dante john nomellini (sbn 040992)

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RESPONSE AND ANSWER TO COMPLAINT FOR VALIDATION

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Dante John Nomellini (SBN 040992) Dante John Nomellini, Jr. (SBN 186072) Daniel A. McDaniel (SBN 77363) NOMELLINI, GRILLI & McDANIEL PROFESSIONAL LAW CORPORATIONS 235 East Weber Avenue Stockton, California 95202 Telephone: (209) 465-5883; Facsimile: (209) 465-3956 Email: [email protected]; [email protected]; [email protected] Attorneys for Public Agency Central Delta Water Agency James Mark Myles (SBN 200823) Office of the County Counsel COUNTY OF SAN JOAQUIN 44 N San Joaquin Street, Suite 679 Stockton, California 95202 Telephone: (209) 468-2980; Facsimile: (209) 468-0315 Email: [email protected] Attorneys for Public Agency County of San Joaquin

Sharon L. Anderson (SBN 94814) County Counsel Thomas L. Geiger (SBN 199729) Assistant County Counsel Stephen M. Siptroth (SBN 252792) Deputy County Counsel CONTRA COSTA COUNTY 651 Pine Street, 9th Floor Martinez, California 94518 Telephone: (925) 335-1800; Facsimile: (925) 646-1078 Emails: [email protected]; [email protected] Attorneys for Public Agencies County of Contra Costa, and Contra Costa County Water Agency Dennis Bunting (SBN 055499) County Counsel Azniv Darbinian (SBN 197787) Assistant County Counsel Peter R. Miljanich (SBN 281826) Deputy County Counsel SOLANO COUNTY 675 Texas Street, Suite 6600 Fairfield, California 94533 Telephone: (707) 784-6140; Facsimile: (707) 784-6862 Emails: [email protected]; [email protected]; [email protected] Attorneys for Public Agency County of Solano

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Philip J. Pogledich (SBN 197110) County Counsel Eric May (SBN 245770) Senior Deputy County Counsel COUNTY OF YOLO 625 Court Street, Room 201 Woodland, California 95695 Telephone: (530) 666-8172; Facsimile: (530) 666-8279 Email: [email protected]; [email protected] Attorneys for Public Agency County of Yolo Sharon L. Anderson (SBN 94814) County Counsel Thomas L. Geiger (SBN 199729) Assistant County Counsel Stephen M. Siptroth (SBN 252792) Deputy County Counsel CONTRA COSTA COUNTY 651 Pine Street, 9th Floor, Martinez, California 94518 Telephone: (925) 335-1800; Facsimile: (925) 646-1078 Emails: [email protected]; [email protected] Attorneys for Public Agencies County of Contra Costa, and Contra Costa County Water Agency Bruce Alpert (SBN 75684) County Counsel COUNTY OF BUTTE 25 County Center Drive Oroville, CA 95965 Telephone: (530) 538-7621; Facsimile (530) 538-6891 Email: [email protected]

Attorney for Public Agency Butte County

R. Craig Settlemire (SBN 96173) County Counsel COUNTY OF PLUMAS 520 Main Street, Room 302 Quincy, California 95971 Telephone: (530) 283-6240; Facsimile: (530) 283-6116 Email: [email protected] Attorney for Public Agencies Plumas County and Plumas

County Flood Control and Water Conservation District Osha R. Meserve (SBN 204240) Patrick M. Soluri (SBN 210036) SOLURI MESERVE, A LAW CORPORATION 510 8th Street Sacramento, California 95814 Telephone: (916) 455-7300; Facsimile: (916) 244-7300 Email: [email protected]; [email protected] Attorneys for Local Agencies of the North Delta

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INTRODUCTION

To protect their interests and preserve their claims and rights of action, interested parties

County of San Joaquin, Central Delta Water Agency, County of Contra Costa, Contra Costa

County Water Agency, County of Solano, County of Yolo, County of Butte, County of Plumas,

Plumas County Flood Control and Water Conservation District, and Local Agencies of the

North Delta (collectively, “the Public Agencies”1) respond to and answer the Complaint for

Validation (“Complaint”) of Plaintiff California Department of Water Resources (“DWR”) as

follows:

RESPONSE TO COMPLAINT TO VALIDATION

1. The Public Agencies are a regionally diverse coalition of counties, water resource

management and flood control agencies, and reclamation and water storage districts. They

collectively span an area that includes major watersheds serving the State Water Project (the

Feather River and Sacramento River), its keystone water storage and hydroelectric facilities

(Lake Oroville and Oroville Dam), and most of the area comprising the Sacramento-San Joaquin

Delta, as well as groundwater basins and other surface water sources. In addition to serving

downstream uses, these water resources provide the lifeblood for agriculture, the economy and

the environment in much of northern and central California.

2. As detailed below, the Public Agencies would be adversely affected by, and are

united in opposing, DWR’s premature and prejudicial attempt in this validation action to create

binding obligations in revenue bonds under the Central Valley Project Act (“CVP Act,” Wat.

Code, §§ 11100, et seq.) to finance the capital costs of a massive twin tunnel conveyance facility

referenced in the complaint as California WaterFix (“Delta tunnels” or “California Water Fix”).

Pursuant to Code of Civil Procedure section 860, et seq., DWR seeks to validate: (1) revenue

bonds DWR has authorized to finance the capital costs of the project; (2) the resolutions DWR

adopted in connection with those bonds; and (3) the pledge of revenues for their repayment

(collectively, “bond validation”).

3. The Delta tunnels project, which DWR seeks to partly fund through the proposed

revenue bond validation, is one of the most costly and risky water infrastructure projects

1 Local Agencies of the North Delta is not itself a public agency, but is an association comprised of public agencies.

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proposed in California’s history, and in the history of the State Water Project (“SWP”) managed

and operated by DWR. DWR certified its Final Environmental Impact Report and issued its

Notice of Determination for the Delta tunnels on July 21, 2017, the same day DWR filed this

validation action. However, DWR’s validation complaint concedes that it does not even assert

compliance with, and is not alleging satisfaction of, any “statutory and regulatory requirements”

needed to authorize construction, operation and maintenance of the Delta tunnels. Complaint, ¶

2. DWR asserts that these requirements are “not at issue” in this action. Nonetheless, DWR

seeks to create binding obligations through bond validation, without waiting for the outcome of

administrative proceedings and judicial challenges relating to DWR’s compliance with statutory

and regulatory requirements.

4. Although the validation complaint cannot represent that expenditures on the Delta

tunnels will prove to be lawful, the bond validation sought by DWR would operate in an

exceptionally broad manner over the long maximum period sought by DWR (70 years after

commencement of the Delta tunnels’ construction). Section 207 of DWR’s general bond

resolution for California WaterFix (Complaint, Exhibit A) asserts that the bonds shall be

“incontestable” from and after the time of payment of the purchase price, and shall not be

dependent on or affected in any way” by (a) DWR’s future proceedings on acquisition,

construction, or completion, (b) any connected contracts made by DWR, (c) DWR’s failure to

“complete” or “maintain” California WaterFix, or make necessary improvements or

replacements, and (d) DWR’s acquisition of all “rights, licenses or permits necessary” for

California WaterFix’s operation. (Id. at 14.) Under section 805 of the general bond resolution,

DWR “shall charge and collect” amounts for construction or acquisition “without regard to

whether or not the Department is able to construct, acquire, or operate California Water Fix.”

(Id. at 25.)

5. In a September 11, 2017 letter to DWR’s Chief Counsel and the General Counsel

for the California Natural Resources Agency, members of three organizations (Planning and

Conservation League, Pacific Coast Federation of Fisherman’s Associations, and Sierra

Club/California) described the extreme impacts that may follow from this Court’s approval of

DWR’s requested bond validation:

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• “Seventy years of bond financing debt in the billions of dollars, subjecting

ratepayers and property tax pay back without a vote”;

• “Contracts with private interests in a project that heretofore has been a project

contracting with public water agencies”;

• “The inclusion of a collection of facilities identified as Project Order No. 40, dated

July 21, 2017, including tunnels, forebays, and new diversions and “such further modification as

the Department in its discretion may adopt”

• Contracts “for the sale or disposal of water, water flow, the use of water, water

storage, electric power, or other resources and facilities to be made available by the California

WaterFix.”

• “The eligibility of these purposes and uses of state bond financing with associated

exemption from Proposition 13 Property Tax protections and Proposition 26 voter right

protections.”

(Id. at 1, emphasis in original.)

6. DWR’s validation complaint does not acknowledge or resolve major uncertainties

still affecting the extent and adequacy of financing for the Delta tunnels. For example, DWR’s

proposed revenue bonds, if validated, would only provide 55 percent ($8.8 billion) of DWR’s

$16 billion cost estimate for the Delta tunnels in its General Bond Resolution. (Id. at 1.) The

remaining contribution of $7.2 billion would come from unidentified “other sources” not

covered by the proposed bonds. DWR anticipates that this amount, 45 percent of the total, would

come from still-unmade financial commitments from federal CVP contractors. At the state level

was well, the Delta tunnels continue to lack a comprehensive financing plan and clear

commitments by project beneficiaries to fully cover project costs.

