A California appellate court dealt a setback this week to the state’s Delta tunnel project, ruling that the Department of Water Resources lacks the legal authority to issue billions of dollars in bonds to dig the controversial conveyance under the Sacramento-San Joaquin Delta to Southern California.
In an opinion issued Wednesday, the state’s 3rd District Court of Appeal said the bond plan — first approved by water managers in 2020 — was too vague and gave the department “unfettered discretion” to decide what to build and how to pay for it. The court upheld a 2024 decision by a Sacramento judge, siding with project opponents led by the Sierra Club and several capital region counties, including Sacramento.
The tunnel — officially called the Delta Conveyance Project — is a 45-mile underground pipeline that would divert water from the Sacramento River before it flows through the Delta and send it to Southern California. The Metropolitan Water District of Southern California, which supplies water to 19 million people around Los Angeles, is expected to fund a major share of the multibillion-dollar project.
State water officials say the tunnel is needed to modernize aging infrastructure and make the water system more resilient to climate change. But critics, including Delta-area counties and environmental groups, argue it would harm local ecosystems, farmland and communities already burdened by state water policies.
White Slough in the Sacramento-San Joaquin Delta meanders past farmland in a drone image from Tuesday, Nov. 1, 2022. The farm grows potatoes, grapes and other crops.
The court’s opinion puts DWR and Gov. Gavin Newsom’s administration at a crossroads. After years of trying to push the tunnel forward without going through the Legislature, the state may now have to either shrink the project or ask lawmakers — and possibly voters — to get bonds issued.
The court found that DWR’s legal approach relied on a misapplication of a decades-old statute intended for minor modifications to existing infrastructure, rather than the creation of a new, large-scale project like the Delta Conveyance, which was narrowed from two tunnels under Gov. Jerry Brown to one and would take 13 years to complete. Specifically, the justices said, DWR had argued that the tunnel was a “further modification” of the Feather River Project under a provision tied to the original State Water Project from the 1960s.
DWR overstepped, court says
The court disagreed, ruling that DWR overstepped its authority.
“The Delta Program’s scope is so opaque and ill-defined as to afford DWR nearly unlimited discretion to specify the facilities for which the bonds will be issued,” Associate Justice Peter Krause wrote for the court. “The bond resolutions would give DWR authority to issue an unlimited amount of bonds to finance the work.”
In practical terms, the decision disrupts DWR’s ability to lock in financial commitments from water contractors and stalls the state’s preferred path to funding the estimated $20 billion tunnel. Alternative financing routes remain, including legislative authorization or a public bond measure, but those options would likely require greater specificity about the project’s scope and impacts.
The court also criticized DWR for bypassing a more appropriate statute that governs the creation of new State Water Project units but requires additional public and legislative oversight. According to the ruling, DWR appeared to avoid that statute deliberately, as it would have imposed higher barriers, including restrictions on using existing water contractor revenues to back the bonds.
Meanwhile, DWR emphasized that the court’s ruling does not mean the department loses its authority to construct the project itself.
“The court has not said that DWR does not have the authority to build the project or borrow money to pay for it. The court finds the description of the action found in the first validation case to be overly broad,” a DWR spokesperson said in an email.
“While DWR disagrees, it filed a subsequent validation action in January 2025. That case is pending.”
Environmental concerns remain unresolved
Tribal and environmental groups have raised concerns about the project’s environmental implications, arguing that DWR was seeking a blank check to proceed with an ill-defined and environmentally harmful project that could reshape the Sacramento-San Joaquin Delta and affect regional water quality, farmland and communities.
The Sierra Club said in a statement that it welcomed the court’s decision.
“Californians should not be forced to shoulder billions in debt for a risky megaproject that threatens the Delta while driving up water bills for working families,” the environmental group said. “We need water solutions that respect Tribal sovereignty, protect frontline communities, and invest in conservation, regional water reliability, and real climate resilience.”
For now, the ruling does not invalidate the Delta Conveyance Project itself or halt construction. The opinion makes clear that the court did not assess the project’s environmental merits or rule on compliance with the California Environmental Quality Act. CEQA-related litigation is ongoing in separate cases.
Other financing options available
What the court did strike down was the financial mechanism DWR had hoped to use to advance the tunnel without seeking new legislative or voter approval. As a result, the department must now either define a narrower project that fits within the constraints of existing law or pursue legislative authorization — potentially exposing the project to greater political risk and public scrutiny.
Still, the ruling marks a victory for a coalition of counties, water agencies and environmental groups that had sued to block the bond validation.
Newsom’s office did not respond to The Sacramento Bee’s request for comments on the ruling. The governor’s office has tried to fast-track the project without success, following opposition from Delta-area legislators.