California's Sites Project Authority could issue its first debt as early as next spring or summer to fund the Golden State's first big new reservoir in decades, provided the project remains on track to begin construction later this year.
This decades-old proposal aims to build an off-stream reservoir with a 1.5 million acre-feet capacity, designed to bolster the state's water system against the volatile cycle of severe droughts and flash flooding.
The project, which carries a price tag exceeding $6 billion, is partially financed through a $7.5 billion state water bond measure approved by California voters in 2014.
The State Water Resources Control Board concluded a final hearing July 24, allowing proponents to argue for less restrictive draft water rights before a scheduled vote in early November. The session included a review of new modeling from the authority, which suggests the reservoir could store even more available water than previously estimated.
Executive Director Jerry Brown describes Sites as a cornerstone of California's strategy to manage precipitation patterns that have become increasingly unpredictable due to climate change. The project has garnered political backing from U.S. Sen. Alex Padilla, Gov. Gavin Newsom, and the Association of Bay Area Governments.
Led by the Sites Project Authority — a joint powers consortium of irrigation agencies, water districts, cities, and counties — the project has been in development since 2010.
The key question of the cost and extent of the water rights the authority needs to operate the reservoir remains unanswered.
Brown noted that current regulatory conditions could slash the project's usable water by as much as 50%.
"Obviously, any reduction of that magnitude without a corresponding drop in costs makes it difficult to maintain financial feasibility," Brown said.
A final determination on these rights has not been reached, Brown said.
"There is still a window for supplemental briefs and evidence challenges," Brown said, adding that a hearing officer is expected to issue a final decision toward the end of August.
While Brown stopped short of declaring the project unfeasible, he acknowledged that a 50% decrease in water rights would "certainly make the cost per acre-foot higher."
Under optimal conditions, the reservoir would supply between 300,000 and 400,000 acre-feet of water annually to its various users, Brown said.
Boosting the project's momentum, the California Water Commission approved an additional $268.9 million in funding in June.
This latest allocation raises the state's total eligible investment to $1.363 billion drawn from
All but $26 million of the Proposition 1 authorization has been allocated, according to the California Natural Resources Agency, including $2.7 billion for "water storage projects that improve the operation of the state water system."
There is $3.3 billion remaining unissued from the Proposition 1 authorization, according to the
"Climate change is testing our water system with harsher weather and intense storms," Newsom said in June. "By funding Sites, we are expanding storage capacity and turning these environmental challenges into opportunities for millions of residents."
Sites will sit off-stream, with water sent to and from what is now a valley in Colusa County 10 miles west of the Sacramento River and 80 miles northwest of Sacramento.
Beyond storage, the project is designed to mitigate flood risks by capturing Sacramento River surges and providing critical water deliveries to wildlife refuges, such as the Sacramento National Wildlife Refuge Complex.
Critics remain skeptical. Eric Buescher, managing attorney for San Francisco Baykeeper, argued that while the project has evolved, its multi-billion-dollar cost outweighs the benefits for what he calls a "pretty limited group of contractors."
"We oppose this because it utilizes significant public funds while posing potential harm to ecosystems and local economies," said Buescher, whose Oakland-based group focuses on watershed protection. "It is not a prudent use of taxpayer money for a project providing so little supply to a narrow set of water contractors."
Buescher suggested that local recycling and reclamation projects are more effective solutions than massive diversions like Sites or the
Infrastructure of this scale often faces years of permitting and public review. Buescher pointed out that inflationary costs are not the only threat to the project's viability.
Uncertainty regarding federal contributions through the Bureau of Reclamation remains a significant variable for the project.
Estimates for federal participation range from 9% to as high as 25%, Buescher said.
"If the federal government commits 25%, the financial outlook changes drastically," he said.
Conversely, a contribution at the lower 9% threshold would create a much more challenging scenario for the project's economic health, he said.
The authority's Brown said that while $789 million has already been approved federally, that only covers about 10% in today's dollars. Reaching a 25% share would require another $600 million to $700 million, which remains subject to congressional approval, Brown said.
"The contracts are set up so that if federal funding falls short, the water reverts to local districts, who must then find new buyers or cover the costs themselves," Brown said.
The federal share of water would likely be used to manage river temperatures for salmon or to provide flexibility for the Central Valley Project, he said.
Brown said that Sites is "very critical" for the state's long-term needs.
"It is a different tool than groundwater storage," Brown said. "It is essential for managing both high-precipitation surges and low-precipitation years."
From Buescher's perspective, the path forward remains unclear.
"The project is economically worse than when it started, though it has improved from a policy standpoint," he said.
When questioned about the project's likelihood of success, Brown mentioned that an artificial intelligence-generated analysis recently estimated a 64% chance of completion.
"The major linchpin to starting construction will be securing water rights at levels that are affordable for all participants," Brown said.
The financing plan includes a Water Infrastructure Finance and Innovation Act loan from the EPA covering 49% of costs, with the balance funded via short-term notes and revenue bonds repaid by users, Brown said. Some participants may also choose to issue their own debt or utilize pay-as-you-go funding, he said.
The state will issue approximately $1.6 billion in debt through Proposition 1, while the authority will handle debt for roughly two-thirds of the total project, he said.
According to a 2015
Sonja Petek, a principal analyst at the LAO, clarified the project's current standing regarding these bond funds.
The bond funds do not cover water supply itself, Petek said, adhering to the principle that beneficiaries — the water users — should bear those specific costs.
"This means projects must secure separate funding for supply and permits," Petek said. "The bond only allows final disbursement once projects are considered 'shovel-ready.'"
Sites is the only surface storage project slated for Proposition 1 funding, as the other four projects are groundwater-based, Petek said.
