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In a sign that a deal addressing California’s longstanding water supply problems may be near, Gov. Arnold Schwarzenegger convened a special session of the Legislature on Monday to revisit a package of water bills.

A three-year drought, federal environmental regulations restricting water flows and the fixation of Schwarzenegger – who has said he is determined to leave a mark on one of the state’s most intractable problems before leaving office next year – have heightened the urgency for an agreement.

Schwarzenegger, a Republican, had threatened to veto some 700 bills if lawmakers did not reach a water deal by Sunday, the end of the regular legislative session. But he backed off that threat on Monday, citing progress as lawmakers and members of his staff hunkered down to work on the issue.

The special session is expected to last until the end of the week, and both Republicans and Democrats expressed optimism on Monday that a deal was in the offing.

“While we still need to hammer out remaining issues,” Darrell Steinberg, a Democrat and Senate president pro tem, said in a statement, “we are on the verge of the most comprehensive advance on water in California in decades. We’ve made significant breakthroughs on many of the sticking points that have plagued past attempts to stabilize the state’s water supply.”

The negotiations are focused on repairing the state’s fragile water ecosystem, unleashing new water supplies and increasing water conservation throughout the state. More specifically, negotiators hope to seal a deal that would make equal the goals of restoring the Sacramento-San Joaquin River Delta – a collection of channels, natural habitats and islands at the confluence of the Sacramento and San Joaquin rivers that is a major source of the state’s drinking water – and increasing the supply of water to residents, businesses and farms.

State officials say the restoration of the delta, as envisioned in the negotiations, would be the largest environmental restoration project in the United States, surpassing the effort under way in the Florida Everglades.

But the battle over how to distribute California’s water is generations old – it was Mark Twain who was believed to have said, “Whiskey is for drinking; water is for fighting over” – and when it comes to water legislation, close to done never means done. In the delta alone, myriad efforts have sought to change how water flows and to whom, including a package of five policy and bond bills that never made it to a vote in the Democratic-controlled Legislature this year.

Yet many factors have made the need to fix California’s water system problems all the more pressing.

The drought has led to water restrictions and increased prices for water around the state. And along with the drought, a federal order last year forcing water authorities to curtail the use of large pumps in the Sacramento-San Joaquin Delta to help preserve dying smelt has reduced water flows to agriculture and resulted in dust-bowl-like conditions for many of the state’s farms. In 2008, over 100,000 acres of the 4.7 million acres in the Central Valley were left unplanted, and experts expect that number to grow this year.