Are PPIC water reports improving?

Two reporters called me yesterday on the eve of the release of yet another PPIC report on California water. I had not seen the new report, but did make some critical comments about the economics in their previous work.  If any of those comments make it in the papers, it might raise some questions about what I meant.

First, the new report was released last night, and I have now had a chance to briefly review the executive summary, and it looks significantly better on initial impression. There isn't a lot of economics, although it calls for public funding for a number of initiatives with fees, but has no analysis of cost-effectiveness or how high those fees might have to be. The comments about realigning state agencies and "triage" for endangered species will probably get the most attention. Notably, the 16 page executive summary doesn't contain their usual statement that a peripheral canal is the best solution for the Delta and emphasizes urban conservation much more than usual. [Update 8 AM:  I have now read 2 news reports with quotes from the press briefing and I may have been premature with this quick positive reaction.]

Let's hope they are improving, because the PPIC team has already done enough damage, and should think about some "reconciliation" of their own work. As I have discussed elsewhere, PPIC badly botched the economics in their 2008 analysis of the peripheral canal, and are largely responsible for establishing unrealistic expectations for the financial viability of a canal and a BDCP type plan. The financing stalemate plaguing BDCP and the Stewardship Council is not just interest groups maneuvering for the most favorable terms, but is caused by real questions of whether the isolated conveyance projects fundamentally provide enough value to beneficiaries to justify their construction costs.

Members of the PPIC also contributed to the water/jobs hysteria, although they have made some efforts to correct those mistakes. Finally, their previous reports have had a pro-exporter and anti-Delta bias (especially the Water Myths report that incredibly argued that CVP farmers were not subsidized, and conspicuously left Delta interests out of their "no villians" section), but this seems better.

As a final note, this quote from the executive summary amused me:

The lack of a strong state technical and scientific program
is allowing advocacy-funded “combat science” to take center stage

First, who says state funded isn't advocacy-funded. Second, hasn't the PPIC owned "center stage" among researchers in this debate.  Do you know any other researchers that routinely hold press briefings and media events when they release a paper?  Is their work less advocacy-funded and less combative than others.  What are they complaining about?

As I get around to reading the details of the report, I will try to post more detailed comments.  My impression could change for the better or worse.

Do Foreclosure Rates Measure Urban Misery?

With Forbes adding foreclosure rates to their misery index this year, I have taken a look at this list. There has been plenty of attention to the top of the foreclosure lists (Central Valley, Vegas, Florida always rank high), but not much to the bottom.

If ranking high in foreclosures is an indicator of misery, then I guess ranking low in foreclosures must be a measure of healthy, vibrant metro areas. Take a look at the metro areas with the lowest foreclosure rates in this ranking of foreclosure rates from Realty Trac. Among the best performers are such dynamic metro areas as: Fayetteville, NC; El Paso, TX; Huntington, WV; and Utica-Rome NY. 

Joe Grindstaff misquotes the Draft Delta Plan 3 out of 4 times

I thought the Draft Delta Plan was a snooze until someone pointed me to Joe Grindstaff's cover memo.  I guess Joe thought the plan was a snooze too and he needed to liven it up some, since 3 of the 4 key findings he quoted from the draft plan were not actual quotes from the plan. 

Perhaps I am nit picking here, but quotation marks are serious business, especially when you are the official voice summarizing a critical 51 page policy document to the press and general public.   

Unlike most people, I read the draft plan first, and Grindstaff's memo later.  I didn't think the memo reflected the content of the draft that accurately, and went back to the draft to see how I could have missed the emphasis on these key findings.  Here is the summary in Grindstaff's cover memo, and if you search the draft plan document, only his third quote actually appears in the draft plan. 

I want to point out four key preliminary staff draft findings in this document:

1. “California’s total water supply is oversubscribed. California regularly uses more water annually than is provided by nature.” This reality makes the management of our limited surface water supplies and the Delta even more critical. When water exports from the Delta are reduced, the unintended consequence is increased demand on an already overused and unsustainable groundwater system.

2. “California’s water supply is increasingly volatile.” Precipitation and runoff patterns are changing, increasing uncertainty for water supply and quality, flood management, and ecosystem functions.” We must adapt our management practices in order to protect ourselves against present and future risk and if we are to achieve the coequal goals.

3. “Even with substantial ecosystem restoration efforts, some native species may not survive.” Best available science indicates that some stressors are beyond our control and the system may have already changed so much that some species may never be able to recover.

4. “There is no comprehensive state or regional emergency response plan for the Delta.” In spite of all the analysis that says that we have greater risk than New Orleans, all we have at the state and regional level are plans to develop plans.

Sure enough, Grindstaff's quotes that aren't quotes were reprinted verbatim in many press accounts as the key findings in the draft plan.

