Good Work By the Sac Bee Editors

The new editorial team at the Sacramento Bee is starting to impress me. This weekend provided some good examples.

On Saturday, they wrote a tough editorial about the Westlands Water District that drew heavily from a recent news article in the LA Times. It is interesting when an editorial page of one paper quotes news articles from another paper on a topic their reporters have been covering. This is also a nice contrast from some of the editorial choices of their predecessors.

They followed that up on Sunday with a very thoughtful trio of Forum articles on job creation. All three articles stray off track in places, but the main point of each is very sound.

I don't normally echo industry lobbyists, but I thought the article from the manufacturers association was pretty good. I agree with the points about sales tax on manufacturing equipment and electricity costs. The Milken Institute study she kept referring to is deceptive though.

An environmental advocate complaining of redtape and regulation was nice to see. Unfortunately, the essay strays off the mark frequently with comments like "make suburban sprawl illegal," exactly the kind of thinking that created our over-regulated, high cost state.

Dan Morain's article about NUMMI was interesting too. Attempts to save NUMMI have no chance at this point, but it is interesting to see the contrast in how various leaders approached this very serious event.

Finally, the last Sunday editorial on expanding university administration is a topic I used to think about a lot. I know nothing of UC, but before coming to Pacific, I worked at a large public university in another state for about a decade. I was what they call "ladder track" faculty before being "promoted" to administrative appointments as a Director and Associate Dean. I saw a first hand case of this when a very necessary Director position I occupied was upgraded to Associate Dean. Why the promotion? Because the administration made a new unnecessary Dean position in my division, and that Dean needed an Associate Dean not a Director. So I enjoyed the article's line about a "deans of dean services." Having said that, many of these administrative positions do have research and teaching functions and the issue is more complex than portrayed in this brief editorial. Nevertheless, the questions about swelling administration are very valid, and I commend the Sac Bee editors for raising the issue.

Better News on Valley Home Prices

I almost said good news, but I think better is more appropriate.

FHFA released their latest quarterly home price index for U.S. metropolitan areas today. The index is imperfect, but the best home price indices like Case-Schiller and First American CoreLogic are only available for large metro areas. Thus, we track FHFA closely for the Valley.

For the first time in years, Valley Metro Areas have dropped off the list of metro areas with the largest 1-year decline in home values. That list is now entirely Florida, Nevada and Arizona. (Unfortunately, Valley Metro Areas Merced, Stockton and Modesto still top the 5 year price decline rankings - although other areas are rapidly closing the gap.)

In fact, Fresno, Merced, Modesto and Stockton all registered price increases between the 3rd and 4th quarter of 2009, for the 1st consistent quarterly gains that I can remember. Merced's gain was particularly large, but may just be a correction from last quarters unusually large decline.

Sacramento, Yuba City, Vallejo all registered quarterly declines.

Over the 5-year period, Merced/Modesto/Stockton are down about 40%, Sacramento is down 25%, and Fresno/Bakersfield is down about 20%.

The FHFA price declines are not as large as registered by median prices, zillow and others, and the FHFA index also did not rise as much as other indices during the boom. I suspect that is because the FHFA index includes appraisals in its database, and also only includes FAnnie/Freddie financed transactions which I think would have definitely resulted in underestimating the price-run up during the boom. I am using this index to help identify a bottom in current depreciation, and to compare current prices to times long before the sub-prime wave, 2000 and the 1990s.

Did Davis revise their job numbers down ... or up?

Those of you following the water, farm jobs news stories may find this interesting. From the March 31, 2009 report from the Department of Water Resources and California Department of Food and Agriculture to the Governor (page 17, 19).

A collaborative economic impact modeling effort between the California
Department of Food and Agriculture (CDFA), University of California at Davis, and DWR has estimated income and employment impacts from water shortages to irrigated agriculture in the Central Valley based on the current forecasted water project deliveries and estimates of local surface and groundwater water supply availability. The results are as follows:

Central Valley farm revenue loss is estimated to range between $325 million and $477 million.

The associated total employment loss is estimated to be between 16,200 and 23,700 full-time equivalent jobs, with the majority of jobs lost in the lowest paying categories.

