Is Relying on the 2014 Water Bond To Help Fund California’s Bay Delta Conservation Plan A Good Bet?


Rising debt burdens in California is a “headwind” for voter-approved water bonds.  Given the crowd I roll with, this is conventional wisdom.  I find unconvincing Department of Water Resources (“DWR”) discussion of bond funding for the conservation and restoration part of the BDCP.  DWR simply believes that California voters pass water bonds by large majorities.

How does one choose between these two world views?  Simply look at the very history of California water bonds found in DWR materials!

Based on the history of water bonds, the 2014 water bond has about 7-1 odds against passing.  A smaller water bond would do better, but are not close to an even money bet.  Time to seek counsel from a former Carmel mayor.  Do you feel lucky . . .?

BDCP Funding Plan

The BDCP plans estimated spending of $7.3 billion on natural community protection management, natural community restoration and other stressors conservation (table below based on Table B-41, Chapter 8).  Of this amount, $3.4 billion (47%) would be funded by $1.514 billion of the proceeds from the 2014 water bond and a second water bond of $1.9 billion issued later.  This bond financing is especially important for Natural Community Restoration (where bonds are planned to provide 59.0% of financing) and Other Stressors Conservation (where bonds are planned to provide 43.7% of financing).

Bond Funding by BDCP Plan Component for Environmental Objectives ($millions)

Natural Community Protection   Management

Natural Community Restoration

Other Stressors Conservation


2014 Water Bond

 Delta Sustainability




 Conservation & Watershed Protection





Second Water Bond




Total Bond Funded





Total Category





Share of Total






DWR presents a table of water bonds passed by voters since 1960 (see below for bonds with reported vote shares).  DWR states: “based on this history, subsequent water bonds that would partly fund the BDCP are likely to occur during the permit period.”  Putting aside (for a moment) DWR’s selective history (I seem to recall something called the Peripheral Canal rejected by the voters during this time period—more on this in a later post), DWR’s incomplete analysis of their chosen history is not at all comforting.

DWR’s Sample of Past General Obligation Water Bonds in California

Water Bond

Year Passed

Amount (Billion)

Voter Approval

Proposition 84




Proposition 1E




Proposition 50




Proposition 13




Proposition 204




Proposition 81




Proposition 44




Proposition 55




Proposition 25




Proposition 28

              1984              $0.075


Examining the Voting History on Water Bonds

Let’s put voter-approval of water bonds within the context of California’s state debt burden since 1984—the first year DWR’s water bond table reports vote percentages for water bonds.  California’s state debt outstanding stood at $2.8 billion, only 0.6% of personal income (a ratio measuring state debt burden).  Since then, California has been on a well-recognized debt spree.  By 2013, California’s state debt outstanding has reached $74.5 billion.  The state debt outstanding as a share of state personal income now exceeds 4%.

 CA State Debt

What does this have to do with voter-approval of water bonds?  A lot.  Note the declining trend in the vote-share in support of water bonds in DWR’s table.  In the 1980s, water bonds received vote shares in the mid-70%.  The sole bond in the 1990s received a 63% favorable vote share.  In the 21st century, vote shares in favor of water bonds bounced between mid-60% and mid-50%.

The history cited by DWR shows that voter-support for water bonds dwindles in the face of rising state debt burdens (see chart).  The level of the state debt burden (plotted against the horizontal axis) explains about 80% of the variation in the share of votes cast in support of water bonds (plotted against the vertical axis).

Water Bond Vote

Take away, voters do indeed support water bonds, but less so as the state debt burden in California grows. 