7. Heavy dependence of the Delta tunnels on billions in speculative funding from

CVP contractors is of even greater concern in view of the September 2017 Final Audit of the

Department of Interior’s Office of Inspector General, entitled The Bureau of Reclamation Was

Not Transparent in its Financial Participation in the Bay Delta Conservation Plan. The report

found that the Bureau “did not fully disclose to Congress and other stakeholders the $84.8

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million cost of its participation in the BDCP efforts, including its subsidizing of the Federal

Central Valley Project (“CVP”) water contractors’ share of BDCP costs.” (Id. at 1.) Noting that

construction of the Delta tunnels would “depend substantially upon reaching agreements with

SWP and CVP water contractors to pay for these facilities, as current State law requires,” the

report expressed concern that “the absence of transparency displayed by USBR during the

planning phase of the BDCP will be perpetuated in the future.”

8. DWR’s validation complaint must be dismissed as premature. Essential details of

the project and its financing remain undefined, unapproved, or both, and the procedure for bond

repayment is vague and confusing at best. The outcome of pending administrative proceedings,

federal decision-making, and stakeholder financing decisions could fundamentally transform the

composition or even the existence of the project. DWR’s environmental review and decision-

making on the Delta tunnels are already the subject of numerous pending legal actions,

challenging compliance with CEQA, state laws protecting the Delta, the public trust doctrine,

and state and federal laws protecting endangered species, among other laws.

9. Should the Court nonetheless reach a judgment on the merits of DWR’s validation

action, it must invalidate DWR’s revenue bond resolutions and determine that DWR lacked the

authority to issue revenue bonds as proposed to cover capital costs for the Delta tunnels. DWR’s

proposed Delta tunnels do not qualify as a “unit” of the Project referenced in the Central Valley

Project Act, and the bond validation requested by DWR would violate numerous provisions of

the Act. Bond validation would also ignore DWR’s longstanding recognition that it could not

rely on Central Valley Project revenue bonds for the Delta tunnels in the absence of

amendments to SWP contracts. Bond validation would also place undisclosed additional strains

on taxpayers, ratepayers, and SWP contractors, violate environmental and Delta protection laws,

and run contrary to the will of California’s voters, who have not approved the Delta tunnels or

any of their precursors.

The Delta Tunnels Project Underlying the Validation Request

10. DWR’s complaint seeks bond validation for California WaterFix, but does not

provide a clear and consistent description of construction or operation of that proposed facility.

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California WaterFix would include construction of two massive tunnels fed by three new water

intakes in the northern Delta to divert about half the average flow of freshwater from the

Sacramento River into the San Francisco Bay-Delta Estuary for export south of the Delta. With

a capacity to divert 9,000 cubic feet per second (“cfs”) of water, only initial operations are

defined. Then DWR would use “adaptive management” to manage future operations, leaving

open a wide range of possible operational choices regarding timing and volumes of diversions.

However operated, the Delta tunnels would fundamentally transform the hydrodynamics and

ecology of the Delta, as well as the manner in which DWR and the Bureau operate SWP and the

federal CVP.

11. Despite monumental cost and complexity, the Delta tunnels project creates no new

water supply. The project would entrench and likely compound reliance on unsustainable water

exports, to the detriment of communities and water users within and upstream of the Delta. The

project would divert resources needed for investments in long-term water reliability, water

quality, reuse, storage, drought and flood protection, and ecosystem improvements. It would

also frustrate efforts to fulfill statutory duties with respect to regional self-reliance and the

sustainable management of groundwater. If built and approved for operation, the project’s new

intakes in the northern Delta may divert up to a third of the flow of the Sacramento River,

increasing the potential for reverse flows on the Sacramento River, harmful diversions of water

out of the Sacramento Valley and the Delta, and further degradation of water quality.

12. The Delta tunnels project, referenced as California WaterFix in DWR’s FEIR and

final decision, attempts to repackage and rebrand the “peripheral canal” concept rejected by

California’s voters in 1982 by a margin of 62.7 percent to 37.3 percent. This project emerged

after the CALFED program failed to remove major risks in and north of the Delta or to prevent

major harm, including the precipitous decline of the Delta’s pelagic organisms. Nearly a decade

ago, when the California Supreme Court narrowly upheld the 2000 CALFED EIR, it observed

that the CALFED program was premised on the “unproven” theory that it was “possible to

restore the Bay-Delta's ecological health while maintaining and perhaps increasing Bay-Delta

water exports through the CVP and SWP. If practical experience demonstrates that the theory is

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unsound, Bay-Delta water exports may need to be capped or reduced.” (In Re Bay-Delta

Programmatic Environmental Impact Report Coordinated Proceedings (2008) 43 Cal.4th 1143,

1168.)

13. The project’s Draft EIR/EIS referenced an earlier version of the project as the Bay

Delta Conservation Plan (BDCP). BDCP was, and is, premised on the same fallacy anticipated

by the California Supreme Court in In Re Bay-Delta. That fallacy, now belied by practical

experience and sound science, assumes that a massive new conveyance system designed to

enhance the capacity for already-unsustainable exports south of the Delta can protect the Bay-

Delta ecosystem and qualify as “conservation.” By 2015, criticism from the Environmental

Protection Agency (EPA) and other scientific reviewers had undermined support for the notion

that BDCP could meet the rigorous federal and state requirements for a fifty-year “conservation

plan” (federal habitat conservation plan [“HCP”] and California natural community conservation

plan [“NCCP”]).

14. Presented with the historic opportunity to work with counties and communities in

the northern Sacramento Valley and the Delta to develop a more sustainable path, DWR chose

instead, starting in 2015’s partially revised draft EIR, to redefine and rebrand the project as a

new “preferred” alternative, California WaterFix (Alternative 4A). This “fix” repaired little, and

made some matters worse. Having already failed to ensure protection of the Bay Delta, DWR

eliminated almost all the conservation plan included in the project, while retaining the project’s

key source of adverse impacts, the twin tunnel conveyance.

15. With California WaterFix, the earlier “Bay Delta Conservation Plan” became an

unsustainable and largely unfunded water conveyance project, which neither protects the Bay

Delta nor includes a conservation plan. Failing as a conservation plan also undermined BDCP’s

tenuous financing, which largely rested on obtaining fifty-year assurances for water contractors

based on those plans. DWR has failed to provide reliable financial assurance that required

project elements and mitigation measures can be implemented, or to assure that project

beneficiaries will pay. Accordingly, California WaterFix risks shifting major costs and hazards

to others, including the Public Agencies and their constituents.

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The Delta Tunnels’ Ineligibility for Revenue Bonds Under the CVP Act

A. Lack of Legislative and Voter Authorization

16. DWR’s request for bond validation is grounded in a foundational error. DWR

erroneously assumes that the Delta tunnels can qualify as one or more “units” provided for in the

Central Valley Project Act, thereby authorizing DWR to issue revenue bonds to carry out any of

the “objects and purposes” of the Act. (Complaint, ¶¶ 18-24; see also Wat. Code, §§ 11260,

11700.)

17. The California Central Valley Project Act, originally enacted in 1933 (Water

Code, §§ 11100, et seq.), defined no specific Delta facilities. In 1951, the State of California

enacted Water Code Section 11260 (amended 1956, 1957, and 1959), which added certain

features to the previously enacted Central Valley Project authorizations. Section 11260 named

the Feather River and Sacramento-San Joaquin Delta Diversion projects as units of the Central

Valley Project.

18. The 1959 amendment mentioned facilities for the Feather River and Sacramento-

San Joaquin Delta Diversion Projects. (Wat. Code, § 11260.) The amendment refers to two

reports produced in 1951 and 1955. The 1951 “Report on Feasibility of Feather River Project

and Sacramento-San Joaquin Delta Diversion Projects Proposed as Features of the California

Water Plan” describes only aqueduct diversions. In the 1951 report, no facilities in, peripheral

to, or under the Delta are described for Delta conveyance. A 1955 report, “Financing and

Constructing the Feather River Project,” referenced a “Delta Cross Channel” alignment that

was never constructed, and described only through-Delta flow of waters derived from the

Feather River Project.

19. In the Burns-Porter Act of 1959, approved by California voters in 1960, the

Legislature added Water Code Sections 12930 et. seq., which authorized the construction and

funding of portions of the Central Valley act, including the Feather River and Sacramento-San

Joaquin Delta diversion facilities referenced above. Section 12934 (d) specified which facilities

were authorized to be funded/built and included in subsection (d)(3) “… and appurtenant

facilities in the Sacramento-San Joaquin Delta for … transfer across the Delta … and related

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functions.” The Act contains no reference to either a peripheral canal or a tunnel facility with

intakes in the north Delta. No other California statute authorizes either a peripheral canal or the

twin tunnel conveyance system identified by DWR as California WaterFix.

