Don’t Get Me Started, Regulars and Shorts

Don’t Get Me Started: Lake Powell Ponzi scheme

By John deJong

Dixie developers want to tap Utah’s taxpayers’ wallets to pay for their water system.

For a subject as dry as water policy, the Executive Appropriations committee meeting room on the east end of the Utah State Capitol building was packed last month. The big attraction: Washington County Water Conservancy District (WCWCD) was pitching its plan to build a 69-inch pipeline 139 miles from Lake Powell to St. George for a mere $1.170 billion—that’s $420 for (rather, from) every man, woman and child in the state of Utah.

In the peanut gallery, water lawyers outnumbered the fifth estate three to one. As the state senators and representatives drifted in, they greeted each other and gave out not a few “hale-fellow-well-mets” to the assembled lawyers.

You usually don’t use a steam roller to build pipeline projects but the wording in the Washington County Water Conser­vancy District’s nice (less than a dozen slides with eye-catching graphics) PowerPoint presentation made it sound like it was a fait accompli. Give them $30 million in 2014 and again in 2015, then jack it up to $370 million for the next three years and, sooner than you can spell Bella Lughosi, they’ll be sucking 80,000 acre feet of water a year out of Lake Powell to make the Dixie desert bloom.

The only hitch in their scheme is that $1.17 billion is much more than Dixie’s developers and land speculators can afford to pay for water for their desert developments. So, they’ve decide to try to foist the expense on Utah taxpayers.

While the WCWCD is open to other financing arrangements, their preferred plan is soaking Utah taxpayers for the bill. Of course, that’s not how they characterized it.

They’d like the state to commit 30% of sales tax growth or a similar increase in the tax rate to finance a statewide water project fund. The money would be repaid by the water users over a 50-year time frame, at a modest 3-4% interest rate. But that’s okay. It’s a slowly revolving fund that will eventually be paid back to taxpayers, Or rather the taxpayers’ great-grandchildren.

It wouldn’t so much be a taxpayer-financed investment scheme as a taxpayer-financed Ponzi scheme. Taxpayers will always be tapped for more funds. The first water district to borrow money will repay that money over 50 years, so the fund will be essentially empty for a dozen years unless taxes continue to be assessed for the fund. Which is where the other major water districts in the state come in.

Weber, Davis, Salt Lake and Utah counties all have planned water projects that will require another $3-5 million to build and they will all want a piece of this taxpayer pie. The upshot is that taxpayers have as small a chance of getting their money back as someone in Bernard Madoff’s lowest tranche. Zero.

The wild card in all of this is the construction cost estimates. If the economy continues to tank, the WDWCD could save money. If the economy takes off, the cost of foreign steel alone could add a couple of hundred million dollars to the cost (a rough calculation puts the amount of steel in a 69-inch diameter pipeline 139 miles long as 139 metric fucktonnes).

The construction cost estimates put out by the WCWCD are sort of a variation on the good news/bad news joke. The good news is that at $10,000 per acre foot of capacity, construction will only cost $800 million—the other $370 million is for right-of-way acquisition, engineering and management costs. A lowball estimate, by the WCWCD’s own admission. The bad news is that the estimate is so low that a substantial cost overrun is almost a certainty.

A short history of grand projects in Utah

The Bonneville Unit of the Central Utah Project was projected to cost $302 million. It has cost taxpayers $2 billion so far and is only $1 billion away from completion.

The Legacy of Debt High­way, originally estimated to cost $451 million, came in at $685 million.

Why is it that big projects go so bad? Often, because that’s the plan. The voters, legislators, county commissioners—whoever is making the decision—would never approve most (any?) of these projects if they knew in advance how much they were really going to cost. Lowball cost estimates make these projects appear to have marginally positive returns on investment but, when the true costs are paid, they frequently yield negative returns on investment.

The other bad news is that no state or local agency keeps track of such embarrassing statistics. The good news, if you’re in the construction industry, or you otherwise stand to benefit at the taxpayers’ expense, is that most of these projects get built.

If there ever was a project for Tea Baggers to sink their fiscal responsibility/free market/slash taxes teeth into, the Powell Pipeline is it. So far, the Utah Association of Corporate Tax-Evaders has not spoken up on this subject.

Orrin Hatch had the balls to complain about the Obama administration zeroing out a $40 million appropriation for the Central Utah Project. Didn’t Hatch vote for all the budget cuts? Was he just playing politics with those votes? 

John deJong  is the associate publisher of CATALYST.

This article was originally published on September 30, 2011.