There must have been 20 or more findings in the draft which were presented without any ordering or emphasis, so choosing 4 findings for the cover memo (which is all many people will read) already risks introducing personal bias, and needs to be done carefully.  Even if I ignore the misquotes, Grindstaff's selections seem to have some bias.  First, the draft report has findings in 4 chapters, and the only chapter Grindstaff ignored is the one that describes the importance of Delta as a place, whereas water supply issues get two spots (and are the most misrepresented).

It is interesting that the only ecosystem finding he quotes is the one that is intended to dampen expectations for ecosystem restoration and was the last finding in the list in this section.  No mention of Delta flow requirements.  At least he quoted this one accurately.

The first two regarding water supply aren't actually in the draft report.  The words "oversubscribed" and "volatile" do not actually appear anywhere in the document.  The commentary shows bias too, suggesting that reducing Delta exports won't do any good because it will just increase ground water overdraft.  I might point out that the opposite wasn't exactly true either, building the water projects and increasing delta pumping didn't stop groundwater overdraft.  He could have pointed out that reduced Delta exports in recent years did lead to much more urban water conservation than people expected with little cost to the urban economy, and that it also stimulated increased agriculture to agriculture water transfers and increased efficiencies.  But these would be good results from reducing exports, and he is just emphasizing the negative (although he didn't mention field fallowing which is a negative too).

When it comes to the Delta, Grindstaff chooses to emphasize that it is a disaster in the making while ignoring that the fact that it is a place as emphasized in the water legislation.  He even throws in a New Orleans comparison, even though you won't find the word "New Orleans" anywhere in the draft plan either.

Grindstaff's cover memo would be just fine if it were a blog post like this commenting on the plan, but it is a summary coming from an official spokesman, the Council's executive officer.  He has a lot of control over the information that the Delta Stewardship Council members receive (not to mention the press and the public), and they need to be able to rely on him to represent it accurately.

As the Delta plan progresses to detail important and controversial measures such as the details of any proposed conveyance and financing plans, it will be important for Grindstaff and the Stewardship Council to be more careful and accurate if they want to maintain trust and credibility.

[Update:  Joe Grindstaff left a comment with an explanation.  Click through to the comments to see it.]

[Update 2, 2/23:  I am surprised, but this is by far the most viewed post in the history of this blog.  I am also a bit sad since this is less substantive than most posts.  I guess the blog would be more popular if I talked less about economics and more about individuals and media spin.] 

A new term for subsidy

The latest Sac Bee op-ed promoting a peripheral canal (written by an infrastructure construction firm) contains a remarkable sentence.

At a time when public dollars are at a premium, all funding options should be on the table, including incentives for encouraging private investment.

Huh? Public dollars are at a premium...so we need "incentives".  That doesn't sound like it will cost taxpayers any money does it, but I haven't seen too many incentives that aren't taxpayer subsidies.

I also think they missed the mark on this statement.

It's safe to say the biggest roadblocks facing any potential solutions to the Delta's problems aren't related to engineering. We have the technical know-how. It's governance.

The roadblock isn't governance, it's finance. The water package put in a governance structure that will easily lead to their dual conveyance solution if they can figure out a way to pay for it.

If this project cost one or two billion it would be built, and we could afford to operate it in the environmentally friendly way that has been so alluring to many environmentalists. If that was the case, I would support it.

But it costs a heck of a lot more than that ($15 billion is the latest I have heard), and there are very good reasons to question whether the benefits (both private and public) exceed the costs. There may be more cost-effective ways to cope with the risks, and those who would benefit from these projects have been known to exagerrate the calamities that could result, while ignoring the very real calamities that will result from redirecting billions of public dollars in this direction.  Despite hundreds of millions on research and consultants, the one obvious research project you don't see is a cost-benefit analysis on the proposed conveyance. Why not?

All the evidence I have seen suggests that paying for this tunnel is going to require forgetting about one of the co-equal goals, the environment, an enormous taxpayer subsidy, and very likely both taxpayer subsidies and relaxed environmental protections.

Recent events have shown taxpayers are pretty disgusted with "bailouts." So, policy makers should be sure that any incentives in the form of public financing have terms at least as stringent as those given to Wall Street and GM, including reasonable interest rates and payback periods, and a taxpayer equity stake in the enterprises.

(minor edits Thursday at 10 P.M.)

The Redevelopment Debate

Lots of interesting debate on redevelopment agencies. 

This website summarizes the arguments of redevelopment agencies and local governments.  (See http://www.protectourlocaleconomy.com/get_the_facts)

Some economists interested in local economic development, including Chris Thornburg at Beacon whom I usually agree with, look for a middle way here.
http://www.sacbee.com/2011/02/08/3384812/find-compromise-in-redevelopment.html

The LAO (Legislative Analyst's Office) comes out in favor of the Governor's proposal to eliminate redevelopment here.  http://www.lao.ca.gov/analysis/2011/realignment/redevelopment_020911.aspx


Based on an objective review of the facts and evidence, the LAO provides the most convincing argument. 