I just discovered this report from last spring for the first time this afternoon. It is very interesting that these March 2009 numbers are even lower than what Professor Howitt at UC-Davis is quoting now after 2 downward revisions.

This report to the Governor was issued a few weeks before last April's water march, a time when media stories about water restrictions and job loss were peaking. Many stories quoted Dr. Howitt stating job losses were 3-4 times this level. Their first report of 80,000 jobs was published in February, and the unpublished (but widely circulated) revision of 35,000 lost jobs was dated in May. It is very puzzling to see this much lower estimate between these 2 dates.

The numbers obviously are coming from the same Davis based group, because it has the unbelievably high 50 jobs per $1 million farm revenue ratio that distinguished their first two reports. At these levels of revenue loss using a more typical multiplier of 15 jobs per $1 million, they would have estimated 5,000 to 7,000 lost jobs, exactly equal to the number I reported in the August 2009 "Fish or Foreclosure" paper.

Small Business and Economic Development Workshop

Congressman McNerney is hosting a Small Business and Economic Development Workshop at Pacific on the afternoon of March 1. (I confirmed too late to be included in this notice.)

I will be speaking about the San Joaquin County economic situation and offerring a few brief thoughts on what the path out of this mess could look like. Of course, I will also use the opportunity to briefly give the Congressman some free advice in person. The other panelists will have more practical advice to help small business succeed. Looking forward to the event.

Conversations on Water, Hablemos del Agua

The Coalition of Mexican-American Associations (COMA) and Hispanics for Political Action have organized an educational water forum targeting a Latino audience on March 6. I am also pleased to learn Pacific's School of International Studies Inter-American Program is co-sponsoring the event and hosting it on-campus here in Stockton. (Click here to see the flyer.)

When I agreed to speak at this event last year, I was hopeful that it would be an opportunity to meet Mr. Paul Rodriguez or other representatives from the Latino Water Coaliton and learn more about their perspective. I was disapointed to learn this week that they had declined the invitation to participate.

Last spring, COMA invited me to speak at one of their monthly meetings about the foreclosure crisis and the devastating impact it has had on the economy and communities in the Valley. The Coalition is a group of grassroots groups that has been around for a long-time. I think this was the most diverse group I have ever spoken to in terms of age and income, high-school students, elderly, business-owners, laborers, local politicians, and more.

By coincidence, this housing presentation was a few days after the Latino Water Coaliton's April 2009 March for Water that had received a lot of media play, and another item on the agenda was to pass a resolution asking the city to rename a street in honor of Cesar Chavez. I was moved listening to the passionate feelings people have for Chavez. We ended up spending part of our time discussing the Water March and the conflicted feelings it created in the community. Arturo Rodriguez' column on the water bond in today's San Francisco Chronicle reminds me of that conversation.

I feel honored to have been invited back to speak to this group about water. They were supportive of me (special thank you to Esther Vasquez) when a Latino leader misunderstood and took public offense to my early comments about water and jobs.

I regret that I will have to rudely leave this event immediately after my remarks, as I would like to listen to much more of this conversation. Unfortunately, I have to catch a plane to Washington where I will be attending a board meeting of white guys in suits at the National Association of Business Economists meeting, a place that couldn't be much different.

Salmon job loss exagerrations

Job loss exagerrations are now officially an epidemic in the water debate. Yesterday, a group of Democratic Congressional Representatives claimed 23,000 lost jobs from the salmon fishery closure in a letter to Diane Feinstein.

The number comes from a report written by a consulting firm, Southwick Associates, for a sportfishing group. I have been aware of this estimate for some time as it has been referenced by some environmental and fishing groups, but I never took a close, critical look at the actual report until yesterday when members of Congress started using it.

It is not a credible number, and it appears to be driven by taking credit for an implausibly large share of retail sales in California's very large consumer seafood market. I will go through the data more carefully in the coming days, but my very preliminary back of the envelope calculations suggest this number could be as much as 10 times too high. That would be just as much of an exagerration (arguably more) than the original UC-Davis farm water job loss estimates that I have criticized so much since they began being referenced by Valley Congressional Reps.

