted for agricultural use and fish populations have been reduced by 60 to 80 percent.  These are three major sources of Westlands' irrigation water.
- While Westlands is awash in hundreds of thousands of acre-feet of water, some small, low-income, primarily Latino communities in the Valley lack clean and affordable drinking water. Alpaugh, in Tulare County, is dependent on trucked-in donations of water. In nearby Lindsay, residents must sign affidavits that they will use bottled water for drinking and cooking, because their tap water is contaminated with nitrates from fertilizers and runoff from pesticides. Raisin City, in rural Fresno County, lacks its own water and sewage system, and tests of residents' wells found every one contaminated with levels of pesticides, bacteria, nitrates and radioactive material above state health standards. 
As Westlands and the Bureau of Reclamation are quick to point out, the CVP is the lifeblood of San Joaquin Valley agriculture, which is the region's economic mainstay. But no one is saying that Westlands and other CVP farmers should stop receiving water, or that it shouldn't be subsidized — only that they pay more of their fair share, pay back their debt to the taxpayers, and use water wisely and sparingly, leaving enough to support fish, recreation and other needs. To ensure that California's future water needs are met wisely and fairly, members of California's congressional delegation, Gov. Schwarzenegger and other state and local officials must demand that the Westlands contract be reopened for further negotiation.
About this Report
Principal author: Renee Sharp and Simona Carini
Editor: Bill Walker
Databases: Chris Campbell and Sean Gray
Graphics and web design: T.C. Greenleaf
Thanks to Ken Cook and Richard Wiles of EWG, Hal Candee, Lloyd Carter, Byron Leydecker, Ben Miller, David Nesmith, and Tom Stokely for their ongoing help with this work.
This report was made possible by grants from George A. Miller and the Panta Rhea Foundation. The authors and editor are responsible for any errors.
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