Thursday, Feb. 9, 2012 | 7:30 p.m.
Much of Nevada’s livelihood comes from gambling, but some things are too precious and too costly to gamble on. Unfortunately, gambling is exactly what the state’s largest provider of that most precious desert resource – water – is doing. The stakes are high for residents and businesses.
On tap is Southern Nevada Water Authority’s proposal to pump 41 billion gallons of water a year to a thirsty Las Vegas from rural Nevada. A study commissioned by SNWA puts the project’s price tag at an estimated $7 billion, plus another $8 billion for financing costs. The study forecasts that the 300-mile long pipeline will nearly double water bills for southern Nevada businesses and homeowners.
These estimated costs for residents and businesses assume they will use water in large quantities, no matter the cost they are paying for water. That, however, is not likely. If water prices go up, research has continually shown, people will modify their behavior and use less.
Unfortunately, SNWA’s betting the house that demand won’t budge — and is basing its long-term revenue projections on that faulty assumption. In financial filings submitted to the State Engineer, SNWA projects demand for water in Southern Nevada will stay the same per capita even as water rates skyrocket. That could mean even larger water bills.
To make up for that decline and to stay on top of debt payments for its ongoing capital projects, including a critical third pipe into Lake Mead, SNWA is already raising rates. That could lead to further reductions in use. Seventy percent of Southern Nevada’s water use is for non-essential landscaping, so cutting usage isn’t hard when prices are high.
Despite that reality, SNWA keeps raising the stakes. The groundwater importation project will push SNWA’s debt to precipitous heights. Even with water rates two to three times higher than today, SNWA projects its revenue will only match its debt service costs for the next 14 years. And that’s assuming that demand remains constant.
Should actual demand be less than SNWA projections, water rates will have to increase further still to close the financing gap. That can be expected to further suppress demand, necessitating even higher rates, and on and on.
SNWA points to its “double-barreled” financing scheme as evidence that its financing is foolproof. Double-barreled is another way of saying “sales plus tax revenue,” meaning that if SNWA can convince local government to increase the sales tax, those moneys would be made available to meet any shortfall from revenues.
The question for residents and businesses is this: How high can water and tax rates go in Southern Nevada before families and businesses decide there are more affordable places in which to live and do business?
Southern Nevada business leaders have heard Patricia Mulroy, SNWA’s general manager, say failure to build the importation project will be Las Vegas’ death sentence. As evidence, Mulroy points to lower water levels at Lake Mead, visible evidence of the Colorado River’s variability. Mulroy’s efforts to shore up SNWA’s share of Colorado River water, through financing downstream water supply projects in Mexico and California in exchange for a larger share of the Colorado, demonstrate extraordinary leadership and creativity.
But shoring up Southern Nevada’s water security cannot be achieved without simultaneous investments to tangibly reduce water use. SNWA has already made huge strides in this regard. Most notable are water reuse projects like the one that supplies the Bellagio Resort fountains, and the 14,000 acre-feet – 5 billion gallons a year – saved annually by paying Las Vegas residents to replace their lawns with native xeriscaping. All told, Las Vegas has cut more than 30 percent of its consumption of Colorado River water in the last 10 years – a feat all the more amazing given that people have suffered little, if at all, from the reduction.
Yet not only would SNWA’s proposed importation project triple the system’s debt for a single source of supply – one that’s vulnerable to legal and environmental contingencies – it would also ruin SNWA’s financial incentives to reduce demand. Once SNWA has taken on $15 billion in debt for this single project, any reduction in water demand — and lower water sale revenues — would spell financial disaster.
Further efficiency and conservation efforts would improve Las Vegas’ access to a safe and reliable water supply, and reduce the need for huge capital projects and enormous increases in the utility bills of businesses and residents.
Instead of embarking on the financially risky and uncertain route of increasing supply, heedless of impacts to Las Vegas’ economy, the SNWA should double-down on reducing consumption.
Sharlene Leurig is senior manager of the water and insurance programs at Ceres, a national coalition of investors and public interest groups.