At this point, I am not ready to make an estimate of my own, but I do recommend members of Congress, environmentalists and others stop citing 23,000 lost jobs from the salmon closure.

I have seen references (although no report) to a Department of Fish and Game estimate of about 2,400 lost jobs that is more plausible in my view. If anyone has a copy of the DFG estimates, please send it to me.

USA Today on the Merced Economy

While at lunch, I saw a giant cover story in USA Today about Merced County's unemployment. The journalists at USA Today didn't even mention the drought, even though San Luis reservoir is in Merced County. I think that is an oversight. Of course, many other journalists from more prestigious outlets have come to the region and blamed unemployment on water without talking about foreclosures/housing, a much larger error.

It is interesting to see the contrast in the reporting. An excerpt from USA Today,

Today, the Merced metropolitan area (population 246,117) has the second-highest unemployment rate in the nation, 19.8%.
Merced also has one of the highest foreclosure rates. According to widely published statistics from First American CoreLogic, one in five homes in Merced County was 90 days delinquent in payments as of November 2009.
The impact on property values has been devastating. Home values have dropped 62% since 2006, city spokesman Mike Conway says.
Median home prices dropped from a peak of $337,300 in 2006 to $94,300 at the end of 2009, according to zillow.com, which tracks real estate values.
Cities here in California's fruit and vegetable basket are always dependent on the vagaries of agriculture and see unemployment soar in winter when there's little work in the fields. In this recession, however, the impact has been compounded by the collapse of construction after a frenzied speculative bubble.
In 2005, the city issued 1,444 residential building permits, Conway notes. In 2009, the number was seven.

City of Merced went from 1,444 building permits to 7. Amazing. Curious, I looked up the same numbers for Los Banos and Mendota.

Los Banos 690 new home building permits in 2005, 11 in 2009.
Mendota 214 new building permits in 2005, 0 in 2009.

My Construction Job Loss Estimate is Conservative

There have been a number of recent citations of our estimate of 47,000 lost jobs because of the construction collapse in the Valley from our August 2009 Fish or Foreclosure report. In that report, I note that the estimate was in fact very conservative because we were using the decline from 2006 levels of construction, rather than the peak years of 2004 and 2005.

Homebuilding in 2006 had already declined by 25% from its peak, but we used this level because it reflected a sustainable long-run level of home building based on our estimates of future population growth in the Valley (which are lower than the state and others). If we looked at the decline from peak, 2005, we would have estimated over 60,000 lost jobs. In hindsight, maybe we should have gone with the higher scenario since that is how people are interpreting it.

A recent report released by the Center for Strategic Economic Research, argues that the 2005 peak was sustainable and points to the over 200,000 housing units a year that the CA Dept of Housing and Community Development estimates as the state's need. They find that in 2009, the construction collapse cost 407,000 jobs statewide. This is a reasonable estimate from a credible source, and it demonstrates that our 47,000 lost job estimate for the San Joaquin Valley was indeed very conservative.

We recently revised our water jobs loss estimate up from 6,000 to 8,500. If we were also to revise our construction job estimate, we would probably revise that number higher too. I still believe construction related job losses exceed farm water related job losses in the Valley by a ratio of nearly 8 to 1.

Real Estate Stories in the Sunday Papers

I was quoted in real estate stories in both the Sacramento Bee and Stockton Record. I wasn't misquoted, but I think it is useful to add a little context to the quotes.

The Sacramento Bee ran a good story (and interesting interactive map) about the exceptionally high level of commercial real estate vacancies in the Sacramento area. This is true, Sacramento (both the county and suburbs like Placer County) has the biggest excess of commercial space in a state full of excess shopping centers and office buildings. That was true before the recession hit, and it has just gotten worse. The reporter noticed that we had featured this same postal service data in our January forecast and called me for some quotes. This part was a bit out of context,

In fact, he (Michael) said, the commercial real estate market in Sacramento isn't even as healthy as the housing market,

By itself, that must sound borderline insane to anyone living in Sacramento. The missing context is that I was talking about the extent of overbuilding, and the prospects for construction activity picking back up in the next 2-5 years. The housing market is more unhealthy overall, but it is a price bubble, foreclosure, market coordination problem, whereas the commercial slump has more to do with excess supply.