20. In 1980 the State of California enacted SB 200, which sought to add Section

11255 (and others) to the Water Code. Section 11255 specified that the Central Valley Project

would include “the units authorized under this section …” and under subsection (a) listed “A

peripheral canal unit …” While it remained in effect, SB 200 authorized the selling of bonds to

fund, and the construction of, a peripheral canal.

21. California’s voters rejected the proposed peripheral canal in the 1982 referendum

vote on Proposition 9. In doing so, the voters of California rescinded SB 200 (and thus sections

11255 et. seq.). That vote revoked the specific authority granted to DWR to both build and fund

via state bonds the peripheral canal “unit” of the Central Valley Project. California WaterFix is a

permutation of the peripheral canal, and like its predecessor, lacks legal authority to build the

project or to fund it with state issued revenue bonds under the Central Valley Project Act. The

court cannot, therefore, validate the sale of bonds to fund the Delta tunnels.

22. In a November 7, 2007 letter to Lois Wolk, Chair of the Assembly Committee on

Water, Parks and Wildlife, Delta Vision Blue Ribbon Task Force Chair Phil Isenberg responded

to an inquiry about whether the California Attorney General had issued an opinion on DWR’s

legal authority to build a peripheral canal. He attached a June 21, 1984 advice letter from then-

Attorney General John Van De Kamp addressing DWR’s legal authority to construct a Delta

conveyance facility. Mr. Isenberg noted that the Attorney General’s advice letter “appears to call

in question the Department’s position that it has the legal authority to build a Peripheral Canal,”

and suggests instead that “the Department lacks the legal authority to build an isolated water

conveyance facility that does not rely on existing Delta channels.”

23. Since April 2015, DWR has excluded references to any HCP and NCCP

provisions from its Delta tunnels proposal, including the version approved in July 2017 that is

the subject of this validation action. California WaterFix does not include safeguards required

for BDCP’s incorporation into the Delta Plan pursuant to Water Code section 85320. The Delta

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Stewardship Council determined in 2015 that it would have to amend the Delta Plan to develop

conveyance and restoration policies, and that the Petition Facilities would be evaluated as a

covered action by the Council for its conformance with the Delta Plan. The status of the Delta

Plan also remains on appeal in litigation. California WaterFix, as proposed to this Court for

bond validation, lacks legislative as well as voter authorization.

B. Lack of Contract Authorization

24. Bond validation would violate express limitations in State Water Project contracts,

ignoring DWR’s long-recognized inability to issue revenue bonds for the proposed Delta tunnels

under its existing State Water Project contracts, and circumventing concerns raised by the

previously-recognized need for contract amendments.

25. DWR’s proposed Delta water tunnels cannot be deemed part of the State Water

Project in the absence of amendments to the State Water Project contracts. (See, e.g., Articles

1(cc) and 1(hh)(8) of State Water Project contracts.) These provisions, as amended, place

limitations on the water system facilities eligible for Central Valley Project revenue bonds. For

reasons reinforced in the defeat by voters of Proposition 9 in 1982, water system facilities as

referenced in the project contracts did not include a peripheral canal or permutations of that

proposed conveyance.

26. An October 2011 Legislative Analyst Office (LAO) Report, Potential Funding

Alternatives for the Bay Delta Conservation Plan Planning Process, stated that “[f]unding

BDCP implementation” would “require amendment of long-term water supply contracts

between DWR, the Bureau of Reclamation, and the contractors in order to provide the funding

mechanism.” (Id. at 5.) This report also listed revenue bonds as one of the “currently infeasible”

funding mechanisms, because revenue bonds “require a clearly defined funding source before

they can be sold.” (Id. at 8.)

27. When discussing revenue bonds in connection with BDCP, DWR’s bond counsel

earlier concluded that without contract amendments, BDCP was “not on the list of approved

projects that are eligible for funding, including through bond financing.” (Letter from Jake

Campos, STIFEL, to Mary Lou Cotton, SWPCA at 4 (March 19, 2014; see also MWD PRA

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Document 00000484-SWC Financing DHCCP 9-7-12.)

28. In September, 2014, staff at the Metropolitan Water District acknowledged that

proposed SWP contract amendments are a necessary step in financing BDCP. See MWD,

Special Committee on Bay-Delta Presentation Re Review Status of BDCP Cost Allocation

Discussions (September 23, 2014). In a September 23, 2013 report, Kern County Water Agency

also referenced the need for a contract amendment to finance BDCP.

29. In March 2014, a Morgan Stanley report concluded that “Clearly, in order to

finance the substantial costs associated with CM1 in the BDCP, the extension of these contracts

is essential to allow for the amortization of financing payments over a long period of time.”

30. Like BDCP, California WaterFix cannot obtain financing through revenue bonds

without a contract amendment. November 23, 2013 and April 1, 2014 briefings of State Water

Contractors to DHCCP’s SWP Cost Allocation Working Group, for example, concluded that

California WaterFix financing options would require contract amendments.

31. In April 2013, DWR initiated a public negotiation process for extension of SWP

contracts. Contract extensions achieved through this process would be for another 50 years,

through the end of 2085. The initial phase of the process reached an “agreement in principle” in

mid-2014 including some of the State Water Contractors, but not Public Agencies Butte County

and Plumas County Flood Control and Water Conservation District. DWR sought delay in

addressing BDCP financing until a subsequent contract amendment process could be undertaken

after Plumas and Butte Counties raised concerns about costs from BDCP-related matters in the

contract extension scope. DWR responded that this subject would be better addressed in a

separate negotiation for a BDCP/DHCCP amendment. A separate SWP contract amendments

process begun in December 2014 for the proposed BDCP (now California WaterFix) was

suspended in February 2015 and remains dormant.

32. In comments made during DWR’s still-incomplete review of DWR’s proposed 50-

year contract extension, members of the public expressed concerns that changes in project

contracts would be used to facilitate the Delta tunnels, and that ratepayers could end up bearing

additional costs.

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33. In August 2017, Metropolitan Water District released a white paper entitled

Modernizing the System: California Waterfix Finance and Cost Allocation. The report provides

more details about the project’s anticipated financing than DWR disclosed in its decision-

making documents for the project. MWD’s white paper described uncertainties remaining in

federal, state and water contractor financing for the project. MWD anticipated the need for

water contractors to accrue finance costs on DWR revenue bonds, if DWR is found to have the

authority to issue them. MWD’s paper identified DWR’s proposed revenue bonds as the

“ultimate source” of the SWP contractors’ share of the project’s costs. MWD also referenced a

still-undefined water contractor Joint Powers Authority as an alternate funding approach in case

revenue bonds were deemed invalid.

C. DWR’s Proposed Bond Validation Would Violate the Central Valley Project

Act.

34. DWR’s complaint and attached resolutions rely upon the Central Valley Project

Act as the sole source of DWR’s statutory authority to issue the revenue bonds referenced in the

resolutions. However, the validation sought here by DWR would violate the Central Valley

Project Act in at least the following ways noted herein.

35. California WaterFix fails to qualify as a “unit” of the project under Water Code

section 11260.

36. California WaterFix would not be constructed, maintained and operated “separate

and apart” from other units, as required under Water Code section 11260.

37. California WaterFix cannot qualify as an “additional unit” in furtherance of the

Central Valley Project’s objectives, within the meaning of Water Code section 11290.

38. DWR’s bond resolutions, which purport to allow issuance of the revenue bonds

even if the project is not constructed, are inconsistent with DWR’s duties under Water Code

section 11451, which requires DWR to have “full charge and control of the construction,

operation and maintenance of the project and the collection of all rates, charges and revenues

from it.”

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39. DWR’s bond resolutions, which seek to create binding obligations regardless of

whether investments in California WaterFix prove to be lawful or financially viable, would

impair the accomplishment of the Central Valley Project’s purposes and objects, and cannot be

deemed to be “necessary, convenient or expedient” for their achievement under Water Code

section 11454.

40. California WaterFix, which lacks federal approval or funding, has not secured

cooperation with the United States under Water Code 11500.

41. Funds from California WaterFix revenue bonds would not serve the “objects and

purposes” of the Central Valley Project Act under Water Code section 11700. Bond validation

would allow DWR to create and enforce obligations that would remain incontestable even if the

Delta tunnels were never built, or expenditures on the tunnels proved to be unlawful.

42. DWR’s bond resolutions fail to demonstrate under Water Code section 11701 that

“the public interest and necessity” require authorization and issuance of California WaterFix

revenue bonds.

