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Water Wars Could Drown State's Recovery

STATE OF THE STATE: The Challenges Confronting California. Last in a series


Standard & Poor's, the nation's largest financial rating service, is not normally in the business of issuing environmental alarms. But this year it did, with a jolting message that is helping to change the way California--and its business community--looks at the environment. In its publication Creditweek Municipal, Standard & Poor's warned last spring that if something is not done to end the decade-old water wars over the San Francisco Bay-Sacramento Delta, the state's anemic credit rating could be further weakened.

According to the financial rating service, growing water shortages, higher water rates and chronic uncertainty over future supplies threaten to drive up interest rates and discourage investment in projects crucial to California's economic recovery.

The source of water for 20 million Californians, the delta is the largest estuary in the western United States and home to more than 1,000 species of birds and fish. But so far, the seesaw battle for control of the delta is neither protecting the health of the ecosystem nor meeting the needs of consumers.

For years, it was assumed that agribusiness stood to lose the most in the contest over how much water should be left to protect the delta. But as Standard & Poor's points out, the intractable struggle also threatens the financial health of hundreds of communities across the state--including many in Southern California--that depend on the delta for all or part of their water supply.

For the Record
Los Angeles Times Saturday November 5, 1994 Home Edition Part A Page 4 Column 2 National Desk 2 inches; 61 words Type of Material: Correction
Proposition 180--In a comparison of the environmental records of Gov. Pete Wilson and Kathleen Brown, The Times reported their differing views on a ballot initiative, Prop. 180, in a manner that indicated the initiative is on the Nov. 8 ballot. The proposition, which would have provided $2 billion in bond money for parks and the protection of natural resources, was defeated last June. As reported, Brown endorsed it. Wilson opposed it.

Unless the struggle is resolved, Standard & Poor's says, these communities will be unable to plan for the future or commit themselves to supplying water for new industry.

But the delta debate is not just about water. The estuary is a vast mixture of environmental problems--from endangered species and disappearing wetlands to waste water runoff and chemical residue.

Solving any one of them has far-reaching implications. Establishing the proper balance of freshwater and saltwater needed to sustain an endangered delta fish, for instance, could substantially restrict water delivery to Los Angeles or San Diego.

Standard & Poor's report "was a warning shot fired across our bow," said John R. Wodraska, general manager of the Metropolitan Water District, which provides Southern California communities with more than half of their water. "It reminded people that the bay-delta is the crossroads of the environment and the economy in this state."

It also reminded people, Wodraska said, that despite election-year fixations with crime, immigration and jobs, "matters of environmental quality are inextricably bound up with California's economic well-being."

Moreover, the warning that the state's credit could be hurt by the delta stalemate suggests that California no longer can afford the interminable squabbling that has left it without clear environmental policies on issues ranging from water policy to growth management, from forest preservation to endangered species protection.

"You can get to the point where you feel like any policy is better than no policy," said San Francisco real estate developer Nelson Rising. "At least, then, you know what you can and can't do. As it is, uncertainty over water, over endangered species, over a whole host of environmental regulations is very frustrating."

It was that sense of frustration that prompted a group of California business leaders to write President Clinton and Gov. Pete Wilson last August urging them to resolve the conflict over allocation of water from the delta.

"The continuing gridlock in setting standards for the bay-delta is creating uncertainty and threatens the economic recovery we desperately need," said the letter signed by the chief executive officers of a dozen major companies, including BankAmerica Corp., Pacific Gas & Electric Co., TransAmerica Corp., Procter & Gamble and Wells Fargo.

The letter was a clear sign that California's business leaders were taking seriously Standard & Poor's implicit message--the state cannot tolerate continuing indecision when it comes to environmental policy-making.

The letter also was significant for what it did not say. It did not take a stand against proposals by environmentalists that could cut water diversions from the delta by as much as 20%.

Some analysts believe the letter reflects a growing acknowledgment by business interests that working with environmentalists makes more sense than working against them.

"They (business interests) want certainty and they are willing to give in the short run in order to get what they want in the long run," said Harry Seraydarian, a water expert for the U.S. Environmental Protection Agency.

Speaking at a recent Los Angeles conference on water sponsored by the Metro Investment Report, a newsletter on business and environmental issues, Seraydarian said progress was being made by state and federal officials who are trying to resolve the dispute.

"There is a fragile consensus in the making," he said.

If it holds, it will probably carry a big price tag.

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