By JOHN A. BOHN
The media repeatedly tells us that California has major problems – an unbalanced budget, a stagnant economy, a depressed housing market, and an unreliable water supply. Yet, the state is home to the world’s ninth-largest economy and, with a progressive culture of hope and promise, remains an attractive place to live and work.
California’s success is dependent on reliable infrastructure and the availability of water. The state cannot ignore failing water infrastructure or avoid making investments that can provide transcendent benefits for the economy and future generations.
We have traditionally relied on public funds to address these water needs. However, there is doubt as to whether a bond measure for that purpose can make the November ballot and skepticism as to whether voters would approve it. A bond might provide a strong first step, but California’s current debt profile and the absence of foreseeable federal subsidies suggest that our water needs cannot be met without the private sector.
There is abundant private capital that could help pave the way. However, a stigma follows private-sector involvement in water services. This role is often opposed because it is equated with a perceived loss of control and fears that the profit motive is incompatible with the provision of essential services.
Public-private partnerships are another option. That is, the notion that the private sector may invest in traditional public services at an adequate return without actually privatizing the enterprise. A public-private partnership model for water infrastructure presents a structure for encouraging private-sector investments while retaining public regulatory ownership and control.
A Southern California water supply project proposed for the Mojave Desert looks like a smart example of what can be achieved through public-private partnership. The Cadiz Valley Water Conservation, Recovery and Storage Project proposes to manage the groundwater basin beneath a substantial private property currently used for agriculture and provide a new municipal supply to water agencies throughout the region. The project would reduce southern California’s dependence on supplies from the troubled Sacramento-San Joaquin Bay Delta and enhance local water supply reliability.
The project is being proposed by Cadiz Inc., a publicly held California company with private investors. It has devoted more than $75 million to the project. Cadiz has said that it plans to rely upon customary project financing arrangements supported by private capital. This is a traditional model relied upon by infrastructure projects around the world. It can work in California, too.
The project is currently immersed in a public permitting process guided by California environmental law and led by public agencies. The reports produced as part of this process demonstrate that there are no significant environmental impacts attributable to the project. A monitoring plan, enforced by county government, would ensure safe operation of the project.
As this project weaves its way through the important transparent public review, some continue to criticize the private sector’s role in water. Some environmentalists have expressed concerns about the effect the project could have on some desert animals, and some residents of the area worry about potential depletion of the aquifer where they get their water. But critics fail to appreciate the difference between investment and privatization. This project is not a privatization of water. It represents a shift of the risk of project development from the public sector to the private sector, where it belongs.
Instead of rebuking the private sector’s investment in the heavily regulated water industry, Californians should embrace the opportunity. Such positive examples are what the state needs to head back in a workable direction and really show the world how it’s done.
John A. Bohn has an extensive career in the public and private sectors including a 6-year term as a Commissioner of the California Public Utilities Commission (2004-2010), a term as US Ambassador to the Export Import-Bank (1984 – 88), and service as CEO and President of Moody’s Investor Service (1989-96). Mr. Bohn is currently Chairman of Globalnet Venture Partners and serves on the Board of SouthWest Water Company, a municipal utilities provider that owns Suburban Water systems, a Cadiz Project participant.