43. Preliminary cost estimates in DWR’s bond resolutions, provided under Water

Code 11701, are prejudicially vague, misleading and inaccurate. These estimates have also not

fully or accurately accounted for the “probable amount of money, property, materials or labor”

to be contributed from other sources under Water Code section 11701.

44. Bonds authorized under DWR’s resolutions do not qualify as “Central Valley

Project revenue bonds” under Water Code section 11705.

45. DWR’s authorization of bonds for the North Delta facility, which lacks an

operations plan, may place additional strain on revenues for operation, maintenance and repair

of existing facilities, in violation of Water Code section 11722.

46. DWR fails to comply with Water Code section 11818, which requires that the

Central Valley Project revenue fund “shall at all times be kept segregated and set apart from

other funds.”

47. The project also creates unresolved risks to existing customers served by the

Central Valley Project. A letter signed by multiple CVP contractors, sent to the Interior

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Secretary on June 7, 2017, described unresolved risks and the importance of ensuring that

beneficiaries pay project costs. The letter also expressed concerns about the absence of

transparency and accountability.

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ANSWER TO COMPLAINT FOR VALIDATION

1. Answering Paragraph 1 of the Complaint, Public Agencies admit that the Complaint

purports to commence a validation action under Code Civ. Proc. § 860 et seq. and Gov. Code §

17700 and that DWR seeks a judgment confirming the validity of: (1) bonds DWR has allegedly

authorized to finance the capital costs of the California WaterFix; (2) the resolutions DWR

allegedly adopted in connection with those bonds; and (3) the pledge of revenues for their

repayment. Other than as expressly admitted, Public Agencies deny each and every allegation of

Paragraph 1.

2. Answering Paragraph 2 of the Complaint, Public Agencies admit that the

construction, operation and maintenance of California WaterFix, if approved, would be subject

to statutory and regulatory requirements; that DWR concedes it is not alleging in its Complaint

that it has satisfied all the statutory and regulatory requirements to construct the California

WaterFix; and that DWR alleges that the Central Valley Project Act authorizes DWR to issue

revenue bonds to finance the capital costs of the California WaterFix and the pledge California

WaterFix Revenues to secure the payment of debt service on those bonds in the manner

provided by the resolutions. Public Agencies deny that the proposed revenue bonds are

presently susceptible to the determination of validity sought by DWR and further deny that the

Central Valley Project Act authorizes DWR to issue revenue bonds to finance the capital costs

of the California WaterFix and the pledge California WaterFix Revenues to secure the payment

of debt service on those bonds in the manner provided by the resolutions, or in any manner

whatsoever. Public Agencies further deny that the relief sought in this action can be entered

independently of the statutory and regulatory requirements for construction, operation and

maintenance of the California WaterFix. Except as expressly so admitted and denied, Public

Agencies lack sufficient knowledge to admit or deny the allegations of Paragraph 2 and, on that

basis, deny each and every remaining allegation of Paragraph 2.

The Parties

3. Answering Paragraph 3 of the Complaint, Public Agencies admit that DWR is a

department of the Natural Resources Agency of the State of California. Except as expressly so

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admitted, Public Agencies lack sufficient knowledge to admit or deny the allegations of

Paragraph 3 and, on that basis, deny each and every remaining allegation of Paragraph 3.

4. Answering Paragraph 4 of the Complaint, Public Agencies admit the allegations

therein.

5. Answering Paragraph 5 of the Complaint, Public Agencies admit that they are

interested in disputing DWR’s attempts in this action to establish the validity of the revenue

bonds described in and attached to the complaint. Except as expressly so admitted, Public


basis, deny each and every remaining allegation of Paragraph 5 and allege the following facts

concerning these answering Public Agencies:

(a) COUNTY OF SAN JOAQUIN is a political subdivision of the State of California. Two-

thirds of the legal Delta is located within San Joaquin County, and the Delta comprises

over one-third of San Joaquin County’s total area. Approximately 167,000 people live in

the San Joaquin County portion of the Delta, and those cities and communities rely in

significant part on the Delta for their water supplies. The Delta supports a $5.2 billion

annual agricultural industry, and approximately forty percent (40%) of those farms are

located in San Joaquin County. A large portion of the Delta’s $750 million recreational

economy is centered in San Joaquin County, encompassing, among other enterprises and

activities, innumerable privately-owned marinas, public and private boat launch facilities,

recreational facilities for fishing, tent camping, RV camping, hiking and picnicking, and

many lodging establishments and restaurants that contribute to the Delta’s recreational

economy.

(b) CENTRAL DELTA WATER AGENCY (“CDWA”) is a political subdivision of the

State of California created by the California Legislature under the Central Delta Water

Agency Act, chapter 1133 of the statutes of 1973 (Wat. Code, Appendix, 117-1.1, et

seq.), by the provisions of which CDWA came into existence in January of 1974.

CDWA’s boundaries are specified in Water Code Appendix section 117-9.1 and

encompass approximately 120,000 acres, which are located entirely within both the

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western portion of San Joaquin County and the “Sacramento-San Joaquin Delta” as

defined in California Water Code section 12220. While the lands within the agency are

primarily devoted to agriculture, said lands are also devoted to numerous other uses

including recreational, wildlife habitat, open space, residential, commercial, and

institutional uses. CDWA is empowered to “sue and be sued” and to take all reasonable

and lawful actions, including pursuing legislative and legal action, that have for their

general purpose: (1) to protect the water supply of the lands within the agency against

intrusion of ocean salinity; and/or (2) to assure the lands within the agency a dependable

supply of water of suitable quality sufficient to meet present and future needs. The

agency may also undertake activities to assist landowners and local districts within the

agency in reclamation and flood control matters. (See Wat. Code, Appendix, 117-4.3,

subd. (b) & 117-4.1, subds. (a) and (b), respectively.) CDWA may assist landowners,

districts, and water right holders within its boundaries in the protection of vested water

rights and may represent the interests of those parties in water right proceedings and

related proceedings before courts of both the State of California and the United States to

carry out the purposes of the agency. (See Wat. Code, Appendix, 117-4.2, subd. (b).)

(c) COUNTY OF CONTRA COSTA is, and at all times mentioned herein was, a political

subdivision of the State of California. Contra Costa County is vitally and beneficially

interested in the proposed California WaterFix project which, if approved and

constructed, will affect the Sacramento-San Joaquin Delta. The eastern portion of Contra

Costa County is located within the Delta and a portion of it borders Old River. CC

County’s entire northern boundary borders San Pablo and Suisun Bays, the Carquinez

Strait, New York Slough, and the western San Joaquin River. Contra Costa County is

home to over one million people. Persons who live and work within Contra Costa

County rely on the Delta as a source of drinking water, and as a place to live, work, and

recreate. Contra Costa County’s interests, as well as the interests of the residents,

landowners, and local districts within its boundaries, will be directly and indirectly

impacted by the proposed project’s adverse environmental and economic impacts.

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(d) CONTRA COSTA COUNTY WATER AGENCY (“CCC Water Agency”) is, and at all

times mentioned herein was, a body politic and corporate organized and existing under

the Contra Costa County Water Agency Act (Stats. 1957, ch. 518, West’s Wat. Code

Appen., Ch. 80). CCC Water Agency is vitally and beneficially interested in the

proposed California WaterFix project which, if approved and constructed, will affect the

San Joaquin Delta, and will affect water quality and beneficial uses of water within CCC

Water Agency’s jurisdiction. CCC Water Agency is empowered to do all things

necessary to ensure the availability of water for beneficial uses within the agency’s

jurisdiction, including but not limited to preventing waste, salinity intrusion, and

interference of diminution of the natural flow of rivers of streams within the agency’s

jurisdiction. (West’s Wat. Code Appen., § 80-11(2), (5).) CCC Water Agency is

authorized to participate in litigation to protect “the ownership, use or supply of water,

water rights or water service within or without the agency which may be used or useful

for any purpose within the agency.” (West’s Wat. Code Appen., § 80-11(5).) CCC

Water Agency’s special statutory interests will be directly and indirectly impacted by the

proposed project’s adverse environmental and economic impacts.

(e) COUNTY OF SOLANO is, and at all times mentioned herein was, a political subdivision

of the State of California. Solano County is vitally and beneficially interested in the

proposed California WaterFix project which, if approved and constructed, will affect the

Sacramento-San Joaquin Delta. The eastern portion of Solano County, including the

Cache Slough region, is located within the Delta. Solano County’s southern boundary

borders San Pablo and Suisun Bays, the Carquinez Strait, and the Sacramento River.

Solano County is home to more than 400,000 people, as well as a thriving agricultural

economy. Persons who live and work within Solano County rely on the Delta as a source

of drinking and irrigation water, and as a place to live, work, and recreate. Solano

County’s interests, as well as the interests of the residents, landowners, farmers, and local

districts within its boundaries, will be directly and indirectly impacted by the proposed

project’s adverse environmental and economic impacts.

