July 25, 2024


The Business & Finance guru

What it means for businesses

What it means for businesses

Start your rain dances now, Californians. The most extensive severe drought in the US progressed into its second “water year,” or one year of recorded rainfall, on Oct. 1. It was the second-driest water year on record, with CA reservoir capacity dropping from 93% last fall to 60% of the historical average currently.

Throughout this drought—which started last year and progressed into an official “state of emergency” in 50 of California’s 58 counties by May—the state has only recommended its residents reduce water usage by 15%.

But if that guidance doesn’t do the trick (and it hasn’t so far—Californians reduced their water usage just 1.8% in the three weeks following the request), CA Governor Gavin Newsom could bring in the stick: a statewide mandate on water usage. During the last big drought in 2015, former CA Governor Jerry Brown mandated a 25% reduction in water usage, and enforced it via fines.

Depending on where someone is located in the Golden State, they may already be under mandated water restrictions at the county and city level. For instance, the city of Santa Clara mandated a community-wide 20% reduction in water use, and Marin County introduced water restrictions with the goal of reducing use by 40%. Both of those are next door to California wine country, where 23 major fires encompassing 1.5 million acres have burned in the last six years.

  • Btw: Northern California counties are struggling more during this drought than southern ones, because SoCal poured $12 billion into drought preparations—such as expanding reservoirs—after the drought of 1987–1991.

For individuals, mandates mean letting the lawn brown a bit, turning off the faucet while brushing your teeth, and—this may shock non-CA residents—not flushing the toilet for number one.

But for businesses, the changes needed to meet water use reductions will be a bit of a heavier lift…

How do water cuts affect businesses?

Smith Collection/Gado/Getty Images

1. Smaller workforces, smaller paychecks: Water cuts could hurt agricultural businesses and the employees who work for them. Thousands of agricultural jobs were lost during the last drought, and one 2017 study estimated that California will lose 21,000 jobs each year over 30 years—11,000+ of which would be in farm labor. Those who continue to work could see their wages impacted by the dwindling water supply’s hit to food production.

  • The study estimates workers had lost $900 million in wages from 2000–2017 and are poised to lose $4 billion more in the following three decades.

2. Higher costs: As water becomes scarcer, every part of the food supply chain will get more expensive. Hospitality consultant Jeremy Threat, who works with about 400 restaurants, told the San Francisco Business Times earlier this summer that many restaurants are considering raising menu item prices anywhere from $1 to $5 as a result of the water shortage.

But it’s not just the food biz that’s impacted. Marin Wood Restoration & Painting Co. tacked on $300–$400 to paint and stain jobs to make up for the $3,000 extra it pays each month to use reclaimed water for power washing.

3. Power problems: It’s hard to generate hydroelectric power without water. If water at the Lake Oroville reservoir—the state’s second-largest reservoir—falls below a key level, officials will probably have to close the Edward Hyatt Power Plant for the first time ever, potentially affecting 800,000 households it powers.

And as California’s major sources of hydroelectric power literally dry up (just look at the before and after pictures of Lake Mead), the state will have to tap other power sources to keep the lights on.

4. No tap water at the table: Unless you ask, of course. It’s illegal in California for restaurants to serve water to patrons before they order it, and that’s one of many small ways dwindling water resources affect everyday life. Also on that list: Decorative fountains are banned in several counties, and hotels have to give guests the option of not getting their linens laundered daily.

This drought’s not like the other droughts

Even if you live in the Western states most affected, drought can feel invisible as you read dramatic headlines about its impacts.

But this drought isn’t like the last one. It’s historically severe, with some experts comparing it to the worst droughts the Southwest region has experienced in the last 1,200 years. It’s already earned the moniker “megadrought,” like some supervillain of dryness.

Looking ahead…Gov. Gavin Newsom is expected to decide whether to slap state-wide water restrictions, while individual cities and counties are already considering expanding on their own mandates.

To reverse the drought, California would have to receive 140% more precipitation than average, according to the state’s Department of Water Resources.