Private companies could own, operate and profit from reservoirs and other water-storage projects built with billions in taxpayer dollars under a little-noticed provision of the $11.1 billion water bond that was approved by the Legislature and goes before California voters next year.

Lawmakers barely discussed the provision while considering the bond, and water experts who were asked about it by The Chronicle said they knew little about it or why it was a necessary part of the plan to overhaul the state's water system.

The bond bill's author, state Sen. Dave Cogdill, R-Modesto, and other backers of the proposal said the provision provides the state with flexibility for how water storage projects can be financed.

Critics, however, said it opens the door to the privatization of the state's most precious resource as California's population grows and water becomes more scarce. California historically has retained control of publicly financed water projects. Privatization could allow companies to profit by selling back to the public a resource that is essentially the lifeblood of the state economy, or using it for their own profit-making interests like agriculture.

The bond proposal makes no mention of the prospect of private entities benefiting from the water storage projects. The stated purpose of the huge spending proposal is to ensure an adequate supply of safe, clean and reliable drinking water for Californians into the future. It's titled the Safe and Reliable Clean Water Drinking Act of 2010.

Disturbing, dangerous

Consumer advocates who oppose privatization of water resources said even they were unaware the bond included such language. They called it "disturbing" and "dangerous."

"The bond basically spreads the cost over the state of California. This puts us in a position of having general taxpayers subsidizing at least some profits for a private corporation. And that's not right, especially at a time when we have huge budget deficits," said Mark Schlosberg, Western regional director of Food and Water Watch, a nonprofit organization in Washington.

Storage projects have been a key component of the water bond from the beginning, and Gov. Arnold Schwarzenegger said he would veto the whole package - which includes another $8 billion for drought relief, regional water management and the Sacramento-San Joaquin River Delta, among other needs - if they were not included.

In a speech at the state Capitol this summer, Schwarzenegger made that threat, saying, "We need the whole package to restore our water today and to ensure that we have water for tomorrow."

But the bond does not guarantee that $3 billion in tax dollars for new water-storage projects would actually supply more water to irrigation or public water districts.

The bond provides for the formation of what are known as joint powers authorities - usually a coalition of public entities that pool resources for projects they probably couldn't do, or couldn't afford to do, on their own. The water bond, though, specifically allows for the creation of joint powers authorities that "may include in their membership governmental and nongovernmental partners that are not located within their respective hydrologic regions in financing the surface storage projects."

It goes on to state that those authorities would "own, govern, manage and operate a surface storage project."

Tax dollars at work

Taxpayers would pay for up to half the cost of the project, with the amount based on the monetary value of "public benefits" created by the project. Those benefits include things like flows for the delta, flood control and water for emergencies or outdoor recreation. A now-dormant California Water Commission would be resurrected to quantify the value of things like benefits to the delta ecosystem, fish, access to boating or water skiing and water available for wildfire suppression.

The amount of money the commission decides those benefits are worth would then be handed over to the entity building the storage facility. That entity would pay for the rest.

Senate President Pro Tem Darrell Steinberg, D-Sacramento, said voters should be confident that they will get real benefits from the $3 billion as the commission's decisions would be made in a public forum, allowing for citizen input and court challenges.

"Every dollar, every public dollar, will be spent on a public benefit. That's what the bond says and that's what the state water commission will be charged with assuring," he said.

Steinberg acknowledged that the tax dollars would go for construction and that a private entity may profit off that investment.

However, he said, "In order to make money, the private entity will have to add significant value to the project itself."

Privatization request

The language in the bond allowing for private involvement came at the request of the Glenn-Colusa Irrigation District, located along the Interstate 5 corridor north of Sacramento. That district has long worked for the construction of a new dam there, called Sites Reservoir.

Thad Bettner, general manager of the irrigation district, said water managers in the area wanted the joint powers authority included in the bill because they think collaboration could make it easier and faster to do the myriad studies necessary for such a large project. The district estimates a reservoir would cost about $3.5 billion.

He said the district has not had contact with private entities that are interested in joining a joint powers authority and that he envisions such an interest as being more on the sidelines than a direct member of the authority.

"Everyone is going to have a unique approach of how you participate," Bettner said. He said he understands if people have concerns about private entities benefiting from public money, but "state monies are given out to all sorts of entities for all sorts of purposes."

Cogdill, the bond bill's author, said private involvement in a joint powers authority would give smaller water agencies like Glenn-Colusa more options in financing such a massive public works project. He cast doubt on any private company getting involved.

"It's hard to imagine a private entity, quite frankly, that would be interested in doing something like that given the (public benefit) criteria that surrounds the projects," Cogdill said. He echoed Steinberg's confidence, saying that the water commission would ensure the use of taxpayer dollars on the projects "makes sense."

Kern water bank

Those concerned about private involvement in public water resources point to the Kern Water Bank Authority to make their case.

The Kern Water Bank Authority is a joint powers authority that oversees the Kern County Water Bank, a large underground aquifer that could hold the equivalent of half of all the precipitation that falls in California during a normal year. The water bank was started and initially funded as a state project - with $77 million in taxpayer dollars.

In a controversial agreement, the state officials turned control of the bank over to the Kern County Water Agency in 1995 in exchange for water rights to 45,000 acre-feet of water, or enough to meet the annual needs of about 90,000 households. Later that year, the Kern Water Bank Authority formed as a joint powers authority that includes the Kern County Water Agency, four other water districts and one private company, the Westside Mutual Water Co.

Westside now owns 48 percent of the shares of the water bank. The company is owned by Los Angeles billionaire Stewart Resnick and his Paramount Farms company, which owns 70,000 acres in the southern end of the San Joaquin Valley and is the world's largest grower of pistachios and almonds.

Resnick also is a big contributor to elected officials in California, such as U.S. Sen. Dianne Feinstein, D-San Francisco. This year alone he and wife Lynda Resnick gave more than $15,000 to Steinberg, according to campaign filings with the secretary of state.

The joint powers authority that owns the water bank has spent tens of millions of dollars on the project, but the partners also have benefited. The state has continued to support the project with grant money, according to the California Department of Water Resources. Paramount Farms is in the midst of a significant expansion, according to the company. Most Kern County farmers have suffered through years of drought, and the water agency there declared a state of emergency this year due to a lack of water.

Higher costs to consumers

Officials at the Department of Water Resources said they did not believe the bond would allow for private companies to be part of a joint powers agreement, despite the plain language in the proposal and lawmakers' belief that it does.

Mark Cowin, deputy director of integrated water management for the department, said attorneys at the agency believe the bond allows for private companies to be involved through a side agreement or contract with a joint powers authority.

Still, he said, "I think this is a legal question at this point and subject to some attorney interpretation."

Carolee Krieger, president of the California Water Impact Network, a water consumer advocacy organization, said she was shocked to learn of the joint powers authority language in the bond.

"That's very, very dangerous because that ... opens the door to the privatization of water," she said, predicting that would harm consumers. "If someone is doing this privately they are doing it for their own profit ... and if there is a profit motive there, the price is going to go up for everyone."

The bond is set to go before California voters in November and requires a simple majority vote to pass.