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(f) COUNTY OF YOLO is, and at all times mentioned herein was, a political subdivision of

the State of California. Yolo County is vitally and beneficially interested in the proposed

California WaterFix project which, if approved and constructed, will affect the

environment, economy, and public welfare within the Sacramento-San Joaquin Delta. A

substantial portion of Yolo County lies within the Delta, including part of the City of

West Sacramento, the town of Clarksburg and its surrounding farms and vineyards, and

the Yolo Bypass. Persons who live and work within Yolo County depend on Delta

waters for agricultural and municipal uses, as well as for commerce and recreation. Delta

levees protect local communities and farms and, together with other infrastructure such as

roads and bridges, sustain the agricultural heritage and economic vitality of Yolo County.

For these and other reasons, Yolo County’s interests and the interests of its residents,

landowners, and local agencies, such as reclamation districts (“RDs”), will be directly

and indirectly adversely impacted by the proposed project and the proposed financing of

the project.

(g) COUNTY OF BUTTE is a political subdivision of the State of California, charged by the

California Constitution with the duty to protect the environment and economy of the

people and resources within its jurisdiction, and the reasonable and beneficial uses of

surface water and groundwater. Butte County, governed by a five-member Board of

Supervisors, provides services to residents through 23 departments. Butte is also the

second northernmost of 29 State Water Contractors that signed and still hold long-term

contracts for water deliveries with the California Department of Water Resources

(“DWR”). Operation of the SWP affects residents and taxpayers within Butte County.

(h) COUNTY OF PLUMAS is a political subdivision of the State of California, charged by

the California constitution with the duty to protect the environment and the economy of

the people and resources within its jurisdiction. Plumas County is located predominantly

in the Feather River watershed, upstream of DWR’s Oroville project. The SWP also has

project reservoirs inside Plumas County, including Antelope Dam and Lake, Grizzly

Valley Dam and Lake Davis, and Frenchman Dam and Lake. The Lake Davis unit of the

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SWP supplies water to the Plumas County Flood Control and Water Conservation

District, one of the SWP contractors. Operation of the SWP affects residents and

taxpayers within Plumas County.

(i) PLUMAS COUNTY FLOOD CONTROL AND WATER CONSERVATION

DISTRICT is governed by the Plumas County Board of Supervisors, is a special law

water district created by the State Legislature in 1959 through Act 5964, and is the

northernmost State Water Contractor.

(j) LOCAL AGENCIES OF THE NORTH DELTA (“LAND”), an unincorporated

association, is a coalition comprised of reclamation, water and levee districts (“districts”)

in an approximately 120,000-acre area of the northern geographic area of the Delta.

These districts provide water delivery and/or drainage services, and assist in the

maintenance of the levees that provide flood protection to Delta communities, homes and

farms that contribute to the agricultural productivity of the Delta. LAND member

interests, as well as the interests of local landowners within individual LAND districts,

would be directly and indirectly adversely impacted by the proposed California WaterFix

project through reduced fresh water flows, changes in water levels, and worsened quality

of water in the channels within the boundaries of LAND member agencies. In addition,

LAND member districts’ flood control protection levels would be worsened by the

massive changes to the levee system necessary to construct the proposed project.

Jurisdiction and Venue

6. Answering Paragraph 6 of the Complaint, Paragraph 6 sets forth legal conclusions

and/or statements of law as to which no response is required. To the extent Paragraph 6 may be

deemed to contain statements of fact, Public Agencies deny all such allegations.


therein.

The Project

8. Answering Paragraph 8 of the Complaint, Public Agencies admit that DWR

operates, manages and oversees facilities which store, transport and deliver water to urban and

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agricultural water agencies throughout the State; and that DWR has since approximately 1960

planned portions of the State Water Project, a system of water storage and transportation and

power general facilities, referenced in DWR’s Complaint as “the ‘Project.’” Except as

expressly so admitted, Public Agencies lack sufficient knowledge to admit or deny the

allegations of Paragraph 8 and, on that basis, deny each and every remaining allegation of

Paragraph 8.

9. Answering Paragraph 9 of the Complaint, Public Agencies admit that DWR is

authorized to carry out specified duties and functions in relation to the State Water Project by

the Central Valley Project Act (Cal. Water Code §§ 11100 et seq.) (the “CVP Act”) and the

Burns-Porter Act (Cal. Water Code §§ 12930 et seq.). Except as expressly so admitted, Public


basis, deny each and every remaining allegation of Paragraph 9. Public Agencies allege that

the cited provisions of the CVP Act and Burns-Porter Act speak for themselves.


therein.


therein.


therein.

The California WaterFix

13. Answering Paragraph 13 of the Complaint, Public Agencies admit that DWR has

in recent years undertaken plans for delivery of State Water Project water across the Delta.

Except as expressly so admitted, Public Agencies lack sufficient knowledge to admit or deny

the allegations of Paragraph 13 and, on that basis, deny each and every remaining allegation of

Paragraph 13.


purports to have approved the financing of the planning and design and, if and when

appropriate, the acquisition and construction of the conveyance facilities referred to as the

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California WaterFix. Public Agencies admit that the California WaterFix would, among other

things, transport water from new intake points on the Sacramento River across the Delta by two

underground tunnels running below the natural waterways of the Delta to export facilities at the

southern edge of the Delta. Public Agencies deny that DWR has established the financial

feasibility of the California WaterFix, and that the California WaterFix would reduce the

necessity of transporting State Water Project water through the Delta’s natural waterways.

Public Agencies also deny that DWR has the legal authority to approve the financing of the

planning and design and the acquisition and construction of the conveyance facilities referred to

as the California WaterFix. Except as expressly so admitted and denied, Public Agencies lack

sufficient knowledge to admit or deny the allegations of Paragraph 14 and, on that basis, deny

each and every remaining allegation of Paragraph 14.

15. Answering Paragraph 15 of the Complaint, Public Agencies admit that DWR has

adopted resolutions which purport to authorize the issuance of revenue bonds, the proceeds of

which DWR claims would be used to pay the capital costs of the California WaterFix. Public

Agencies further admit that DWR’s complaint asserts that the authority to finance the

California WaterFix as one or more units of the Project, separate and apart from other units of

the Project, and in accordance with the terms of the Resolution and Supplemental Resolutions,

is a subject of this validation action. Public Agencies deny, however, that this is the sole

subject of this validation action. Public Agencies also deny that the California WaterFix

qualifies as a unit of the Project, and that DWR has established it would be constructed,

maintained and operated “separate and apart” from other units of the Project. Except as

expressly so admitted and denied, Public Agencies lack sufficient knowledge to admit or deny

the allegations of Paragraph 15 and, on that basis, deny each and every remaining allegation of

Paragraph 15.

Statutory Authority for the California WaterFix

16. Answering Paragraph 16 of the Complaint, Public Agencies, Public Agencies lack

sufficient knowledge to admit or deny the allegations of Paragraph 16 and, on that basis, deny

each and every allegation of Paragraph 16.

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17. Answering Paragraph 17 of the Complaint, Paragraph 17 sets forth a quotation

from, and description of, a statutory provision and, as such, requires no response.

18. Answering Paragraph 18 of the Complaint, Public Agencies deny that section

11260 of the CVP Act authorizes DWR to include the California WaterFix as one or more of

the units “provided for in this chapter.” To the extent that Paragraph 18 merely sets forth a

quotation from a statute, it requires no response.

19. Answering Paragraph 19 of the Complaint, Paragraph 19 merely sets forth a

quotation from a statute and, to that extent, requires no response. To the extent Paragraph 19

may be deemed to contain statements of fact, Public Agencies deny all such allegations.

20. Answering Paragraph 20 of the Complaint, including the two footnotes to that

paragraph, Paragraph 20 sets forth quotations from a California statute and decisions of

California courts and, to that extent, requires no response. To the extent Paragraph 20 may be

deemed to contain statements of fact and characterizations of applicable law, Public Agencies

deny all such allegations.


from a California statute and, to that extent, requires no response. To the extent Paragraph 21

may be deemed to contain statements of fact and characterizations of law, Public Agencies


22. Answering Paragraph 22 of the Complaint, Public Agencies admit that pursuant to

the CVP Act DWR has powers with respect to Project facilities. Public Agencies deny that,

pursuant to the CVP Act or any other lawful enactment, DWR has the power to authorize the

planning, design, acquisition, construction, maintenance and operation of the California

WaterFix.

