Some Water Districts Want Property Tax Hike to Pay for Delta Tunnels

Gov. Jerry Brown's proposal to build two massive 35-mile-long tunnels under the Sacramento-San Joaquin River Delta would cost about $25 billion. Now some California water districts are thinking about raising property taxes to pay their share of the project, aimed at moving water more easily from Northern California to cities and farms in the south.

Under Proposition 13, which was passed in 1978, property tax increases require a two-thirds vote of approval. But Paul Rogers, managing editor of KQED Science and environmental reporter for the San Jose Mercury News, has learned that some water agencies contend they are not bound to a public vote.

Major water districts claim that since the bond act to create the State Water Project — the massive system of dams and canals that moves water from north to south — predated the passing of Prop. 13, they can raise property taxes without public approval. The State Water Project was approved under Gov. Pat Brown, the current governor's father.

"Basically, in the fine print of that bond act, it said that water districts that were going to pay for the State Water Project could use property taxes along with water rates to pay for it," Rogers said. "Now that was in 1960. Voters didn't pass Proposition 13 until 1978. So legally the water districts contend, and it looks like the law is pretty clear, that they do have this right grandfathered in to raise property taxes without a vote of the people to pay for Jerry Brown's — the son's — new $25 billion project."

Jim Fiedler of the Santa Clara Valley Water District offered justification for the property tax hike. From the San Jose Mercury News report:

"Because this is a tax that was already voted on, it was a pre-Prop. 13 measure," said Jim Fiedler, the district's chief operating officer. "Because it was adopted by voters prior to that date, it doesn't qualify for the two-thirds requirement."

Asked if there was any limit to how much higher property taxes could be raised if the Delta tunnels project has cost overruns, similar to the Bay Bridge or high-speed rail projects, Fiedler said he didn't know.

"That's a good question. That's a decision our board would make," he said. "But it would be in public hearings, not behind closed doors."

Rogers said that more than 20 water districts have this pre-Prop. 13 taxing authority.

The Santa Clara Valley Water District currently charges $36 per year, money that goes to pay bond debt and other costs of the State Water Project. The district wants to raise that to $60 over the next decade.

Listen to an interview with Paul Rogers below:

The Politics of Property Tax Hikes in California

"Politically, in California, raising property taxes is kind of a third-rail issue since 1978," Rogers said. "It's what gave rise to the modern conservative movement. We still argue over Prop. 13 today, and polls show that it's actually quite popular. People don't want to overturn it. What's going to be interesting here is to see whether there will be push-back from taxpayer organizations like the Howard Jarvis Taxpayers Association, which is not happy about this, or even environmental groups who don't like the tunnels because they think it's going to hurt the Delta by taking too much water out. So you're having these very weird coalitions starting to be built. Anti-tax groups on the right, environmental groups on the left saying, 'Hey, hey, we don't think you should use this property tax mechanism.' "

Water agencies are expected to pay for $17 billion of the $25 billion tab either through property taxes or higher water rates. Another $8 billion would come from the federal government and a lot of it from one, or possibly two, water bonds that Sacramento politicians are debating placing on the November ballot.

Rogers said water districts will make their decision to hike property taxes starting this fall.

Wall Street financiers like the ability of water agencies to raise property taxes as high as they want because investors will be guaranteed to get their money back, Rogers said.

"Companies like Goldman Sachs, who have made proposals to water agencies that they should be hired to underwrite the bonds and to sell the bonds ... in their proposals, if you read down in the fine print, they talk about how important it is and how they think how this property tax-raising ability with no ceiling is a 'primary element' that 'would certainly need to be preserved.' So if you're putting in billions of dollars and floating this investment, you want to know who is the backstop, who is the safety net at the end if there are cost overruns or the water districts go bankrupt? In the end those will be the taxpayers in the biggest urban areas of California."