California has entered its fourth year of drought, and mountain snowpack is at just 6% of the long-term average. That means less melting snow feeding reservoirs during the warming spring months. To mitigate the effects of the drought, California Governor Jerry Brown issued the state’s first ever executive order mandating a 25% reduction in water use. From a municipal credit perspective, the drought and reduced water consumption will have varying but broad implications for everything from Central Valley agricultural production to municipal hydropower generation to municipal water supply.
Central Valley credits supported by an agricultural economic base will continue to be pressured, as farm acreage lays fallow and economic activity falls. Across the nation, expect the price of tomatoes and avocados to spike because California accounts for over 95% of all U.S. production of these essential guacamole ingredients.
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