Nebraska Legislature’s internal research suggests canal won’t deliver what consultant projected

The Nebraska Legislature’s own research office is casting doubt on the amount of water that state officials expect a proposed canal will deliver to the state.

But it appeared few lawmakers had seen those findings as of Wednesday, even as they march toward transferring $574.5 million in state funds to build the canal and claim water from Colorado. 

The analysis done by the Legislative Research Office suggests that an outside consultant’s report – one used by state leaders to justify spending more than half a billion dollars on the project – may overestimate stream flows and overstate the canal’s benefits.

And it raises a question, says one outside expert who viewed the analysis this week: Is this canal worth pursuing?

“I guess, if I were a legislator, I’d have to pause,” said Mike Jess, longtime head of a state department then called the Nebraska Department of Water Resources, who served under both Republican and Democratic governors. “Is there a better place we can spend this money?”

The Legislative Research Office recently prepared a memo with its analysis after a request by Sen. John Cavanaugh, an Omaha Democrat. It was unclear Wednesday whether the memo, which Cavanaugh then gave to the Flatwater Free Press, is the totality of the internal research or some type of summary.

The research, which is meant to be a resource for state lawmakers as they make policy decisions, uses charts, graphs and is highly technical. But the conclusion is unmistakable: It suggests that the outside consultant’s portrayal of the canal’s benefits is overly optimistic.

That consultant’s report, “creates a false impression of the quantity of water the canal could deliver,” says the memo at one point.

Under a century-old compact, Nebraska has a right to water from the South Platte River during the fall and winter months if it builds a canal. Last year, then-Gov. Pete Ricketts proposed building it, saying it was crucial to protect the state’s water supply as Colorado’s population surges.

After the Legislature approved $53.5 million in initial funding – just a fraction of what Ricketts sought – the state hired a contractor, Zanjero, which issued a roughly 200-page report in December. 

That report says the canal project is well worth the cost.

“The Perkins County Canal Project would provide significant benefits for all Nebraska water users in the Platte River system that exceed Project costs,” it reads. 

Gov. Jim Pillen added more than $125 million to the budget request after the Zanjero report was issued, bringing the potential tab this year to $574.5 million. This single request is “orders of magnitude greater” than the Department of Natural Resource’s typical asks, Jess said.

The Department of Natural Resource’s entire budget is typically about $30 million a year. 

“(This request is) kind of like going through the sound barrier,” said Jess, who headed the water resources department for 18 years.

Jess is among experts who question whether the proposed canal’s benefits are overhyped. But proponents see the investment as a no-brainer.

“We have something we can do,” said Tom Riley, head of the state Department of Natural Resources. “We’re fortunate that (this compact) exists and we can develop and have this canal system and storage and continue to provide that benefit of water for Nebraskans for a long time to come.”

And the full Legislature has largely agreed. State lawmakers on Wednesday gave second-round approval to the budget bill that includes the $574.5 million transfer from the state’s Cash Reserve Fund into a canal fund. The bill only needs one more round of approval.

Last week, lawmakers soundly rejected (11-32) an amendment from Cavanaugh to backtrack and fund the original proposal for a smaller canal.

In its main budget bill, the Legislature appropriates $62.8 million of that money each of the next two years for the project. 

Sen. Rob Clements of Elmwood, a Republican and Appropriations chair, said he has relied on the experts at Zanjero in weighing the canal’s potential benefits.

If more information were to come out that called that report into question, he said, a future Legislature could change course – funds are only committed two years at a time, and annual expenditures are limited, which he considers a moderate approach.

“The threat of drying up irrigated land and hurting the economy out there (in western Nebraska) is a serious threat,” he said in a brief interview.

Though the Department of Natural Resources considers Zanjero’s yield analysis “conservative,” the research memo points to multiple places Zanjero could’ve been more careful in its estimates. 

It found that the contractor appeared to “overestimate stream flows” and that its economic analysis of the project “appears to overestimate project benefits,” inflating the ratio of benefits to costs.

“In effect, this approach treats the project like it was constructed in a single year, eliminating the need to discount costs,” it says. 

The memo, in detailing these takeaways, is dense and highly technical – Jess and Cavanaugh, though, agreed on its major takeaways.

“The takeaway from this report and the comparison is just that … the Zanjero report is overly favorable toward the project in terms of how much water will be available and what the return on investment will be,” said Cavanaugh. “That’s just the bottom line.”

In an ideal world, Cavanaugh said, senators would have a better understanding of such a complicated project before investing so much money upfront. Jess said that if he were a lawmaker, he’d at least want a briefing where he could ask more questions about the project after seeing the memo.

In a March interview with the Flatwater Free Press, Riley said he’s presented to nearly every legislator at different times, and that getting people the information they need to make good decisions is important to him.

The department hosts a website with documentation related to the canal project, including another “reconnaissance-level” economic benefits analysis from ERA Economics that found annual benefits of about $54 million.

Riley did not have a chance to respond to the memo as of Wednesday afternoon.

Any senator could’ve requested the same additional research Cavanaugh received. 

Neither Clements nor Sen. Bruce Bostelman of Brainard, who chairs the Natural Resources Committee, had seen the memo as of last week. Both seemed skeptical of it, noting that the Legislative Research Office wouldn’t have the same resources or expertise as Zanjero.

At a public hearing earlier this year, legislators didn’t ask Riley any questions about the project – far-and-away the department’s biggest ask.

Riley said DNR has moved onto the design phase of the canal project, contracting with Omaha-based HDR. And while he believes there’s enough yield to support the cost of the project, he said the department will be updating Zanjero’s analysis with its own.

“I hope in 10 years or so … that we’re bringing water in the canal and that we’re storing that to be able to use for irrigation and other purposes down the road,” he said. “What if we’d done it 10 years ago? We’d be talking about that today.”

The Flatwater Free Press is Nebraska’s first independent, nonprofit newsroom focused on investigations and feature stories that matter.