A California appeals court ruled that the state lacks authority to issue the revenue bonds the Department of Water Resources had planned for a 45‑mile tunnel under the Sacramento‑San Joaquin River Delta. The decision removes a key financing tool from the Delta Conveyance Project and leaves agencies and lawmakers considering alternative funding options. The ruling raises the question of who will ultimately fund the tunnel.
Appeals court draws a tight line on bond power
The Third District Court of Appeal in Sacramento upheld a lower court ruling that the Department of Water Resources exceeded its legal authority by linking a broad delta program definition to its bond authorizations. The court found that the bond resolution gave the department too much discretion to finance any Delta conveyance facility, which could not be legally validated.
How big a setback is this?
The Department of Water Resources adopted the bond resolutions in 2020 to raise funds for planning and, if approved, construction of the project. Supporters estimated the overall program at several tens of billions of dollars and described the tunnel as a roughly 45‑mile, multi‑year project. The resolutions were challenged in court shortly after adoption and have never been issued.
The appeals court’s ruling removes the legal validation that DWR had sought to assure investors of the bonds’ legality.
The Department of Water Resources said the ruling does not end the tunnel project and that it disagrees with the court’s interpretation of its bond authority. The department told the San Francisco Chronicle that it has filed new legal arguments addressing the trial court’s earlier objections.
At the same time, DWR has filed a second validation action in Sacramento Superior Court to obtain the legal assurances that lenders generally require before purchasing government debt.
What the ruling actually blocks
The opinion is limited in scope. It does not prohibit construction of the tunnel or eliminate all potential financing options. It prevents DWR from using the 2020 bond resolutions, as written, to issue revenue bonds for the Delta Conveyance Program.
The validation process is the standard method investors use to verify that a public agency’s bond sale is legally authorized. Without it, DWR would need either explicit legislative approval or a successful rehearing or further appeal to proceed with this bond structure.
The court questioned how DWR defined the delta program in its resolutions. It found that the program, as described, was not sufficiently linked to the existing Feather River Project to qualify as a permitted modification under the law governing DWR’s bond authority.
Political and funding options ahead
Restoring the bonding authority the state had sought would require action by the Legislature. Gov. Newsom advanced measures this year to expedite tunnel approvals and clarify funding authority.
With the court’s opinion in place, tunnel supporters have several options. They could seek explicit statutory authority from lawmakers to issue project-specific bonds, request further appellate review, or pursue alternative financing structures more directly tied to the water agencies and other beneficiaries of the tunnel. The Los Angeles Times has covered the earlier legislative debate, and DWR’s public filings outline the agency’s ongoing efforts to obtain a separate validation of its bond plans.
Local stakes and reaction
Delta counties, fishing groups, and environmental organizations that have opposed the tunnel welcomed the decision, saying it limits the state’s ability to move forward without additional approvals. Opponents have expressed concern that the bond plan could shift financial and environmental responsibilities onto Delta communities and State Water Project ratepayers, while leaving them exposed to potential risks if the project encounters problems.
Supporters say the Delta tunnel is needed to maintain California’s water reliability amid a hotter, drier climate and that not building it could also involve costs and risks. Courthouse News Service and other outlets have reported on opponents’ responses and the arguments they presented in court to challenge the bond validation.
For now, the ruling eliminates DWR’s primary method for raising billions of dollars through state-issued revenue bonds. The department, its water contractor partners, and the governor’s office could seek a rehearing or appeal to a higher court, while lawmakers consider whether to establish more specific bond authority. Any of these steps would affect the project’s timeline and maintain close attention from Delta communities.