Forecast of 2014 Water Bond

This history is not good news for the 2014 water bond.  The last water bond was voted on in 2006, when state debt outstanding was $37 billion and represented only 2.5% of state personal income.  Now, state debt outstanding is $74.4 billion (doubled!).  In 2012, the debt burden ratio stood at 4.2% (the debt ratio did not double thanks to growth in state personal income).  An understated conclusion:

the political environment for the 2014 water bond will be significantly less favorable than 2006

Assuming that the state’s debt outstanding increases by only $1 billion before the 2014 election, the 2014 water bond ($11.4 billion) will propose to increase state debt outstanding by 15%.  Assuming strong growth in state personal income up to the 2014 election (5.2% annual growth rate), the debt ratio at the time of the 2014 election would be at 4.5%.  Using the statistical model explaining the water bond vote share by the state debt burden, the anticipated outcome for the 2014 water bond is dismal:

Expected Vote Share in Favor of 2014 Water Bond:  42.4%

Probability of 2014 Water Bond Securing Voter-Approval: 12.2%

Odds Against Passage: 7/1

Why does the expected vote share in favor of only 42.4% still yield a small chance (12.2%) of passing?  Because there is statistical variability in the forecasted expected vote share.

(Note to Statwonks: I am extrapolating the prediction outside the data sample used for estimating the model.  The calculation of forecast error takes this into account.)

Smaller water bonds will face better prospects (see table).  However, given the size of California’s state debt outstanding, electoral prospects for even smaller water bonds do not look bright.

Electoral Prospects of 2014 Water Bond by Bond Size

Size of 2014 Water Bond

Expected Vote Share

Probability of Passage

Odds Against Passage






















Is This Time Different?

Is there a conflict between two “wise” sayings?  Those who don’t understand history are destined to repeat it.  On the other hand, past may not be prelude to the future.

The latter is the foundation of the big “political bet” being wagered on the 2014 water bond.  The water bond must be sold as a “once in a generation” opportunity to solve the conflict between ecosystem values and water supply reliability.  The benefits must be obvious, widespread and substantial relative to project costs and risks.  Otherwise, the headwinds of rising debt burdens will leave the ecosystem part of the BDCP substantially underfunded.

This leaves the ecosystem part of the BDCP an electoral gamble.  In that the BDCP contemplates a series of debt issues over the term of the take permit, ecosystem programs may will face decreasing odds of success over time if California’s debt spree continues.  Subsequent bond initiatives will face diminishing prospects of success.

Where does this leave environmental interests?  Assuming the BDCP water facility starts on schedule (in 2015), funding of ecosystem activities will stay “on the come”.  Will a BDCP remind environmentalists of Salton Sea “restoration” after the Quantification Settlement Agreement?

Review and Update on BCDP Series

As I mentioned in my first post, this review of BDCP materials is akin to a due diligence exercise for a hypothetical client. I’m reviewing DWR materials and the excellent meeting notes on Mavensnotebook.   I take the perspective that the “DWR team” is in a conference room “pitching their deal.”  It is lunchtime and time for a break.  We had a full morning.

We found:

  • BDCP water facility capital costs: understated by $2 billion
  • Annual Cost of Water: $600/AF to $900/AF inflation-adjusted (range depends on underlying project risks)
  • Project Risk Assessment: weak
  • Finance Plan: MIA
  • Funding of Ecosystem values: a big political bet on salesmanship overcoming the significant headwinds of rising state debt burdens

As we are off to lunch, my client asks about our afternoon.  Key topics ahead:

  • Water supply benefits
  • Contract structure for state and federal contractors
  • Economic benefits
  • Statewide economic benefits
  • Wrap Up on Economics and Politics of the BDCP
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About Rodney T. Smith

Rodney T. Smith, Ph.D., President of Stratecon Inc.—an economics and strategic planning consulting firm—advises public and private sector water users on the acquisition, sale and leasing of water rights and water supplies in the western U.S. He is routinely involved in economic valuation of water rights, water investments, and negotiation of water acquisition and transportation agreements and has served as an expert witness in the economic valuation of groundwater resources, disputes over the economic interpretation of water contracts, economics of water conservation and water use practices, and the socio-economic impacts of land fallowing. For more information, see