The second story is in the Stockton Record where I expressed skepticism about proposals that temporary homebuyer tax credits will increase jobs. I have blogged about this before. I think the research report the Building Industry is pushing as support is this one by the Center for Strategic Research in Sacramento. I agree with the facts in the report, 407,000 jobs lost from the construction collapse statewide, and that a recovery in homebuilding is key to the economic recovery. I think the author of this report, Ryan Sharp, is credible and don't have a problem with the numbers.

However, the need or effectiveness of $200 million in new home buyer tax credits does not follow from these findings. To his credit, Mr. Sharp does not say this in the report, it is a implication that CBIA is making on its own. In fact, the report documents how homebuilding was even worse than expected in 2009, hardly an endorsement of the stimulative effect of the $100 million in 2009 tax credits. Somewhat like cash for clunkers, these will quickly run out, and do nothing more than shift home purchases around a few months in time. They are little more than a windfall payment from taxpayers to homebuilders and their customers. After the funds run out, the home purchases will slow down again while buyers wait to see if the building industry is successful in lobbying for yet another round of temporary tax breaks. As much as I sympathize with the construction industry depression, I don't think transferring public money to the very people who are benefitting most from the real estate bust (current buyers at the bottom) is fair or effective as stimulus.

I completely agree with the builders complaints about excessive impact fees from local governments and excessive regulations that drive up their costs. Those are long-run issues that need addressed, but their latest campaign is just another example of a special interest lobbying for a handout in the name of "job creation."

Senator Feinstein's Jobs Proposals

As Senator Feinstein releases her plan to amend the Senate Jobs bill to weaken the ESA and pump more water to Westlands farms in the name of job creation, I think it is a good idea to look at the last jobs bill she sponsored, only 9 months ago.

From May 2009 press release promoting the Feinstein sponsored AgJobs bill and a supporting webpage:

U.S. Senator Dianne Feinstein (D-Calif.) today re-introduced legislation to provide much-needed relief to the nation’s ongoing agriculture labor shortage...“Today across the United States, there are not enough agricultural workers to pick, prune, pack or harvest our country’s crops. With an inadequate supply of workers, farmers from Maine to California, and from Washington State to Georgia, have watched their produce rot and their farms lay fallow over the years,” Senator Feinstein said...If the labor problems continue, California agriculture stands to lose between $1.7 – 3.1 billion in the next one to two years.

In the new jobs Bill amendment, she says we have a shortage of farm jobs, while in her last jobs bill she says we have a shortage of farm workers. Hmmm...


I am no immigration expert, but here are my current (subject to change) thoughts on Feinstein's AgJobs bill...

I agree to the need to create a path to legalization and citizenship for hardworking, law abiding undocumented workers, most of whom work non-farm jobs. Feinstein's bill makes 5 years of consecutive, documented farm labor the price for 1.35 million green cards. I'm not sure it is necessary or fair to attach what some have called indentured service to the legalization process. I wonder what business leaders in other industries, undocumented workers in other industries, and U.S. citizens think of handing the agricultural industry 1.35 million green cards as a goverment provided "retention bonus" they can use to attract workers while keeping their wages low. Farm workers line up at the food bank every year, and we should be thinking about how to increase farm wages, not lower them.

And I wonder what the effect would have been this year if AgJobs had passed years ago. With a recession that has sent lots of laid off construction and other workers into the farm labor market combined with a drought; labor mobility and adaptibility are important now. Some undocumented workers have left the U.S. and gone home since jobs are hard to find here. Would we better or worse off this year if 1.35 million "blue card" holders were trapped in their 5 years of service and forced to work 150 days in agriculture in 2009? It seems to me that this might have driven unemployment even higher.

