Gov. Gavin Newsom last month unveiled a five-year infrastructure plan to help stimulate economic recovery in California. A significant portion of the plan includes a $4.1 billion climate and environment package, a quarter of which is aimed at transitioning the state to zero-emission vehicles.
A report by the nonpartisan Legislative Analyst’s Office finds that such green stimulus plans could help over the long term, but may not help businesses and the economy immediately recover from the impacts of the coronavirus pandemic.
“We find it unlikely that state-funded green stimulus would have large effects on overall short-term economic conditions,” the researchers wrote, recommending instead that the Legislature focus on other benefits, especially for reducing the amount of damage inflicted by climate change.
Agricultural economists, along with farm groups, have made the same argument for investing in water infrastructure as an economic stimulus.
More than 200 agricultural organizations sent letters recently to President Joe Biden and members of Congress arguing that water infrastructure projects are exactly what rural communities in the West need right now.
“Beyond longer-term impacts to the West, these infrastructure projects would also bring vital construction jobs, which will greatly benefit rural communities impacted by COVID-19 in their efforts to recover,” reads the letter to Biden. “Water infrastructure investments not only provide immediate short-term economic benefits and create jobs — vital to a nation facing massive job loss — they are the foundation that the economy will need for the foreseeable future.”
The coalition, which includes dozens of California organizations, argues policymakers in recent years have been solving water shortages by moving water away from irrigated agriculture.
“If this continues, we will see rising conflict between agricultural, rural, urban and environmental stakeholders, as well as a further decline in our national food security,” they write.
Before the coalition sent the letters, Congress passed, and then–President Donald Trump signed, a package of stimulus measures. Yet water-related provisions in that package do little to address critical aging infrastructure in the West or to resolve water conflicts between urban and rural users.
UC Berkeley Economist David Sunding
The provisions recommend funding from the Water Infrastructure Improvements for the Nation Act for a number of California water projects, such as improvements to the Sites Reservoir, Friant-Kern Canal, Delta-Mendota Canal and others.
Dennis Nuxoll, vice president of federal government affairs at the Western Growers Association, noted while one proposal to create a revolving fund for repairing aging water infrastructure is promising, no money was attached and more work remains to be done.
The California Water Commission, the body that oversees the distribution of such state and federal water infrastructure dollars, has been hosting a number of meetings and workshops to explore how the state can finance such improvements for conveyance and what economic gains may result. The commission plans to present a report of its findings to the administration by midyear.
“Infrastructure spending is some of the most potent kind of public spending,” UC Berkeley agricultural economics Professor David Sunding noted at one recent commission meeting. “It's why we talk so much about infrastructure in this country as being a good kind of public investment.”
Sunding has been working with a coalition known as the Water Blueprint for the San Joaquin Valley. The coalition has offered the governor and lawmakers a list of policy recommendations for water infrastructure investments that would better prepare the valley for water uncertainty and scarcity as the state implements the Sustainable Groundwater Management Act (SGMA), as droughts grow more extreme and frequent under climate change forecasts and as surface water delivery is increasingly disrupted by environmental conflicts.
Sunding explained that water infrastructure investments can stimulate the economy in two ways. Since water is used by virtually every sector, it creates economic activity and benefits for urban and agricultural sectors alike, along with indirect benefits to the region and state. It directly accounts for more acres cultivated and more high-value crops grown, and creates demand for the services of farmworkers, truckers and food processing workers, with a ripple effect of benefits throughout the economy.
Dennis Nuxoll, Western Growers
The other half of the economic stimulus comes in the form of construction jobs, engineering and design activities, and ongoing operations — which all require labor and other inputs, Sunding said.
Economists have for decades studied the amount that agricultural and urban water users would pay to ensure a stable supply. That value directly translates to the amount of economic benefit that water users experience from project investments, said Sunding, adding that there are many readily available examples of projects that have generated regional benefits roughly equal to the costs of construction and operation.
“This is one reason that politicians and other policymakers love infrastructure spending,” he said. “Members of both parties are in favor.”
In a recent blog post, Ellen Hanak, a researcher leading the Water Policy Center at the Public Policy Institute of California, pointed to investments following the 2008 recession.
“The 2009 American Recovery and Reinvestment Act [ARRA] made $13.5 billion available for 'shovel-ready' water infrastructure projects to support economic recovery,” writes Hanak. “Although California saw little net benefit in some ARRA-funded areas, like flood management, the state’s water supply and wastewater utilities received a major boost.”
Hanak and her colleagues argue that funding clean drinking water in poor communities and boosting the water system’s resilience to climate change would serve California well.
Sunding noted that another benefit to water users is reliability for delivering water in dry years, when users would be willing to pay more to avoid a shortage.
Less tangible are the economic benefits to disadvantaged communities. Sunding has been studying this in detail in parts of Southern California as well as the western and southern areas of the San Joaquin Valley, which contain many of the state’s poorest communities.
“It's hard to believe in California, in the state with so much economic power and wealth, that there are census tracts, neighborhoods where upwards of three-quarters of families live below the state poverty line,” he said. “Those families tend to be concentrated in agricultural work.”
Sunding pointed out that the state’s new environmental justice tool shows how policies that affect agriculture have led to regional economic impacts as well.
At the same time, SGMA is projected to reduce state and local tax revenue by more than $500 million per year, according to a report Sunding published in 2020. Water projects could mitigate these impacts and avoid some of those losses.
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Sunding argued that jobs lost in farming due to a lack of water supply will have “huge economic and social costs,” especially in agriculture, “where the workforce is at the bottom end of the socioeconomic spectrum in many cases” and there may be no other jobs available for them.
“Losing jobs in agriculture or other parts of the economy may lead to out-migration or worse: a condition of chronic unemployment,” he said.
Richard McCann, a co-founder and partner of the economic consulting firm M.Cubed, added if agriculture shrinks too much in a region, then community services disappear as well.
“It accelerates in such a way that the farmers who were there and still operating may not have the services for their production to continue,” said McCann. “That may actually push out more agricultural production.”
Sunding pointed out that big infrastructure undertakings like the Central Valley Project were initially built as community development efforts to uplift local economies.
When state lawmakers shot down a bill last year proposing $400 million for repairing parts of the Friant-Kern Canal, opponents had argued the agricultural water users and residents of that region should be footing the cost.
“That way lies madness,” said Sunding of this type of argument, which is expressed frequently by some economists as well. “We are one state.”
If every policy is evaluated through the lens of who benefits and who should pay, “it's going to be very hard to make decisions,” he said.
And time is running out for those decisions. Scientists at the Department of Water Resources have found that increases in sea level rise will reduce water deliveries out of the Sacramento–San Joaquin River Delta by as much as 50% by 2100.
“Without a doubt, the impacts will spill beyond [direct water users],” said Sunding. “There are implications for the entire state, whether you happen to be in an area that's using water directly from the Delta or not.”
Stephen Hatchett, an economist with the consulting firm ERA Economics, cautioned that as an economic stimulus plan, most water infrastructure investments — even those rare projects that are shovel-ready — are not the best tools for short-term recovery.
“I usually think of water projects, because they are construction intensive, as being more useful for longer-term, regional economic development,” he said.
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