By Nick Cahill, Courthouse News

SACRAMENTO (CN) – California’s mammoth $17 billion plan to overhaul the West Coast’s largest estuary took another hit Thursday, after state auditors revealed that a combination of skyrocketing costs and shaky oversight plague the contentious water project.

In a much-anticipated financial report of the California WaterFix, state auditors said planning costs have ballooned to $280 million and that the state has failed to prove that the project is financially viable going forward. The report also blasted the California Department of Water Resources for violating state law by awarding lucrative contracts to an unqualified firm without a bidding process.

The project, bitterly opposed by environmentalists, calls for two tunnels up to 150 feet beneath the Sacramento-San Joaquin River Delta and three new intakes with 3,000-cubic-feet-per-second capacity with an average annual yield of 4.9 million acre-feet of water.

State Auditor Elaine Howle recommended that before transitioning to the construction phase, the department should prove to taxpayers “as soon as possible” that the tunnels are feasible.

“The department has not completed either an economic or financial analysis to demonstrate the financial viability of WaterFix,” the 97-page report states. “Finally, it has not fully implemented a governance structure for the design and construction phase, and has not maintained important program management documents.”

Howle says planners have incurred significant cost increases and delays since the project’s proposal in 2006 due to the “unexpected complexity” of the project.

The audit comes two weeks after California’s largest irrigation district voted against participating in the project championed by Gov. Jerry Brown. California’s central and southern water districts that would benefit from the project are expected to pick up a major portion of the cost, with $11 billion in state government bonds filling the gap.

Auditors found that most of the estimated $280 million spent so far has come from federal agencies and state water suppliers. According to the report, none of the funding has come from the state’s general fund.

Along with cost increases, Howle says the department broke the law when it replaced the project’s program manager in 2009 without a competitive bidding process. She says the department advised the original managing firm to select its predecessor, a company that didn’t possess a valid engineering license or have experience planning large water infrastructure projects.

Adding insult to injury, as of July Hallmark’s contract had increased from an initial $4 million to $13.8 million.

According to the audit, the department couldn’t justify why it chose the unqualified firm to head one of the largest public works projects in California’s history. Instead, the department said Hallmark was recommended by Metropolitan Water District, the nation’s largest water supplier and major proponent of the project.

“In selecting Hallmark, the department disregarded many of the qualifications required for the original program manager,” the audit states. “Hallmark lacked a licensed engineer required by law for construction projects.”

Auditors also recovered an email from an unidentified department employee who was critical of the department’s practice of allowing contractors to pick sub-contractors without approval.

“The practice has become so prevalent, we’re actually starting to address it in our additional payment provisions where we allow a higher markup on [subcontractors] we direct the contractor to add. This looks surprisingly like a bribe to keep them quiet,” the email said.

Delta environmentalists applauded the audit’s findings.

“They failed to foresee the project’s complexity, used sweetheart deals to hire contractors, and failed to apply accountable management practices. Overall, the department breached the public’s trust in its attempts to plan and implement Gov. Jerry Brown’s tunnels vision,” Restore the Delta policy analyst Tim Stroshane said in a statement.

Department spokesperson Erin Mellon reiterated the audit has confirmed that no general fund dollars have been used on the project, and said it “validates the unprecedented and exhaustive work the department has done to propose the best project for the state of California.”

In a response letter, the department says it will complete a final economic analysis once each water district and other participants have opted into the project.

The Southern California-based Metropolitan Water District is set to vote on whether to support the project next week. Jeffrey Kightlinger, the district’s general manager, said the state must find a way to bring farming and urban water suppliers back to the bargaining table.

“It’s equally clear that actions must be taken to secure a reliable water supply for the state and to safeguard our economy. California must find a path forward from here that works for all of the partners,” Kightlinger said in a statement.