23. Answering Paragraph 23 of the Complaint, including the footnote thereto, Public

Agencies admit that DWR does not allege in the Complaint that it has satisfied all the statutory

and regulatory requirements to begin construction of the California WaterFix. Public Agencies

deny that the CVP Act authorizes DWR to issue revenue bonds to pay the capital costs of the

California WaterFix. Public Agencies deny that the statutory and regulatory requirements

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governing and/or affecting implementation of construction and operation of California

WaterFix are not at issue in this validation action. Except as expressly so admitted and denied,

Public Agencies lack sufficient knowledge to admit or deny the allegations of Paragraph 23

and, on that basis, deny each and every remaining allegation of Paragraph 23.

24. Answering Paragraph 24 of the Complaint, Paragraph 24 sets forth quotations

from California statutes and, to that extent, requires no response. To the extent Paragraph 24

may be deemed to contain statements of fact and characterizations of law, Public Agencies



from A California statute and, as such, requires no response.

The California WaterFix Financing

A. The California WaterFix General Bond Resolution and California WaterFix

Revenue Bonds


therein.

27. Answering Paragraph 27 of the Complaint, including the footnote thereto, the

“Resolution” referred to therein and the referenced “Project Order No. 40” speak for themselves.

To the extent Paragraph 27 may be deemed to include any factual allegations other than

statements appearing on the face of the “Resolution” and “Project Order No. 40,” Public



28. Answering Paragraph 28 of the Complaint, Public Agencies admit that pursuant to

the Resolution DWR purported to authorize the issuance of California WaterFix Revenue

Bonds. Paragraph 28 sets forth a quotation from the Resolution and, to that extent, requires no

response. To the extent Paragraph 28 may be deemed to contain statements of fact, Public

Agencies deny all such allegations.


Resolution recites that DWR determined “that the public interest and necessity require the

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carrying out of the objects and purposes of the [CVP] Act by the acquisition and construction”

of the California WaterFix. Public Agencies deny that the Resolution made a lawful showing

of “public convenience and necessity,” and deny that acquisition and construction of California

WaterFix would carry out the objects and purposes of the CVP Act. Except as expressly so

admitted and denied, Public Agencies lack sufficient knowledge to admit or deny the

allegations of Paragraph 29 and, on that basis, deny each and every remaining allegation of

Paragraph 29.

30. Answering Paragraph 30 of the Complaint, Paragraph 30 sets forth verbatim

sections of text from the Resolution and, to that extent, requires no response. Public Agencies

deny, on information and belief, that the findings and determinations in the Resolution were

made pursuant to and in accordance with Section 11701 of the CVP Act and otherwise in

accordance with the CVP Act, and that they fully and accurately accounted for the costs of

California WaterFix even as a preliminary estimate.


From the Resolution and, as such, requires no response.


From the Resolution and, as such, requires no response. To the extent Paragraph 32 may be

deemed to contain statements of fact, Public Agencies deny all such allegations.


from the Resolution and, as such, requires no response. To the extent Paragraph 33 may

be deemed to contain statements of fact, Public Agencies deny all such allegations.


from the Resolution and, as such, requires no response. Public Agencies lack sufficient

knowledge to admit or deny the remaining allegations of Paragraph 34 and, on that basis, deny

each and every remaining allegation of Paragraph 34.


Resolution purports to authorize issuance of Bond Anticipation Bonds and Refunding Bonds.

Except as expressly so admitted and denied, Public Agencies lack sufficient knowledge to admit

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or deny the allegations of Paragraph 35 and, on that basis, deny each and every remaining

allegation of Paragraph 35.

36. Answering Paragraph 36 of the Complaint, Paragraph 31 sets forth a quotation from

the Resolution and, as such, requires no response.

B. The First and Second Supplemental Resolutions


therein.

38. Answering Paragraph 38 of the Complaint, to the extent Paragraph 38 consists of

quotations from the First Supplemental Resolution it requires no response. Public Agencies lack

sufficient knowledge to admit or deny the remaining allegations of Paragraph 38 and, on that



from the Resolution and, as such, requires no response.

40. Answering Paragraph 40 of the Complaint, to the extent Paragraph 40 consists of

quotations from the Second Supplemental Resolution it requires no response. Public Agencies

lack sufficient knowledge to admit or deny the remaining allegations of Paragraph 40 and, on

that basis, deny each and every remaining allegation of Paragraph 40.

Statutory Authority to Bring this Validation Action

41. Answering Paragraph 41 of the Complaint, Paragraph 41 sets forth legal

conclusions and/or statements of law as to which no response is required. To the extent

Paragraph 41 may be deemed to contain statements of fact, Public Agencies deny all such

allegations.


Conclusions and/or statements of law as to which no response is required. To the extent


allegations.


herein.

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Conclusions and/or statements of law as to which no response is required. To the extent


allegations.

Service By Publication of Summons


Conclusions and/or statements of law as to which no response is required.

46. Answering Paragraph 46 of the Complaint, Public Agencies lack sufficient

knowledge to admit or deny the allegations of Paragraph 46 and, on that basis, deny each and

every allegation of Paragraph 46.







First Cause of Action

(Determination of Validity)

49. Answering Paragraph 49 of the Complaint, Public Agencies incorporate by

reference as though fully set forth herein their responses in paragraphs 1 through 48, inclusive,

above.

50. Answering Paragraph 50 of the Complaint, Public Agencies deny the allegations

therein and denies, further, the DWR is entitled to any declaratory relief whatsoever.

Prayer for Relief


prays for the relief described in Paragraph 51. Except as expressly so admitted, Public

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Agencies lack sufficient knowledge to admit or deny the allegations of Paragraph 51 and, on

that basis, deny each and every allegation of Paragraph 51.











Agencies deny the allegations of Paragraph 54.



Agencies deny the allegations of Paragraph 55. Public Agencies deny that DWR is entitled to

the relief sought in Paragraph 55 or to any injunctive or other form of relief whatsoever.



Agencies deny that DWR is entitled to the relief sought in Paragraph 56 or to any other form of

relief whatsoever.


prays for the relief described in Paragraph 57. Except as expressly so admitted, Public Agencies

deny the allegations of Paragraph 57. Public Agencies deny that DWR is entitled to the relief

sought in Paragraph 57 or to any injunctive or other form of relief whatsoever.

ADDITIONAL DEFENSES

58. For their separate and additional defenses, and without admitting that they bear the

burden of proof or persuasion as to any such defenses, Public Agencies allege as follows:

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DEFENSE

(Failure to State a Claim)

59. The Complaint, including each purported cause of action and remedy sought

therein, fails to allege facts sufficient to constitute a cause of action.

DEFENSE

(Prematurity/Ripeness)

60. DWR seeks to establish “valid, legal and binding obligations,” the validity of

which all others would be enjoined and restrained from challenging in the future. The validation

sought by DWR would be premature under Code of Civil Procedure section 860, et seq., for at

least the following reasons:

A. Essential details of the project and its financing remain undefined,

unapproved, or both.

B. The proposed procedure for bond repayment is vague, confusing, and

incomplete.

C. DWR fails to establish the amount of revenue bonds needed for the project,

and to accurately disclose uncertainties in project costs and financing and risks

from default and cost overruns.

D. A validation judgment based upon DWR’s complaint and resolutions would

be incapable of meeting the purpose of the validation statute (Code Civ. Proc., §

860, et seq.) to promptly settle all questions about the validity of DWR’s action.

E. A validation judgment based upon DWR’s complaint and resolutions would

raise risks of fragmented and inconsistent rulings on validity.

DEFENSE

(Impairment of State Water Project Operation and Maintenance)

61. The validation sought by DWR would prejudicially impair State Water Project

operation and maintenance, violating DWR’s Burns-Porter Act obligations in at least the respects

specified below:

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A. DWR’s chief responsibilities as operator and manager of the State Water

Project are set forth in the Burns-Porter Act (also called the “Bond Act”), codified

in the Water Code following its approval by California voters in 1960. (Wat. Code,

§§ 12930, et seq.)

B. The objective of the State Water Project to operate for the good of the people

of California was central to its approval and enactment. See P.A. Towner, Brief

History of the Negotiation of Water Supply Contracts for the State Water Project,

presented to the California Water Commission (Dec. 3, 1976). SWP contractors are

required to have taxing authority. See Wat. Code, § 12937 (codifying original SWP

financial commitments).

C. The Burns-Porter Act does not authorize revenue bonds for the project.

Rather than claiming it does, DWR relies upon the Central Valley Project Act.

Under the Burns-Porter Act, the California Water Resources Development Bond

Fund places its highest priority on annual maintenance and operation. (Wat. Code,

§ 12937.)

D. Cost overruns and failure to account for risks to customers have been

recurrent in the State Water Project’s history. Cost estimates for the State Water

Project of $1.75 billion (the amount in general obligation funds authorized under

the Burns-Porter Act) have more than quadrupled under the existing project

contracts, notwithstanding DWR’s subsequent recognition that the State Water

Project cannot be completed as originally contemplated. State Water Project

contracts are presently set to expire for all 29 State Water Project contractors

between 2035 and 2042.

