Posted on Sat, Jul. 14, 2012

The Modesto Irrigation District board is about to make a catastrophic mistake in signing a contract with San Francisco regarding our water rights.

The volume of water involved in the initial contract, 2,240 acre-feet, is of relatively little concern. It is a small fraction of MID's entitlement. But this contract will tie our hands on water control for 50 years and affect our ability to borrow. It will also make it impossible to avoid the 25,000 acre- foot contract in the future.

Those San Francisco lawyers aren't dumb. Hopefully we aren't, either. The contract is a huge mistake for Stanislaus County residents and cannot be rectified, once signed.

Everyone is familiar with the idea of buying insurance against unpredictable disasters. We do it for autos, for house fires and many other disasters. We can also do it for irrigation water by increasing our water rates to cover required maintenance on irrigation systems.

First, one must realize that the approximately $1.5 million per year from San Francisco for the 2,200 acre-feet of water will not be close to solving our problems. We need at least $35 million for immediate costs which are (a) required repair of a part of our irrigation system ($10 million) and (b) continued access to Don Pedro reservoir ($25 million).

San Francisco can opt out of the initial contract, so bonds cannot be sold against that proposed sale. Therefore, we must have $35 million, but San Francisco would pay only $1.5 million per year for 10 years. San Francisco doesn't begin to answer our needs.

In exchange for a contract that won't begin to fill our needs, we would agree to give San Francisco control over our potential water sales for 50 years, agree to increase charges by no more than 3 percent per year (in the late 1970s inflation exceeded 14 percent) and, worst of all, in the event of major droughts San Francisco would have first call on our water over local farmers and the city of Modesto. What a deal for San Francisco. There is an unprintable term for what happens to us.

Back to the insurance discussion. Regardless of false spin to the contrary, there is ample evidence of global warming as a fact; hence, past experience is no guide for the future. Unprecedented droughts have been occurring in the Midwest. There is no guarantee that can't happen here, in which case San Francisco wins and we lose — for 50 years!

What would the insurance to cover urgent MID irrigation needs cost? Financial experts suggest that insurance costs would be in the range of $10 to $27 per acre-foot to solve immediate problems, protect us from droughts, allow us to control our water and make inflation our friend instead of our enemy.

The cost of borrowing is at an all-time low. Unfortunately, financial mistakes in the past by MID have caused a decrease in MID's credit rating, resulting in a relatively high cost to issue bonds. The figures quoted are believed to allow for that problem, however.

Available information indicates that MID can probably borrow $35 million at 4.5 percent for 30 years or at 3 percent for 15 years. In either case the cost per acre-foot per year would be about $30, including bond-issue costs and existing charges. Note that the estimated charges assume only increased charges to farmers. Modesto residents benefit also, and hence would contribute to bond costs. (See below.)

BOND COSTS

Annual cost per acre-foot for a $35 million bond (assumes 58,000 irrigated acres assessed)

30 years at 4.5 percent: $12.20

15 years at 3 percent: $15.60

(Selling costs extra)

The statement that inflation might help involves somewhat complicated reasoning, which needs to be checked out. We would have a guaranteed borrowing cost of, let's say, 3 percent. If we treated this bond like a mortgage, which our figures assume, cash would build up in the account, which could be loaned out at higher rates when inflation occurs. That seems highly likely the way the government is printing money.

The value of farmland in the MID area is highly dependent on the availability of reliable irrigation water. To lose that reliability for a pittance from San Francisco is sheer insanity. An effort must be made to convince the MID board that the San Francisco rip-off must be rejected.

Local farmers have a marvelous deal, which they can lose if they don't face up to the fact that they have a tremendous bargain in water now and, even at $27 per acre-foot, would have a much better deal than many other valley farmers have. (See below.)

OTHER DISTRICTS' CHARGES

A comparison of charges per acre-foot of water from some irrigations districts in Stanislaus County. (Note that each district has detailed and nuanced calculations for assessing exact charges to a variety of customers. The following figures are therefore approximate, intended for comparison purposes.)

Modesto Irrigation District: $10 per acre-foot

Turlock Irrigation District: $13.50 per acre-foot

Oakdale Irrigation District: $5 per acre-foot

Del Puerto: $95 (first acre-foot)

There is tremendous variability in the ability of valley farmers to absorb an increase in water cost. This issue is a "third rail" in any discussion, yet any meaningful discussion must include that ability-to-pay factor.

All farmers are needed, and a discussion of how to handle this issue cannot be avoided. One possibility would be to relate the water costs, in part, to net profit per acre. In any case, to sell bonds, the investors must have confidence in repayment ability.

From a personal standpoint we have no ax to grind. But the Central Valley in general, and Stanislaus County in particular, are national treasures. Prime soils, ideal climate and reliable irrigation water must be protected for the long term, at all costs.

The authors have all been involved in regional water issues for decades. Kennedy is a retired hydrologist; Brizard served on the Central Valley Regional Water Quality Control Board; and Burke is a citizen-activist on water and environmental issues.

EDITOR'S NOTE: The Bee has run more community columns on the proposed water sale than on any other subject in recent history. And we know that more will be coming in. These articles are being assembled at www.modbee.com/water. The guidelines for submitting op-eds on this or other local or regional subjects are posted at www.modbee.com/opinion under the Submit op-eds tab.