This East Bay bedroom community was one of the hardest-hit communities in America when the real estate bubble burst, a disaster that made Mountain House the most “underwater” community in America.
Being underwater is the least of Mountain House’s problems today. Built at a cost of more than $1 billion by CalPERS a decade ago, the community just west of Tracy is now struggling to get through one of the biggest water shortages facing any urban area in the state.
Mountain House’s crisis came when its sole water source, the nearby Byron Bethany Irrigation District, had its water rights cut off a little more than a week ago by the State Water Resources Control Board. The board ordered 114 senior water rights holders to stop pulling water out of rivers and streams, the first time that’s happened since the drought of 1977.
On Monday, officials with the Mountain House Community Services District disclosed a tentative water purchase that would get the community of 11,000 “through the end of the year,” said district general manager Edwin Pattison. The deal still has to be approved Tuesday by the seller, the nearby South San Joaquin Irrigation District, which is facing water shortages of its own.
“We’ve curtailed our growers and the cities we serve,” said South San Joaquin’s general manager, Jeff Shields. “It’s a difficult decision for the board.”
South San Joaquin’s urban customers include Tracy, Lathrop and Manteca. The price for the 1,800 acre-feet of water involved in the purchase wasn’t disclosed. An acre-foot is 326,000 gallons.
At the very least, state officials say Mountain House won’t go dry, even if there’s no deal with South San Joaquin. The state has a “health and safety” exemption for communities with no alternative water supply. The exemption keeps water flowing to homes, but bans outdoor irrigation and prevents communities from hooking up new customers.
“The water won’t be turned off,” said Tim Moran, spokesman for the state water board, which made the decision to cut off senior water rights.
Pattison, a hydrologist by profession, said Mountain House has 12 million gallons of water stored, which amounts to a week’s supply. “I filled up the tanks,” Pattison said. That will give Mountain House a few days to figure out an alternate plan in case the deal with South San Joaquin doesn’t materialize.
But if it can’t secure a reliable water supply from South San Joaquin or some other provider, the community’s lawns would rapidly turn brown and construction on dozens of new homes could stop.
That could bring fiscal disaster for the community, which is $350 million in debt and depends on a growing population to make ends meet. “Our financial model is a function of orderly development,” Pattison said.
Pattison said he couldn’t rule out continuing to use surface water and possibly challenging the state’s legal authority. The Mountain House board of directors agreed Monday to reimburse the Byron-Bethany district in case it gets fined for continuing to ship water to Mountain House. The state has said it will fine violators up to $2,500 per acre-foot.
A cut-off of water to this commuter outpost east of Tracy would also be a huge setback for the California Public Employees’ Retirement System. The nation’s largest public pension system sank more than $1 billion into Mountain House in 2004, figuring it would cash in on the eastward migration of Bay Area residents seeking cheaper housing.
The investment collapsed when the housing market fell apart. In 2010, CalPERS valued its Mountain House investment at $90 million. At one point in late 2008, some 89 percent of the home mortgages in Mountain House were underwater – that is, the owners owed more than their homes were worth. No city in America had a higher percentage.
Since then, housing values have recovered, and many homes are now selling in the $400,000-to-$500,000 range. Last summer, CalPERS said its Mountain House investment was now worth $280 million, and pension fund officials gleefully participated in the ribbon-cutting of the community’s first high school.
Now comes the water crisis. Pattison said he appreciates the “irony” of a once-underwater community now scrounging for water.
“Mountain House has turned a corner,” he said. “But this man-made water crisis ... is putting that recovery at risk.” He called the situation a potentially graver threat to Mountain House’s future than the housing bust.
Joe DeAnda, a spokesman for CalPERS, said the pension fund is monitoring the situation but wouldn’t comment further.
Pattison has spent the past couple of weeks looking for alternative water supplies, a search made all the more difficult as the drought’s fourth year progresses. With supplies tightening, few districts are interested in selling. Complicating matters is that several districts are suing the state over water-rights curtailments, and agreeing to sell some water could undermine their legal position, Pattison said.
One of those suing the state is the South San Joaquin Irrigation District, which has the tentative deal with Mountain House.
Editor’s note (June 23): This version was updated to note that Mountain House has 12 million gallons of water stored, which amounts to a week’s supply.