However, in the context that it has been proposed for the 2010 budget, it is a bit of a Sacramento money grab and I would rather see it as part of a larger, more comprehensive tax package.  One of the things I would most like to see in California is for local governments to do a sales/income tax swap with the state.  We have too many shopping centers and not enough housing in California, and current tax policy causes local governments (who control land use) to favor retail development (which they see as profitable) over residential development (which they see as costs).  I would also like to see changes to property taxes, although prop. 13 is a problem here.  The dependence of local governments on sales tax is a highly negative influence in California, and many of the worst abuses of redevelopment funding are connected to the zero-sum game of local governments competing for each others retail sales.

I'm glad to see the redevelopment proposal out on the table.  It will probably be killed by the lobbying pushback, but it is now seriously in the debate on California tax reform. 

Is it time to challenge the Forbes' Miserable Cities List

Stockton is back on top of the Forbes' Misery Index, but now it has company.  The Index expanded to 200 metro areas, tweaked the formula by adding some housing market indicators, and now the heart of the Central Valley occupies 4 of the top 5 spots.  Modesto and Merced are new to the rankings and joined the top 5, and Sacramento moved "up" from 17 to 5.  Welcome to the misery club, valley neighbors.

The Sacramento Bee quoted me a few times in a story, including this...

 "That misery index is a slap to the face," said Michael, whose campus is in Stockton. "We've been dealing with it in Stockton for years, and it's a contrived thing."

I am not one to sugar coat the problems with the valley economy.  The data is indeed the data. However, the Forbes index is now starting to do real harm, and I have a few issues with the indicators they selected. A few small adjustments would change the list a lot, and I think make it better. Here are some suggestions...

Economic Indicators:

There is no measure of income, which is a major oversight, it should be first on the list.  Median household income in the Stockton area is about equal to the national average.

In addition to economic well-being, the unemployment rate also measures demographic attributes such as age and race that are strongly correlated with labor force participation.  Hard-working Valley folks are less likely to drop out of the workforce and this impacts the unemployment rate.  Indeed, the labor force has kept growing in the Valley as the unemployment rate rises, whereas it has fallen off due to discouraged workers in other areas.

Housing Indicators:

The Valley was crushed by the inclusion of housing market indicators this year, 3-year change in home values and foreclosure rates.  Are these the right indicators?  No, they are redundent and highly correlated.

If these indicators were included 3 years ago, the Valley would have fared well, since we were at the top of the price appreciation lists.  That is why this is a stupid indicator, the size of the drop just measures the size of the bubble - as does foreclosure rates - and it would have provided a false positive signal a few years ago.  I would not completely eliminate these, the real estate roller coaster certainly has certainly created misery, but our housing indicators should measure both leval and change.

There should be a measure of the current level of housing costs, not just the rate of change.  Perhaps something like the Wells-Fargo Housing Affordability Index which compares housing costs to incomes.  Back in 2005-06, Stockton was one of the least affordable places in the country.  Now it is about average, a little above average in fact.

Taxes:

Forbes' includes the top income and sales tax rates in it's index.  Why are they ignoring property tax rates, the other big tax relied upon by state and local governments?  Property tax rates are lower in California than many of Forbes' preferred locales, and sales tax is a tool areas use to extract taxes from visitors (ask Florida and Nevada).

It would be good to have a measure of overall tax burden, taxes as a % of personal income in addition to the top rates.  The high marginal rates are a problem in California, and I don't have an issue with highlighting them, but two measures of top tax rates are repetitive.  I would take out one of the tax rate measures (or perhaps combine the top rates into some type of index), and add a measure of overall tax burden. 

Other Indicators:

Forbes also includes weather, crime, traffic congestion, political corruption, and sports teams records on their indicator list.  I don't have a problem with this, especially weather, crime and traffic.  I do suggest adding some indicators of the youth and vitality of a region.

I would definitely add the average age.  We should penalize cities for being old and miserable.  The Valley would do well here.

I wonder about adding a measure of diversity.  It definitely adds vitality and richness to a city, but I am not sure how to measure it and whether it would make the index look like a liberal, pc, college professor creation.

Summary of Suggested Changes:

Out:  3-year decline in home prices, sales tax rate, political corruption, sports records.

In:  Median household income, housing affordability, overall tax burden, age.

Keep:  Unemployment rate, Foreclosure rate, income tax rate, weather, crime, commuting time.

In the past, I tried to ignore this Forbes list (tough since everyone asks me about it), but I am now sufficiently annoyed that I think I will assign a student intern to compiling some alternative indicators and creating our own version of a misery index.  We have problems, and certainly Stockton won't rank high, but I wonder who would be number 1 and what cities would move up and down if we made these changes. 

Have a suggestion for indicators that should go in or out?  Please put it in the comments or email us at
forecast@pacific.edu.

Update:  Greg Basso fights back.