E. DWR’s revenue bond resolutions for California WaterFix (Complaint,

Exhibits A-C) are based on evasive and deficient accounting for costs and risks of

the Delta tunnels. Among other problems, the resolutions fail to account for the

likelihood of major cost overruns far exceeding DWR’s preliminary estimates, and

do not address DWR’s failure to secure reliable funding commitments from project

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beneficiaries. They also fail to confront risks stemming from the likelihood that

much of the project funding referenced by DWR (including a $7.2 billion

contribution attributed to “other sources”) will not materialize, resulting in

undisclosed risk for others.

F. DWR’s validation complaint posits that the revenue stream to pay operation

and maintenance costs of the Delta tunnels, and the debt service for its proposed

revenue bonds, will come from “payments made by contractors under the Water

Supply Contracts.” Complaint, ¶ 34. However, DWR fails to address adverse

consequences stemming from validation of DWR’s bond resolutions, which seek to

create incontestable obligations that would remain binding regardless of whether

investments in California WaterFix prove to be lawful or financially viable. Bond

validation would effectively provide a public subsidy for the Delta tunnels project,

discouraging more economically and environmentally productive investments in the

management and use of water resources.

G. The validation sought by DWR would place additional strains on the existing

State Water Project’s operation and maintenance, as well as its replacement reserve

and emergency costs, when contractors and their customers are called upon to bear

these risks. Bond validation would impair the sustainable operation of the State

Water Project, creating risks for millions of Californians depending upon its safe,

affordable and environmentally responsible operation.

DEFENSE

(Validation would Unlawfully Prejudice California Voters and Taxpayers)

62. The validation DWR seeks by its Complaint would prejudice California voters and

taxpayers in at least the following ways:

A. DWR’s water supply contracts provide that when contractors are unable to raise

sufficient funds by other means, State Water Projects contractors are to levy

assessments on all property not otherwise exempt within a contractor’s territory. If

contractors are unable to raise sufficient funds to cover costs associated with the

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Delta tunnels, DWR is likely to pressure contractors to impose property tax

increases in order to address the deficit. Foreseeable conflicts are likely to emerge

over whether levying taxes to cover costs of the Delta tunnels are within the costs

of “maintaining, operating and replacing” the existing State Water Project.

(Goodman v. County of Riverside (1983) 140 Cal.App.3d 900, 908.)

B. Bond validation for the Delta tunnels, a project facing major cost uncertainties and

posing serious risks of substantial cost overruns, would invite conflicts over

whether it overrides opportunities under Propositions 13, 26 and 218 to challenge

property tax increases without a public vote.

DEFENSE

(Underlying Project Not Yet Approved)

63. DWR inaccurately characterizes the relationship between this action and other

California WaterFix proceedings by suggesting that still-unresolved proceedings over the

lawfulness of the Delta tunnels have no bearing on the determination of bond validity.

64. DWR does not clearly disclose how the outcome of unresolved administrative

proceedings, federal decision-making, and stakeholder financing decisions could, and almost

certainly will, transform the very nature of the project, or whether there is a project at all.

65. The underlying project, California WaterFix, is the already the subject of

numerous other pending legal actions, challenging compliance with CEQA, the Delta Reform

Act, the public trust doctrine, and state and federal laws protecting endangered species, among

other laws.

66. DWR implausibly claims authorization and issuance of revenue bonds would not

be “affected in any way” by the outcome of later proceedings—even if they render expenditures

or debt on California WaterFix unlawful.

67. DWR fails to disclose that the outcome of unresolved proceedings could turn

project facilities into stranded assets.

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DEFENSE

(Underlying Project Violates Delta Protection Laws)

68. Bond validation would improperly create binding obligations in furtherance of a

project that cannot lawfully proceed, in at least these respects:

A. DWR has failed to account, fix and establish rates and charges to its water supply

contractors to pay the entire costs of the Project in addition to the Delta tunnels. The

entire costs include, without limitation:

1) All costs and expense incurred directly or indirectly prior to, during and after

construction, including related studies, permitting, programs, habitat projects, fish and

wildlife-related expenditures, State agency and department services paid from Project

revenues, the State general fund and State general obligation bond fund sources;

2) All costs and expense to preserve fish and wildlife;

3) All costs and expense to mitigate for Project impacts, including WaterFix impacts;

4) All cost and expense of construction, operation and maintenance of the Project,

together with necessary repairs and replacements thereto;

5) All cost and expense to provide salinity control for the Delta;

6) All cost and expense to provide a San Joaquin Valley Drain to safely remove salts

from areas receiving water from the Project;

7) All cost and expense for issuance and redemption of all related bonds, including

timely payment of interest thereon.

B. All cost and expense of the Delta tunnels shall be charged to the water supply

contractors receiving the water diverted through the intakes and tunnels thereof.

C. Project facilities, and the Delta tunnels, cannot be used to export water from the

Delta if such water is necessary to provide water to which Delta users are entitled and water

which is needed for salinity control and an adequate supply for Delta users. (See United States

v. State Water Resources Control Board (1986) 182 Cal.App.3d 82, 139; Wat. Code,

§§12205.)

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D. DWR cannot authorize the Delta tunnels in that they do not constitute a project

consisting of master levees, control structures, channel improvements and appurtenant

facilities in the Sacramento-San Joaquin Delta for water conservation, water supply in the

Delta, transfer of water across the Delta, flood and salinity control and related functions.

(Wat. Code, § 12934(d)(3).)

E. DWR cannot authorize the Delta tunnels in that they would remove water for

export from the Delta from the “common pool” required by Water Code 12200 et seq.,

inconsistent with the contemporaneous interpretation of law by the Department as set forth in

the December 1960 Report to the California Legislature (Preliminary Bulletin 76).

F. DWR cannot authorize the Delta tunnels in that that such construction and

operation would violate Water Code sections 11460 and 1216.

G. DWR cannot authorize the Delta tunnels in that the intended purpose and use is to

divert water for export when such water is needed for flushing flows to maintain salinity

control and an adequate water supply in the Delta during drought, times of sea level rise, and

in the event levees fail such that ocean salinity is induced farther into the Delta.

H. DWR cannot authorize the Delta tunnels in that their construction and operation

would not reduce water export contractor reliance on water supply from the Delta.

I. DWR cannot authorize the Delta tunnels in that they do not provide a more reliable

water supply for the Bay-Delta Estuary as a part of California in a manner that protects and

enhances the unique cultural, recreational, natural resource, and agricultural values of the Delta

as an evolving place.

J. DWR cannot authorize the Delta tunnels due to their lack of lawful approval,

exemplified by California voters’ rejection of isolated conveyance of water across the Delta

for export in the 1982 Referendum on SB 200.

DEFENSE

(Underlying Project Violates the Delta Reform Act of 2009)

69. Pending actions challenge DWR’s compliance with the Delta Reform Act of 2009

in its California WaterFix decision-making, and allege substantial violations of the Act.

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70. Under Water Code section 85320, subdivision (b), the BDCP, would not be

eligible for public funding unless it complied with the provisions listed in subdivision (b)(1) and

(2), including compliance with CESA (Fish & G. Code, §§ 2800 et seq.) and CEQA (Pub.

Resources Code, §§ 21000 et seq.) Since California WaterFix lacks compliance with these

mandatory requirements, no state funding, including revenue bonds, may be issued to fund the

project.

71. The Delta Reform Act as codified in Water Code § 85089 mandates that:

Construction of a new Delta conveyance facility shall not be initiated until the

persons or entities that contract to receive water from the State Water Project and the federal

Central Valley Project or a joint powers authority representing those entities have made

arrangements or entered into contracts to pay for both of the following:

(a) The costs of the environmental review, planning, design, construction, and

mitigation, including mitigation required pursuant to Division 13 (commencing

with Section 21000 of the Public Resources Code) required for the construction,

operation, and maintenance of any new Delta water conveyance facility.

(b) Full mitigation of property tax or assessments levied by local governments or

special districts for land used in the construction, location, mitigation, or

operation of new Delta conveyance facilities.

72. Bond validation would effectively subsidize the California WaterFix project,

without ensuring payment by beneficiaries required under the Delta Reform Act.

73. DWR’s proposed revenue bonds, and creation of binding obligations in them, are

contrary to law because the Delta Reform Act requires that the persons or entities contracting to

receive water from the water projects pay all costs of environmental review, planning, design,

construction, and mitigation required for the construction, operation, and maintenance of any

new Delta water conveyance facility.

74. The California WaterFix project is also unlawful under other provisions of the

Delta Reform Act, including but not limited to, sections 85021, 85023, 85053, and 85054.

75. DWR cannot lawfully obtain the bond validation sought here prior to judicial

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resolution of whether DWR’s actions sought to be validated are lawful under the Delta Reform

Act.

