Restoration of wetlands will take money, time

By John Krist
July 21, 2002

SAN FRANCISCO -- The tentative agreement announced May 29 is, in one sense, the culmination of years of discussion and speculation about the likely fate of Cargill's vast holdings in the San Francisco Bay area. Experts experienced in ecological restoration note, however, that it is only the first step in what will be a long, expensive and difficult process. Still unresolved, for example, is where the state plans to get $47 million of the money it has promised -- but not yet budgeted -- to complete the sale.

The stage for the May 29 deal was set about three years ago, when Cargill offered to sell to the state and federal governments about 19,000 acres of its San Francisco Bay property, which it acquired in 1978 when it purchased Leslie Salt Co. Leslie had assembled the property by acquiring dozens of smaller independent operators, some of which had been in business since the 1850s.

Cargill, a privately held conglomerate that produces steel, livestock feed and nearly everything in between (company revenues in 2001 were $49.4 billion), is one of the largest salt producers in the world, with operations in Australia, North America and South America. (For more information about the salt industry, see the accompanying story on the Star's Web site at www.insidevc.com.)

Air travelers flying into the Oakland and San Francisco airports probably are familiar with Cargill's Bay area property, although they may not know it. From the air, the salt ponds along the south end of the bay are an otherworldly sight, a strikingly colorful patchwork of blue, green, pink and orange. The colors are the product of algae that thrive in the brine; different hues indicate different levels of salinity.

The company, according to Cargill Public Affairs Manager Lori Johnson, plans to modernize its San Francisco Bay operation and focus on high-grade salt for the pharmaceutical and food industries rather than low-cost salt for road de-icing and the industrial manufacturing market in which it faces tough international competition. The shift will allow it to consolidate production near its Newark processing plant and dispose of the surplus ponds, which were never designed to work as a single system and consequently are inefficient to operate and costly to maintain.

"What we wanted in the end was a strong, sustainable salt business," Johnson said.

The property Cargill initially offered to sell in 1999 was appraised at about $300 million. That was far more than any government agency was willing to pay, and negotiations stalled. Discussions resumed in January after Sen. Dianne Feinstein called Cargill's chairman and CEO, Warren Staley, and persuaded him to negotiate a more acceptable deal with several private foundations, as well as state and federal agencies.

The preliminary agreement announced May 29 reflects a reduction in the acreage from the 1999 proposal and a resultant drop in the overall value of the transaction, now down to $243 million. Cargill agreed to accept $100 million in cash and will seek a federal tax write-off for the difference.

The sale includes a title to 12,400 acres Cargill owns outright and mineral rights to 4,100 additional acres, Johnson said. Cargill retained those mineral rights when it sold land to the federal government in 1979 for inclusion in the Don Edwards San Francisco Bay National Wildlife Refuge. Most of the property included in the May 29 deal is already within or will be added to the refuge. The sale will include, however, about 1,400 acres along the Napa River north of San Pablo Bay, to be managed by the California Department of Fish and Game.

The company will continue to produce salt on about 8,000 acres near its Newark plant adjacent to the wildlife refuge. Although Feinstein announced the deal includes a commitment by Cargill to turn that property over to public ownership for restoration when the company ceases salt production there, Johnson said the agreement contains no such provision.

"We have no intention of doing that," she said -- not as long as Cargill's Bay area salt business remains profitable.

Of the total purchase price, $53 million is due at the closing of the sale, which is to take place by Dec. 16. The federal government will provide $8 million, and the state agreed to kick in $25 million it budgeted two years ago for salt pond acquisition. The Hewlett, Moore and Packard foundations have each promised $6.33 million, and the Goldman Fund will ante up the final $1 million.

The remaining $47 million of the purchase price will be payable to Cargill once the salt ponds (some of which contain concentrated brine too salty to be released into the bay) have been cleaned up enough to meet Regional Water Quality Control Board discharge standards. The source of that money, however, is not clear. Under the agreement announced May 29, the state has promised to provide it, but no additional funds have been budgeted for the project, and lawmakers are unlikely to be in a generous mood as they grapple with a projected gap of $23.6 billion between revenues and expenditures next year.

"We haven't identified a source yet," said Stanley Young, communications director for the California Resources Agency. A leading candidate, he said, is money authorized by bond measures such as Proposition 40, approved by voters in March, which included $40 million for San Francisco Bay Area Conservancy projects and another $200 million for the Coastal Conservancy. Recent water and park bonds -- such as propositions 12 and 13, which voters approved in 2000 -- also included funds for habitat acquisition and restoration. Tapping bond funds requires action by the Legislature.

The Cargill agreement calls for another $35 million to be spent over the next five years to plan and begin carrying out the ecological restoration. The Hewlett, Moore and Packard foundations have agreed to contribute $5 million each toward that expenditure, and the state and federal governments will split the remaining $20 million. Again, no funds have been budgeted yet for the government share.

Other hurdles also remain. Before the sale closes in December, the state and federal agencies must negotiate with Cargill a purchase agreement and a phase-out agreement, the deadline for which is Sept. 16. Those agreements will specify how the salt-contaminated ponds will be cleaned up and who will do it, as well as how the necessary permits will be obtained. They will also specify who will be responsible in the interim for maintaining the vast system of levees that keeps the bay from rushing into the ponds and, ultimately, flooding San Jose and other urban areas below the high-tide level.

Once all those hurdles have been leaped, there remains the more complicated matter of how the ponds will be restored -- what types of habitat (mudflat, marsh, open water) they should become, and how quickly. Those decisions are crucial, because they will determine how much the project ultimately will cost.

Projections vary. In a report issued in April, the environmental group Save the Bay estimated it would cost between $148 million and $228 million (exclusive of acquisition costs) over the next 20 years to turn the Cargill salt works into a mosaic of tidal wetlands and shallow ponds, while raising and reinforcing key levees to protect low-lying urban areas from flooding.

A more detailed feasibility analysis, issued in May by Wetlands and Water Resources, a private engineering firm in San Rafael, places the total restoration cost at between $264 million and $523 million if the ponds are allowed to silt in and become marsh through natural processes. If dredged fill is used, the estimate ranges up to $720 million, mostly because it is expensive to transport sand and mud.