PPIC Report Looks at Water System Risks, Actions to Protect Economy

California has the tools to cope with periodic water shortages but its economy is vulnerable to catastrophic supply interruptions and long-term water uncertainty, according to a new report by the Public Policy Institute of California.

In a new analysis of the role water plays in California’s economy, economy, the PPIC found that the state can continue to grow and prosper despite tightening water supplies. But a number of risk factors must be addressed to make the state more resilient and support California’s economic vitality.

The report, titled “Water and the California Economy,” outlines several “red flags” raised by the state’s water system and recommends priority actions to reduce risks and improve water management decisions.

“Contrary to conventional wisdom, the primary concern at the statewide level is not periodic drought or even long-term term declines in water availability from climate change,” the report said. “Although these events present major challenges, California has the tools to manage them cost-effectively. Of greater concern is the state’s economic vulnerability to catastrophic supply interruptions and long-term unreliability of supplies. Declining conditions of groundwater basins and catastrophic flooding are also a concern for some regional economies.”

Many parts of the water system, the Sacramento-San Joaquin River Delta in particular – are vulnerable to earthquakes. The Delta is also the largest single source of unreliability in California, with environmental restrictions to protect species and the threat of levee failure making long-term supplies uncertain.

The report noted that California’s economy is becoming less reliant on large volumes of water as a production input. Over the past four decades, per capita water use has been cut in half, while real per capita economic activity (GDP) has doubled. Each unit of water now generates four timed more economic value than it did in 1967, according to the report.

But growing uncertainty about long-term water supplies, particularly water that is conveyed through the Delta, has the potential to limit future businesses investments as well as residential growth, the report said.

 “There is little evidence that California has lost businesses in the past because of water supply shortages, in large part because local and regional water agencies have done a good job of mitigating shortages. California has faced very little development pressure since the onset of the recession and the collapse of the real estate market in late 2007,” the report said. “But questions regarding the adequacy of long-term supplies will resurface when growth resumes, particularly in parts of the San Francisco Bay Area and Southern California that depend on unreliable Delta exports.”

Steps must be taken now to reduce supply risks in the short term and into the future, the report said. “In the near term, efforts are needed to build more resiliency into the system to reduce the costs of a catastrophic supply disruption. For the longer term, it is essential to make a decision about new conveyance,” the report said.

Though new conveyance – including options under study by the Bay Delta Conservation Plan – would provide more reliable, higher quality water from the Delta, some water users may find it too costly, according to the report. “High-level state leadership will be essential to broker any new conveyance deal, because the various stakeholders are having difficulty finding common ground.”

To ensure that water does not become a drag on the economy, California must move beyond its business-as-usual water management practices, the report said. To reduce risk and improve the flexibility and effectiveness of water management decisions, the report recommends seven priority actions:

  • Modernize water measurement and pricing with better estimates of water use and prices that reflect water’s economic value.
  • Strengthen water markets by clarifying and streamlining the approval process for the sale and lease of water rights and addressing infrastructure gaps.
  • Improve local groundwater management to facilitate groundwater banking and reduce overdraft.
  • Reduce exposure to catastrophic flood risk by targeting flood protection dollars and making better land use decisions.
  • Improve environmental management through more integrated, coordinated, and accountable approaches.
  • Develop more reliable funding, especially for environmental management, flood pro­tection, and statewide data collection and analysis.

Many of these changes will require proactive leadership at the state level, the report said. The business community must also play a larger role.

“The time has come for business leaders to join with others in promoting water reform in California,” the report concluded. “Water problems need not limit our economic growth and prosperity; if they do, we have only ourselves to blame.”

In a statement, ACWA Executive Director Timothy Quinn said that many of the report's recommended actions are consistent with ACWA's policy principles and will go a long way toward reducing risks and improving water management decisions.

"We agree that it will take proactive leadership at all levels to end years of inaction on the tough issues and make sure California has the water system it needs for its residents, its economy and its environment in the future," Quinn said. 

The PPIC report and related materials can be found here.

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