DEFENSE

(Underlying Project Violates CEQA)

76. DWR’s issuance of revenue bonds and creation of binding obligations in

support of Water-Fix would effectively subsidize and give unlawful impetus to this

legally challenged project, failing to ensure compliance with CEQA and potentially

foreclosing alternatives and mitigation measures, contrary to the requirements of CEQA.

Multiple lawsuits are currently pending in this and other California Superiors Courts

which challenge DWR’s compliance with CEQA in certifying the EIR and approving

California WaterFix. DWR cannot lawfully obtain the bond validation sought herein

prior to judicial resolution of whether the DWR actions sought to be validated are lawful

under CEQA.

DEFENSE

(Violation of Treasury Code and Other Reimbursement Rules)

77. According to the Complaint, revenue bonds issued for the Delta Tunnels

could be impermissibly used to reimburse sunk planning costs expended on the Delta

Tunnels, contrary to Treasury Regulations. (See 26 CFR, § 1.150.2.) These restrictions apply to

registered bonds (tax exempt) of a State or political subdivision thereof under section 103,

subdivision (c)(1). (26 CFR, § 1.150-1.)

78. Planning costs of the Delta tunnels go back over ten years, and the

Complaint and accompanying resolutions state that these costs will be refunded through tax

exempt bonds. (Complaint, ¶¶ 38, 39, 50, subd. (c); see also Resolution No. DWR-CWF-l, pp.

2, §§ 205, subd. (B), 502; Resolution No. DWR-CWF-2 1304, 1501, subd. (C) [discussing

reimbursement of planning and preconstruction costs without temporal limit].)

79. Treasury Regulations generally limit the use of tax exempt bonds to

reimburse planning, engineering, and debt costs to 5 years at most. (26 CFR, § 1.150.2, subd.

(d)(2).) Violating these reimbursement rules could place the tax-exemption of the bonds at risk.

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Without any limitation on use of the bonds for reimbursement, the bond issuance is invalid.

DEFENSE

(Lack of Specificity)

80. Bond validation cannot occur due to the uncertain and vague presentation of the

Complaint on the nature of the action to be validated and the scope of relief.

DEFENSE

(Estoppel)

81. Bond validation cannot occur due to estoppel. Among other things, DWR has

repeatedly assured the public and the Legislature that the proposed Delta tunnels would not be

financed with taxpayer money or expose California taxpayers to potential costs or liability in the

event that non-taxpayer financing fails or cannot cover substantial cost overruns in the design,

construction and/or operation of the Delta tunnels.

DEFENSE

(Waiver)

82. Bond validation cannot occur due to waiver of grounds essential to the granting of

that relief.

DEFENSE

(Statutory Conditions Precedent Not Met)

83. Bond validation cannot occur because statutory conditions precedent have not

been met.

DEFENSE

(Failure to Name Indispensable or Necessary Parties)

84. Bond validation cannot occur due to the failure to name indispensable or

necessary parties.

DEFENSE

(Balancing of Equities)

85. The balancing of equities favors the denial of bond validation.

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DEFENSE

(Violation of Due Process)

86. Bond validation cannot occur due to considerations of procedural due process.

DEFENSE

(Bad faith and improper purpose)

87. Bond validation cannot occur due to bad faith and improper purpose.

DEFENSE

(Unclean Hands)

88. Bond validation cannot occur due to unclean hands.

DEFENSE

(Reservation of Defenses)

89. Certain additional defenses to the Complaint and to the purported cause of action

therein stated may be available to the Public Agencies. However, these additional defenses

require further discovery before they can be properly alleged. Public Agencies therefore reserve

the right to assert other separate and additional defenses, causes of action, and/or cross-

complaints if and when they become appropriate in this action.

PUBLIC AGENCIES’ PRAYER FOR RELIEF

WHEREFORE, Public Agencies respectfully request the Court enter judgment as

follows:

A. For a determination that it is premature for DWR to request, or for this Court to

adjudge, validation of revenue bonds to finance capital costs for California WaterFix, DWR’s

resolutions adopted in connection with those bonds, and the pledge of revenues for their

repayment.

B. That DWR take nothing by its Complaint.

C. That facts and law as alleged herein by Public Agencies be determined as alleged in

favor of Public Agencies.

D. If, and to the extent a judgment of validation is entered, Public Agencies request that

such Judgment be limited in scope, and against validation, with an affirmative determination as

to the legal and factual issues set forth herein, in favor of these answering Public Agencies:

1 County of San Joaquin, Central Delta Water Agency, County of Contra Costa, Contra Cost

2 County Water Agency, County of Solano, County of Yolo, County of Butte, County of Plumas,

3 Plumas County Flood Control and Water Conservation District, and Local Agencies of the Nort

4 Delta.

5 E. That Public Agencies be awarded reasonable attorneys' fees pursuant to Code 0

6 Civil Procedure section 1021.5 and/or to the extent otherwise allowed by any provision 0

7 California statutory law or any common law doctrine recognized in California.

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F.

G.

For Public Agencies' costs of suit herein.

For such other and further relief as the Court may deem just and proper.

Dated: September 15,2017



Respectfully submitted,

FREEMAN FIRM, A PLC

By: L. THOMAS H. KEELING Attorney for Public Agenci

::S@ OORE. LLP ROGER B. MOORE Attorney for Public Agencies

SOLURI MESERVE, A LAW CORPORATION

By: (Jt~~ Osha R. Meserve Attorney for Local Agencies of the North Delta

41 RESPONSE AND ANSWER TO COMPLAINT FOR V ALIDA TION

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VERIFICATION

I, Thomas H. Keeling, am counsel of record for County of San Joaquin, Central Delta

Water Agency, County of Contra Costa, Contra Costa County Water Agency, County of Solano,

County of Yolo, County of Butte, County of Plumas, and Plumas County Flood Control and

Water Conservation District (“Public Agencies”), parties to the foregoing Response and Answer

of Public Agencies to Complaint for Validation (“Response and Answer”). I sign for Public

Agencies absent from the county and/or because facts contained in the Response and Answer are

within the knowledge of counsel. I have read the foregoing Response and Answer and know the

contents thereof. The same is true of my own knowledge, except as to those matters that are

alleged on information and belief, and as to those matters, I believe them to be true.

I declare under penalty of perjury under the laws of the State of California that the

foregoing is true and correct. Executed this 15th day of September, 2017, in Stockton,

California.

____________________________ THOMAS H. KEELING

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VERIFICATION

I, Osha R. Meserve, am counsel of record for Local Agencies of the North Delta, one of

the parties to the foregoing Response and Answer of Public Agencies to Complaint for

Validation (“Response and Answer”). I sign for LAND because others affiliated with LAND

are absent from the county and/or because facts contained in the Response and Answer are

within the knowledge of counsel. I have read the foregoing Response and Answer and know the

contents thereof. The same is true of my own knowledge, except as to those matters that are

alleged on information and belief, and as to those matters, I believe them to be true.

I declare under penalty of perjury under the laws of the State of California that the

foregoing is true and correct. Executed this 15th day of September, 2017, in Sacramento,

California.

____________________________

OSHA R. MESERVE

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PROOF OF SERVICE

I hereby certify that I am a citizen of the United States, over the age of eighteen years, and not

a party to this action. My business address is 1818 Grand Canal Boulevard, Suite 4, Stockton,

California 95207. I served the foregoing document entitled:

VERIFIED RESPONSE AND ANSWER OF PUBLIC AGENCIES TO COMPLAINT FOR VALIDATION

Service by United States Mail:Service by United States Mail:Service by United States Mail:Service by United States Mail:

� by placing a true copy thereof enclosed in a sealed envelope or package with postage thereon

fully prepaid in a box or receptacle designated by my employer for collection and processing of

correspondence for mailing with the United States Postal Service, addressed as set forth below. I am

readily familiar with the business practices of my employer, FREEMAN FIRM, for the collection and

processing of correspondence for mailing with the United States Postal Service. Under that practice,

the correspondence placed in the designated box or receptacle is deposited with the United States

Postal Service at San Joaquin County, California, the same day in the ordinary course of business.

Attorneys for California Department of Water Resources:Attorneys for California Department of Water Resources:Attorneys for California Department of Water Resources:Attorneys for California Department of Water Resources:

Michael Weed

Orrick, Herrington & Sutcliffe LLP

400 Capitol Mall, Suite 3000

Sacramento, CA 95814-4497

Spencer Kenner

Christopher Martin

California Department of Water Resources

Office of the Chief Counsel

1416 Ninth Street

Sacramento, CA 95814

The acts described above were undertaken and completed in San Joaquin County on

September 15, 2017.

I declare under penalty of perjury under the laws of the State of California that the foregoing is

true and correct, and that this declaration was executed at Stockton, California.

TONIA M. ROBANCHO

dante john nomellini (sbn 040992)

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