Mark your Calendars for Pacific's Water Forum in Sacramento

CALIFORNIA WATER FORUM
February 22, 2010; 9am to 1pm; Lecture Hall
Pacific McGeorge School of Law; 3227 Fifth Avenue, Sacramento
Moderator: Bill Jeffery, Adjunct Professor, McGeorge School of Law

Legislation:
Senator Lois Wolk, 5th Senate District of California
Assemblyman Bill Berryhill, 26th Assembly District of California
Kathy Cole, Executive Legislative Representative, Metropolitan Water District
Tim Quinn, Executive Director, Association of California Water Agencies

Economics:
Dr. David Sunding, Thomas Graff Professor of Natural Resource Economics and Policy at UC Berkeley, Co-Director of the Berkeley Water Center
Dr. Jeffrey Michael, Director, Business Forecasting Center, University of the Pacific

Research:
Ryan Broddrick, former Director, Department of Fish and Game
Jonas Minton, Water Policy Advisor, Planning and Conservation League
Steven Phillips, Hydrologist, USGS
Rich Breuer, California Department of Water Resources

Legal Issues:
Dante John Nomellini, Sr., Attorney, Nomellini, Grilli & McDaniel
Scott Slater, Attorney, Brownstein Hyatt Farber Schreck, LLP
Stuart Somach, Attorney, Somach, Simmons and Dunn

There is no cost for this event although advance reservations are recommended. Doors open at 8:30 am. For more information and to reserve a seat please contact Margit Aramburu at maramburu@pacific.edu or 831-419-0905. For a map of the Pacific McGeorge campus see: http://go.mcgeorge.edu/CampusMap

On the Public Record: Fish, farms, feedback loops

I enjoyed On the Public Record's latest post, Fish, farms, feedback loops.

Like OTPR, I also enjoy the creativity in the latest rants about "Communist Carrots" from those who think we aren't killing enough salmon in the Delta pumps.

It is true, carrot production decreased by 3% in California from 2008 to 2009 according to the USDA, no doubt emboldening communists, terrorists and threatening national security.

Taxpayers for Common Sense and California Water

Finally, someone is representing taxpayers at water hearings. McClatchy News reports,

Taxpayers for Common Sense, joined by the National Wildlife Federation, added in a statement that "this legislation could be enormously costly and open the door to ill-advised and environmentally destructive water projects."
Connor also warned that stripping away the cost-sharing requirements "may result in fewer overall projects being funded" as claims are placed on Bureau of Reclamation funds…
"It's important to retain the commitment of non-federal investment," Bureau of Reclamation Commissioner Michael Connor said, further citing the virtues of "fiscal restraint and economic self-sufficiency."

I think we are going to see more of this as the year progresses and people wake up to the price tag. I have said repeatedly that one of the problem with the stakeholder processes (Delta Vision, BDCP, CalFed) is that there is no one at the table representing taxpayer interests. Since we are talking about major expenditures of taxpayer funds as well as very large increases in water rates, it seems that any stakeholder meeting is incomplete without taxpayer and consumer advocates.

Lower Housing Impact Fees

The Sacramento Bee reports that Sacramento County is reducing impact fees to try to stimulate building and the economy. These fees spiraled out of control in the housing boom, and they need to come back down. However, it is very difficult for local governments to do this because they have become dependent on these revenues.

The Board approved suspending the annual increase in fees for all plan areas for another year in addition to the reduction for North Vineyard Station. The reduction of about $4,200 per unit from the total development fees of almost $80,000 per unit, would be in place for two years

$80,000 per unit in fees! This in a county where median household income is $57,000 and median family income is $67,000. In the rest of the country, comparable fees are under $10,000, yet somehow people in these areas enjoy local public services too.

I know there are rules that these fees can only pay the costs of new growth, etc., etc. However, when you look at the trends in local government budgets and economic data from a more macro level, it is hard not to conclude that local governments have been using impact fees to off-load costs from their general funds in addition to building nice new public facilities (many of which benefit all residents, not just people living in new developments). Has the space in the general fund been used to lower taxes, improve services, or increase compensation for local government employees?

I am not opposed to impact fees in general. If well-designed they can help guide land use, and distribute costs equitably. However, like all taxes they become more destructive as the rate increases and there is always the temptation of current residents to shift the cost of their government on future residents (or future generations). I think current impact fees are well beyond the level of diminishing returns.

There are a lot of aspects to this issue, and more posts about it in the future.