THE worsening drought in California will cause the state’s economy to lose as much as $2.74 billion and nearly 21,000 total jobs this year–and ripple effects of the 4-year-old drought will likely continue through at least 2017, according to a study released August 18.
The report, authored by the University of California, Davis Center for Watershed Sciences, also revealed that direct costs to the state’s agriculture economy will total $1.84 billion and 10,100 direct seasonal jobs. The $2.74 billion figure reflects the cost to all economic sectors, and when multiple effects are considered.
“Increased prices for crops will give a boost to some farmers in areas less affected by the drought and with access to groundwater,” according to the authors of the study.
“Central Coast and Southern California regions benefit from slightly higher commodity prices due to decreased production in other parts of the state,” the report stated.
Researchers estimated that the 2015 drought will result in the fallowing of 542,000 irrigated acres, mostly in the state’s Central Valley. An earlier similar UC Davis study estimated around 564,000 acres would be fallowed this year, but the update released Tuesday revised the impact “because water transfers, groundwater pumping and surface water deliveries have changed since our preliminary analysis.”
The recent study sees continued economic impacts through 2016 and 2017, which assumes this year’s water conditions for both years and “a slow decline in the water tables.” It also predicts nearly 550,000 fallowed acres by 2017.
Total crop revenue losses are projected to reach $902 million this year, and the study estimates that total gross revenue losses from crops under a continued drought will increase to nearly $940 million by 2017, according to CNBC. Additionally, drought-related losses for the state’s dairy industry are expected to reach $250 million this year, and another $100 million for the livestock division.
Increased pumping costs of about $587 million also will cut into farm incomes this year, the report stated. It estimated that groundwater pumping has been able to offset roughly 70 percent of the drought water shortage. However, new water regulations led by California Governor Jerry Brown are going into effect that could curb the ability of farmers to rely on groundwater reserves.
Meanwhile, Fitch Ratings released a report examining the impact of the state’s current 25 percent mandatory water cuts on water utilities and found 78 percent of utilities polled indicated that rate adjustments for Californians will be on tap in the next year or have already begun.
Fitch said the water reductions ordered by the state in May and the “short compliance time frame” that utilities had to adjust led to “revenue challenges and heighten credit risk for California’s retail water utilities. As a result of reduced water sales, many utilities will experience reduced financial margins in fiscals years 2015 and 2016.”
The rating agency forecasts recovery of financial margins in fiscal 2017, even if the severe statewide drought continues.
The median water rate increase next year will be around 5 percent, the Fitch report said, also adding that water rate hikes in some areas could go as high as 31 percent.
Besides rate increases, the report said more than half of the utilities surveyed expect to offset lower revenues by cutting operating expenditures, and 46 percent said they would use financial reserves. 37 percent of the companies also said they would divert from their planned capital spending to help offset the lost revenue, and 2 percent said they would consider debt service restructuring. (With reports from CNBC)
