California Spillway Scare Underscores Infrastructure Worries

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PHOENIX - The near failure of Oroville Dam's emergency spillway hasn't affected area issuer credits, although several could have been at risk if the spillway had given way in the face of recent historic rainfall.

The primary spillway of the dam in Butte County, Calif., north of Sacramento, suffered damage after days of pounding rain earlier this month, and the reservoir behind it filled up rapidly when dam operators closed the spillway to assess damage. That pushed the level of Lake Oroville above the dam's emergency spillway, which is a design feature to prevent the water from overtopping the dam itself.

Spillways are designed to release water from reservoirs to keep them from getting too high.

The emergency spillway had never been used in the dam's 49-year history, and design flaws quickly emerged when the overflowing water eroded the hillside that supports the emergency spillway wall.

The dangerous situation forced the evacuation of some 180,000 people from downstream communities.

Officials feared that if the spillway failed, a sudden wall of water would have rushed down the Feather River to flood inhabited areas. The water level has since receded and the evacuation order was lifted.

S&P Global Ratings said that it accounts for the possibility of natural disasters in its local government ratings, so such events typically do not greatly affect the credit quality of issuers who suffer them.

"We expect that to be the case for the approximately $432 million of direct debt outstanding among our rated local government entities that could be impacted in the event of a breach at the Oroville Dam in California or general flooding along the Feather River," S&P said in a report.

Gregg Bienstock, chief executive officer and co-founder of Lumesis, Inc., identified in a commentary several obligors that could be at risk in the event of a failure, including the Oroville Public Finance Authority, Oroville Redevelopment Agency, Oroville City Elementary School District, Oroville Hospital, and Oroville Union High School District. Those entities have just shy of $50 million of debt outstanding.

Oroville, population 16,000, is the downstream city closed to the dam.

Other observers saw something else in the Oroville story: another chapter in the increasingly-long narrative of faltering American infrastructure.

Recent published reports noted that, during the dam's 2005 relicensing, regulators brushed off testimony from several environmental groups arguing that the dam should have a concrete emergency spillway, instead of allowing the water to essentially roll down a hillside causing erosion.

"Once the crisis passes, there will be intense pressure on the state government to make repairs to Oroville Dam and others across the state," Steven Greenhut, a senior fellow and Western region director of the think tank R Street Institute noted in a Feb. 17 opinion piece for Calwatchdog. "But news reports make clear that state officials were warned about the very problems that have been unfolding."

The troubles in Oroville are the latest evidence that much of the state's infrastructure is deteriorating dangerously, State Treasurer John Chiang said in a statement.

"Last year, I proposed the creation of a detailed inventory of the condition of our dams, levees, bridges, parks, government buildings and other public works," he said Friday. "We need to proactively work to identify and fix problems before they become actual threats to public safety and the economy.

"I am also working on a plan to harness the power of 'green bonds' to raise hundreds of billions of dollars to pay for the Golden State's transition to clean energy sources that do not contribute to climate change."

Gov. Jerry Brown held a news conference Friday to discuss the Oroville situation and the state's overall infrastructure problem.

Brown is asking state lawmakers for $50 million in general fund money for near-term flood control and emergency response actions, as well as the redirection of $387 million of bond funds from Proposition 1, a 2014 measure to fund water projects.

The governor said he was requesting that President Trump help streamline the review process and provide funding for dam and flood control improvements, and said inspection improvements would be made at the state level.

"We have to invest billions of dollars in California infrastructure," said Brown, who said California's "aging" infrastructure is "maxed out."

Brown said that California is "inextricably linked" to the federal government, and that California's fierce opposition to Trump's immigration process shouldn't impact the working relationship between the two on infrastructure.

"There's real work to be done," said Brown.

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