The Last Act: Ducey's folly

The attempted cramdown of a desalination proposal was a raw exercise in crony capitalism.

The last meeting of the Water Infrastructure Finance Authority before Gov. Doug Ducey rides off into the sunset was a sorry spectacle in governance. There was an attempted cramdown of a raw exercise in crony capitalism. And it partially succeeded. 

Last session, the legislature revamped the authority and gave it a billion dollars over three years for water augmentation projects.

The revamped authority board has nine voting members, five appointed by the governor and one each by the Senate president and minority leader and the House speaker and minority leader. There’s a geographical distribution requirement for board members, but appointments aren’t subject to Senate confirmation.

In other words, Ducey appointed the board’s majority, with authority to spend a billion dollars of taxpayer money, without any true check or balance.

Ducey has long been a desalination bug. And it was clear that he intended for the billion bucks to be used to somehow get desalinated water from Mexico to Arizona. 

The final board appointment wasn’t made until early November. The revamped authority is still in its early organizational phase. Yet, just before Christmas, it took preliminary steps to commit $750 million of the billion to a specific desalination project. 

When the authority revamp legislation was making its way through the legislature, rumors were rampant that the fix was in for a particular group and project. The rumors were vigorously denied. The authority would operate with a clean slate, all proposals would start on an equal footing, went the assurances.

Legislators who believed that were naïve. Yet there were only two votes in the entire legislature against the revamped authority, with that appointment process, and the statutory rules allowing this particular proposer, called the IDE group, to get to the head of the line.

While the full story of how the structure was gamed to get the IDE proposal to the head of the line has yet to be flushed out, there are fingerprints in the legislation itself. While the legislation calls on the authority to set up processes to consider competing water augmentation proposals, there is the option for self-initiated proposals, which the IDE group has triggered. The legislation says that three-quarters of the billion appropriated, or $750 million, has to be used to import water from outside of Arizona. Which happens to be exactly the amount the IDE group is asking the authority to put into escrow to purchase desalinated water from it. Undoubtedly purely a coincidence.

Under the proposal, the authority would commit to purchasing water from an IDE desalination plant near Puerto Penasco. The water would be piped 200 miles across Mexico and Arizona to hook up to the Central Arizona Project west of the Phoenix metro area.

The authority didn’t sign up fully yet. But it did authorize the development of a term sheet with the IDE group and pledged to coordinate with it in procuring the necessary governmental approvals for the project. In effect, the IDE group gets the first swings at bat. As a practical matter, the money is frozen unless and until it strikes out. 

Which is highly likely, even with a purchasing commitment from the authority. The idea that Mexico will agree to a desalination plant and pipeline that mostly benefits Arizona seems far-fetched. Selling its feasibility to investors, who will be familiar with Mexico’s history of natural resource expropriation, will be a tall task. 

This is all putting several carts before several horses. Colorado river entitlements are going to have to be reshuffled to accommodate the lower flows, both between states and within Arizona. Until that is done, how much there is in shortages and where they fall is unknown. As are other options for reconciling supply and demand. Making a $750 million dollar commitment to desalination is grossly premature.

Desalinated water is very expensive. The resolution passed by the authority says that it won’t get pregnant with its $750 million until there are secondary buyers lined up to purchase the water from it. But until the reshuffle takes place and retail water operators know where they stand and what their options are, they aren’t going to be elbowing each other aside to purchase a specific quantity of very expensive water.

This sorry spectacle is reminiscent of Ducey’s approach to sports betting licenses. If the state was going to grant a limited number of legal bookie licenses, creating an oligopoly, the only way to maximize returns for taxpayers would be to put the licenses up for auction by qualified bidders. Instead, Ducey gave them away to professional sports teams for a set fee. Lawmakers went along with that as well.

Legislators are expressing dissatisfaction and discomfort with the way the authority revamp has turned into a quick-pitch deal for a specific group and project, but disclaiming any ability to do something about it.

That, however, isn’t true. They can repeal the revamp and take back the money. Arizona would benefit from a fresh start on coping with reconciling supply and demand for water.

Reach Robb at robtrobb@gmail.com.